Kim, who has been running a delivery-only restaurant for four years, recently decided to sell his store. After starting as a part-timer following his military discharge, he took the plunge into self-employment, but he says the money left after covering living expenses is close to zero. Kim said, “Even the part-timers take home 2 million won ($1,443.19) a month, but I make less than that despite working over 10 hours every day of the week,” and added, “If the store gets sold, I’m at a loss for what to do next.”
As South Korea’s consumption continues to stagnate, the number of self-employed individuals closing their businesses is increasing.
According to the National Tax Service’s tax statistics, nearly 1 million business owners (986,487) filed for closure last year, the highest number since related statistics began in 2006. This is an increase of nearly 120,000 from the previous year (867,292), marking the largest increase ever recorded. This year, many small self-employed individuals are hitting their limits, leading to continued closures, especially among sole proprietors.
Among those who filed for closure last year, 482,183 cited “business downturn” as the reason, accounting for 48.9% of the total. This compares to 406,225 (46.8%) in 2022, indicating increases in both the number and proportion.
In a prolonged period of high-interest rates, consumption has contracted, leaving self-employed individuals struggling. The benchmark interest rate increased from 3.25% in January last year to 3.5% and has remained unchanged. High-interest rates have increased household debt burdens, causing consumers to tighten their wallets. By industry, retail saw the highest number of closures last year at 276,535, followed by services (217,821) and food services (158,279), with sectors tied to domestic consumption being the hardest hit.
The situation remains largely unchanged this year. According to Korea Credit Data’s, the average sales for small business owners were $31,151.35, down 7.7% from the same period last year, and operating profit was $6,602.61, a 23.2% decrease.
At the end of last month, the outstanding loan balance of self-employed individuals at deposit banks was $327.6 billion, an increase of $93 billion (39.6%) compared to the end of June 2019. Sales are decreasing while debt burdens are increasing.
As a result, the number of self-employed individuals last month was 5.703 million, a decrease of 100,000 compared to the same month last year. This marks the second consecutive month of a 100,000 decrease following May (-110,000). Notably, the number of sole proprietors without employees was 4.253 million, a decrease of 134,000 from the same month last year (4.387 million), the largest drop in 8 years and 8 months since October 2015 (144,000).
For small self-employed individuals who cannot continue their businesses, even closing down feels daunting due to the limited reemployment opportunities.
According to Statistics Korea’s microdata, the monthly average number of unemployed people who had previously been self-employed was 25,173 in the first half of this year, a 20.5% increase from 20,896 a year ago. This indicates that more people are closing their businesses and seeking employment but are unable to find jobs.
The number of people falling out of the job market entirely after closing their businesses has also increased. The monthly average number of non-economically active people who had been self-employed was 267,721 in the first half of this year, a 6% increase from 252,547 a year ago. Notably, sole proprietors had a higher rate of leaving the labor market. The monthly average number of non-economically active people who had been sole proprietors without employees was 236,573 in the first half of this year, an 8.3% increase from 218,531 a year ago.
