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(Yonhap Feature) Self-employed biz owners feel pinch of rising rents, saturated market

2018/06/22 09:00

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By Kim Deok-hyun

SEOUL, June 22 (Yonhap) -- South Korea's self-employed business owners, who make up roughly 21 percent of the nation's workers, have come increasingly under pressure as rents continue to rise amid a saturated market.

The self-employment rate has been on a steady rise in recent years, with the country's some 7 million baby boomers -- those born between 1955 and 1963 -- opening or preparing to open mom-and-pop stores in the services sector after retirement.

Since the 2008-09 global financial crisis, hundreds of thousands of people have been forced to tender their resignations and "retire earlier" than most anticipated, according to an industry estimate.

Amid stiffer competition, a very fragile recovery in domestic consumption is adding to the woes of self-employed business owners, analysts here said.

A store closing sign is posted at a shop in Jongno District, Seoul, in this photo taken on June 10, 2018. (Yonhap) A store closing sign is posted at a shop in Jongno District, Seoul, in this photo taken on June 10, 2018. (Yonhap)

Lee Ho-sung, a 50-something retiree who runs a franchise convenience store in downtown Seoul, said he is considering shutting down the shop, with monthly sales declining after two more convenience stores opened within a stones throw away.

"The business is not good. But what frustrates me most is that there are no signs of improvement on the horizon," Lee said.

The number of self-employed people in South Korea is far higher than that of global peers, which has always been a source of concern in times of overall bearish conditions.

According to a 2017 report by the Organization for Economic Cooperation and Development (OECD), the number of self-employed people in South Korea stood at 5.56 million, ranking third among the 30-nation group.

Rents for smaller commercial properties rose 12.6 percent over the past two years, according to the Korea Appraisal Board, which is compounding problems for the usually small-time operations.

The result, inevitably, is leading to shrinking profit margins across the board. Last year, self-employed business owners saw their earnings rise a mere 1 percent, marking the lowest growth since 2011.

"The number of self-employed people is growing due to a lack of real jobs out there, and their profitability is falling because of sluggish consumption," said Kim Jung-sik, a professor of economics at Yonsei University.

A government report showed last year that less than half of self-employed business owners went belly up within two years.

Among self-employed businesses that started in 2013, 62.4 percent were still in operation a year later, according to the report by Statistics Korea.

The rate fell to 47.5 percent two years later, and further dipped to 38.8 percent after three years.

Financial authorities are alarmed by a rapid rise in loans extended to self-employed people.

Outstanding loans for self-employed people by banks surpassed 300 trillion won (US$270.5 billion) for the first time in May, according to the Bank of Korea.

In the first five months of this year, bank loans extended to self-employed people rose by 11.3 trillion won, marking the sharpest five-month growth since 2008, when the central bank began compiling the data.

Financial Services Commission (FSC) Chairman Choi Jong-ku told reporters this week that the growth pace of loans extended to self-employed business owners is "too fast."

   The FSC required banks to adopt tougher guidelines for loans to self-employed business owners, Choi said.

"One survey found that the typical baby boomer does not want to retire until the age of 65. But they are compelled to leave work at 54," Lee Jun-hyup, a researcher at Hyundai Research Institute, said in a report.

"Those who poured their earnings into their children's education don't have enough savings for their retirement. They need to continue to work, but only odd jobs are available to most of them," the researcher said.

"Not surprisingly, many baby boomers have ended up taking on debt to start their own business," Lee said.

Some observers cited a steep increase in the minimum wage under the Moon Jae-in administration as another factor that dragged down the profits of the self-employed.

Since employers who pay the minimum wage are mostly self-employed shop owners or small-scale merchants or manufactures, higher labor costs lead to reduced profits and more layoffs of part-time workers. Moreover, such developments often lead to a drop in the services offered, triggering a vicious downward spiral.

The OECD also said the government's strategy of "income-led growth" -- driven by public employment, a sharp rise in the minimum wage and increased social spending -- needs to be supported by reforms to raise productivity.

Fiscal policy, which is increasingly focused on income redistribution, also needs to place greater emphasis on productivity, the OECD said recently.

kdh@yna.co.kr

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