Korea’s self-employment rate is one of the highest in the OECD. In 2008, self-employment accounted for 31.3 percent of the nation’s total employment, almost double the OECD average of 15.8 percent.

In most OECD countries, self-employment rates have been falling since 1990. The higher a country’s per capita GDP, the lower its self-employment rate tends to be.

In Korea, self-employment had been on the decline since 1998. In particular, the pace of decline accelerated during the 2008-09 global financial crisis. In 2009, the number of own-account workers fell by some 320,000. Last year witnessed another 194,000 reduction, which brought the share down to 28.8 percent.

Yet self-employment unexpectedly began to increase this year. In August, the number of self-employed workers expanded by 53,000, the first monthly gain since May 2006. To the surprise of many, the growth accelerated in the following months ― 88,000 in September and 107,000 in October.

How should we view the growth in self-employment? It is still too early to tell whether the monthly increases indicate a trend reversal or a temporary phenomenon. Whatever may be the case, the expansion is cause for concern because many existing self-employed businesses are not in good shape.

The recently released 2011 Survey of Household Finances justified this concern. According to the survey, which was jointly compiled by the Bank of Korea, the Financial Supervisory Service and Statistics Korea, self-employed businesses had difficulty making ends meet in year ending March.

The survey showed the ordinary yearly income of self-employed workers averaged at 50.5 million won in March, about 10 percent up from 45.9 million won a year ago. But their debt grew at about double the rate during the period, rising from 71.3 million won to 84.6 million won.

As a result, their principal and interest payments increased from 7.5 million won a year to 10.8 million won. This means they spent 21 won in debt repayment for every 100 won they earned, up from 16 won last year.

They increased borrowing from financial institutions by 22.6 percent, with credit loans surging 30.6 percent. They mostly took out credit loans “to finance businesses” (58.8 percent) and “to supplement living expenses” (9.8 percent).

Consequently, the financial soundness of self-employed workers worsened. Their debt-to-disposable-income ratio rose by 14.1 percentage points to reach 159 percent, a dangerously high level of indebtedness.

Given the tough situation facing existing self-employed businesses, a massive increase in startups can hardly be good news. Yet recently Finance Minister Bahk Jae-wan described the October job data as “employment jackpot” without giving a serious thought to its implications. Policymakers need to watch the situation carefully and curb the growth of self-employment.