By Yu Byoung-gyu
Executive vice president of Hyundai Research Institute
One of the most difficult problems in the South Korean economy is the self-employed. The self-employed refers to people solely operating their own business (own-account workers), employers operating small businesses with a few workers and unpaid family helpers.
The self-employed rapidly increased during the Asian financial crisis in 1998, when many people who were laid off started their own businesses to selfemployment. The number of the self-employed has gradually decreased since 2002 when the economy began to stabilize.
However, recent monthly statistics show that the number of the self-employed recorded 7.1 million as of August 2012, the highest since September 2009. There are 10 major problems facing the selfemployed. The first is quantitative excessiveness.
The ratio of Korea’s selfemployed people is much higher than the average OECD country, lower even than Turkey, Greece, and Mexico.
The second is that so many start and so many give up. An average of 600,000 people set up their own business and 580,000 give up every year.
The third is that they become self-employed without much preparation: More than half of the self-employed start their businesses with a preparation period of less than six months and with no business experience.
The fourth is a fierce competition.
More than 41.1 percent of self-employed people regard “other self-employed nearby” as their major competitors.
The fifth is that the main age group of the self-employed is people in their 50s.
The numbers of the selfemployed steadily increased especially among the baby-boomer generation and the higher age group.
The sixth is that the businesses closely related to daily life are on the increase. The retired often set up restaurant, beer hall, and other types of consumer related businesses which meet people’s basic needs.
The seventh is that the scale of business is very small. People setting up their own business with a fund under $44,000 are on the rise.
Increasing number of people are starting business with a truck for transport business or they are launching a business with a street stall.
The eighth is poor profitability. The average monthly income of the self-employed is not more than $1,320.
The ninth is heavy household debt. The average household debt of the self-employed is approximately $79,300, twice as high as that of wage earners.
The final problem is short business life span. More than half of all self-employed are not surviving more than three years. To tackle these problems facing the selfemployed, the government should implement various policies as follows.
First of all, we are required to encourage re-employment of the unemployed to reduce number of people left with no other choice but to turn to self-employment in Asia’s fourth-largest economy.
“The policy for encouraging reemployment” should come first before “the policy to assist to start own businesses” so as to ease the tough problem of “excessive competition between the selfemployed.”
The second possible policy is to introduce a “self-regulatory environment” which can be achieved by the implementation of a “notice board.”
A notice board provides information to prospective selfemployers on where and which business he or she may face overcompetition and therefore advising them on what and where to avoid.
The third is to encourage a wellprepared business set-up by establishing a relevant education system that supports potential self-employers to start businesses with sufficient preparation.
The fourth is to support the selfemployed to create good jobs by helping them to enhance productivity and develop to a sustainable and healthy business.
Lastly, develop appropriate policy suitable to people of different age groups and education levels. In particular, the government should consider how to increase the job security of the baby boomer generation.