The Korea Herald


[Editorial] Self-employed in crisis

Cash relief urgent, but long-term steps needed for survival

By Korea Herald

Published : Sept. 11, 2020 - 05:30

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The number of self-employers and small enterprise owners going out of business, apparently due to the economic aftermath of COVID-19, has increased markedly.

According to the Korea Small Business Institute and Statistics Korea, the number of self-employed people decreased by 127,000 to 5.54 million in July from a year earlier.

In the same month last year, the number fell by 26,000. The decrease widened by nearly 4.9 times in a single year. The number of self-employed people who hired other workers also shrank by 175,000.

The data indicates self-employed people face a catastrophic economy affected by the pandemic and social distancing measures.

A significant portion of small business owners are concerned about difficult economic conditions. According to a recent Korea Federation of Micro Enterprise survey of 3,415 small business owners, 7 in 10 were considering closing their businesses. Sixty percent said their sales plunged more than 90 percent after the resurgence of COVID-19.

According to a local media outlet’s analysis of data compiled by the Small Enterprise and Market Service, an average of 1,142 shops shut down every day across in Korea for the first two quarters of this year.

The situation is likely to be much tougher for the 12 categories of businesses suspended because of their high risk of spreading the virus. They include internet cafes, singing rooms, buffets and indoor sports facilities. Stronger social distancing measures enforced on Aug. 18 have been extended until Sunday for the Seoul area and until Sept. 20 for the rest of the country.

To add to the misfortunes of small businesses, few signs of recovery can be seen. The Korea Development Institute, a state-run think tank, on Tuesday revised its 2020 growth outlook to minus 1.1 percent from the 0.2 percent it forecast in May. The institute projected minus 3.5 percent growth for next year. The V-shaped recovery looks unrealizable.

Self-employed people and small business owners are the base of the economy. Even before the outbreak of the new coronavirus, many Koreans started working for themselves in difficult economic conditions after retiring early or failing to find jobs. Korea’s self-employment rate is estimated at 25 percent -- the fifth-highest in the Organization for Economic Cooperation and Development. Their bankruptcies will have a wide-ranging impact on the society, creating a domino effect as their staff also join the ranks of the unemployed.

Emergency steps are needed to prevent them from collapsing. Shops in the 12 suspended business areas and freelancers whose jobs are threatened by the pandemic should take first priority in receiving disaster relief funds from the government.

It is rational to concentrate relief funds on small business owners who suffered sharp drops in sales due to social distancing measures. However, it is hard to understand the agreement by the government and the ruling Democratic Party of Korea to set aside 890 billion won ($750 million) from the disaster relief fund to distribute 20,000 won to everyone aged 13 and older nationwide in subsidies to smartphone service fees. The relief fund must be raised from an extra budget, which is an additional burden on the people in difficult times like these.

The government must target aid at those in need and avoid wasting tax. Given a severe damage to small businesses throughout the country, bold measures deserve consideration. If possible, the government needs to offer them low-interest loans, extend debt maturity and exempt them from paying value-added tax.

Self-employers and small business owners are among the most victimized by the economic impact of COVID-19. It is indisputable that they need a shot in the arm now as the pandemic is still ongoing. But they cannot live on relief aid for good.

Lifestyle patterns are changing rapidly to become “contact free.” Change is inevitable in the ecology of small businesses. The government must keep the big picture in mind and help them stand on their own feet.

It is desirable to guarantee their minimum livelihood by extending unemployment insurance coverage, for instance. But from a long-term perspective, vocational retraining or business counseling will be of greater help in developing their ability to survive. Starting a business by rule of thumb invites crisis.

The government must concentrate relief on self-employers and small businesses and at the same time try to work out steps to facilitate structural change.