In recent months, job creation has been brisk. According to employment data, Korean employers added 472,000 new jobs to the economy in May, not a small number in light of the global economic downturn and the subsequent stagnation of Korea’s export sector.
Yet one problem is that a large proportion of the new jobs were created by micro-businesses with less than five employees. According to Statistics Korea, the number of people working at such tiny businesses increased 286,000 in May compared to a year ago, accounting for 60 percent of the jobs created in that month.
Employment data show that the entire number of workers hired at small businesses with fewer than five employees has topped 10 million.
The main factor behind the continued increase in micro enterprises is massive retirement of baby boomers, people born between 1955 and 1963. After retiring from their lifetime jobs, these people tend to start small businesses to avoid becoming poor.
The surge in start-ups is cause for concern because they are concentrated in already crowded and low-productivity sectors, such as lodging and restaurant, wholesale and retail, and construction businesses.
For instance, the lodging and restaurant industry saw 50,000 new businesses set up by the self-employed this year. A similar number of new shops were added to the wholesale and retail sector as well.
A more serious problem is that productivity is low in these sectors. The per capita nominal value added by the lodging and restaurant sector in the first quarter of the year is a mere 2.1 million won and that of the wholesale and retail sector 6.5 million won.
In contrast, the corresponding figure of the manufacturing industry and the real estate sector is 20 million won and 42 million won, respectively.
As a result, most self-employed businesses are struggling to stay afloat. If business conditions worsen, they are the first to suffer a blow and could be forced to shut down.
A massive collapse of these micro-businesses would cause serious problems for financial institutions that have extended loans to them. In recent months, domestic banks have shifted their focus to baby boomers starting their own businesses as financial authorities have curbed lending to households.
The government needs to view the increase in such businesses not as a source of job creation but as a potential source of serious socioeconomic problems. It needs to come up with measures to channel self-employed people toward stable salaried positions.