Korea’s labor market too small for its talent

Everyone’s afraid artificial intelligence will take their jobs. In Korea, the real threat is that too few jobs worth keeping exist in the first place.

The country keeps producing top university graduates —yet many are funneled into roles that neither require a degree nor offer a pathway to upward mobility. A highly educated generation is stuck in low-quality employment, delaying marriage and rethinking whether to start families at all. For women, childbirth increasingly comes at the cost of a career. For older workers, retirement is no longer a choice but a moral obligation, framed as “making room” for younger job seekers. The deeper problem is simple: The pie is too small. There just aren’t enough high-quality jobs to go around.

Part of the reason is that Korean economic policy is anything but size neutral. Small firms are coddled, subsidized and protected — even at the cost of market vitality. Nowhere is this clearer than in the retail sector. Big-box retailers are forced to close twice a month under rules supposedly meant to help traditional markets. But studies show these mandatory shutdowns reduce sales for both big and small sellers, shrinking the pie instead of growing it. Under the current administration, large retailers and delivery apps have even been excluded from public consumption vouchers in the name of supporting small merchants.

The structural flaw is hiding in plain sight: an economy dominated by micro-enterprises and small firms that simply cannot absorb skilled labor or offer high-quality jobs at scale. Korea has built a world-class education system, but it lacks the world-class employers needed to match it. The numbers are damning. Only 13.9 percent of jobs are in large enterprises — the lowest share in the OECD, and less than half the OECD average. In the United States, that figure is 57.6 percent. In Germany and Japan, it’s over 40 percent.

Meanwhile, workers in micro-enterprises earn just 54 percent of what large-firm employees make. Even medium-sized firms fall short. This isn't a minor market distortion. It's a systematic, policy-driven undervaluation of talent. And it's happening in a country where nearly 70 percent of young adults hold university degrees.

Korea’s policymakers have clung to the idea that “small is beautiful.” In the name of protecting small business, Korea has built a system that penalizes growth, subsidizes inefficiency and traps talent in firms that neither innovate nor expand. It’s a structure that rewards staying small — and punishes any business with the audacity to grow. No one aspires to work at a small firm. Yet nearly all of the government’s job creation policies are still focused on keeping them alive — rather than building jobs people actually want.

The consequences are not abstract. Korea now has the world’s lowest total fertility rate and the fastest-aging population in the OECD. Young people delay family formation because they can’t find secure, well-paying jobs. Older workers retire early or turn to low-productivity self-employment because no one will hire them. The economy is producing more retirees and more college graduates than it can absorb into meaningful positions.

This isn't just unsustainable. It’s irrational. For decades, Korean policy has treated small businesses not as part of a healthy market ecosystem, but as sacred cows immune to reform. The result is an economy where firm size — not productivity —determines market share, and where high-potential medium-sized firms are suffocated by regulation while zombie businesses linger indefinitely.

The solution isn't to create more small businesses. It’s to help existing ones grow up. South Korea needs to abandon its reflexive suspicion of scale and embrace what policy experts call “size neutrality" — reforming institutions and incentives to reward performance, not smallness. That means replacing fragmentation with consolidation, and replacing protectionism with productivity.

This shift must be deliberate. South Korea should scale up medium-sized and large firms not by chance, but by policy design. Public support must reward companies that offer stable contracts, good wages and mobility — not just survival. In low-productivity sectors like food service or private education, consolidation and platform integration should be encouraged to replace fragmentation with scale.

At the same time, the country must build a modern labor system fit for a dynamic economy. That means flexible but fair employment rules, safety nets for workers transitioning out of small firms and a lifelong learning infrastructure tied to actual job outcomes. Korea should also seize the moment to attract global tech talent — before someone else does.

An innovation economy cannot be built on mom-and-pop stores. Nor can it thrive under a labor regime designed for a vanished era of lifetime employment and family-run business. Korea has the human capital to lead the next global growth wave. But right now, it’s wasting it — trapped in a structure that protects smallness and punishes ambition.

The demographic clock is ticking. In this race, sentimentality won’t win. Scale will.

Dr. Robert D. Atkinson (@RobAtkinsonITIF) is the president of the Information Technology and Innovation Foundation, an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Kim Se-jin is a tech policy analyst for ITIF's Center for Korean Innovation and Competitiveness. The views expressed in the above article are those of the authors.