Plight of self-employed

Service-sector productivity needs to be upgraded

Despite the first-half growth rate of 7.2 percent ― the highest in the OECD ― the number of self-employed fell by 10 percent in less than two years. From the second quarter in 2008 till the first quarter this year, as many as 550,000 operators of small shops shut down.

The number is 800,000 below the all-time peak of 6.3 million in 2002 just before the LG Card crisis hit the country.

Many of these ill-fated operators were former salaried middle-class workers. Following premature layoffs, they used their severance pay and bank loans to open small shops, including restaurants, accommodation facilities and mom-and-pop stores. The National Tax Service said one-third of the total self-employed are in the 40s, meaning that they retired prematurely.

Many of them failed and incurred heavy debts due to their inexperience and overcrowded competition. These former middle-class people are now driven into the poor group. Their massive collapse illustrates why Korea’s middle class is thinning so fast.

In fact, the self-employed market is overcrowded. OECD data showed that 31.3 percent of those employed are one-person owners of shops on the streets in 2008, nearly double the OECD average. Korea has 6.8 times as many restaurants per capita as the United States. For the first time since 1986 when data collection started, the number of real estate offices fell. This reflects the continuing downturn in the property market.

Six to seven out of every 10 shops are reportedly running losses. More troubles lie ahead for them. Despite the ongoing economic recovery, many middle-class consumers refrain from spending as they are using an increase in income to pay mortgage debt.

Big firms are also driving them out through franchises. Many of them went bust as they were unable to catch up with the ever-changing consumption patterns in this Internet era.

The government can no longer overlook their growing woes. They face three lows-low experience, low income and low hope. The best solution is the creation of jobs for the retirees. The government can activate retraining programs and job information centers. These retirees need to get consulting service before starting own business. More troublesome is the fact that they are outside the social safety net. They are not entitled to unemployment allowances.

The OECD suggested Korea upgrade the quality of the service sector as it has an ample capability to create additional jobs. Labor productivity in Korea is only half of that in OECD countries. Service-sector productivity is only 58 percent of that of the manufacturing sector.

They account for 20 percent of the economically active population. Their trouble is a potential source of social and political instability and indication of polarization in the booming economy. The government expects the economy to grow by 5.8 percent this year. Ordinary people feel a sense of alienation when they hear such news on the high-flying economy.