Sudden Wave of Closures... Self-Employed Dropping Even Their Umbrellas

5.508 Million Self-Employed in April, Down 37,000 from Same Month Last Year
Self-Employed with Employees Decline for 29 Consecutive Months...Solo Self-Employment Increases
Experts: "Support Consulting Over Loans to Find Breakthroughs in Business Transformation"

[Graphic by Asia Economy, Photo by Lee Geun-hyung]

[Asia Economy Reporter Kim Jong-hwa] Jo Soo-hyun (49, pseudonym), who ran a restaurant in Seocho-dong, Seoul, recently closed his business after facing continuous difficulties due to the COVID-19 pandemic causing a loss of customers. With sales dropping to less than half because of operating restrictions, Jo laid off two employees and managed the restaurant alone for about six months. However, he hit a limit as rent payments fell behind, and ultimately had to close the restaurant he had operated for seven years. Since starting the restaurant in May 2013, Jo had been contributing 300,000 KRW monthly to the Yellow Umbrella Mutual Aid Fund, paying a total of 27.9 million KRW over 93 installments. After taxes and deductions, he received 30.4 million KRW from the fund. Jo said, "The burden of rent and labor costs was heavy. It was no longer possible to endure alone," adding, "I will use the money to pay off overdue rent and the rest for living expenses and restarting funds."

O Gi-young (47, pseudonym), who had been unemployed for eight months, recently canceled his cancer insurance policy that he had been paying into for over ten years. Despite continuous job searching, as the unemployment benefit period was nearing its end due to the prolonged unemployment, O felt severe pressure as the head of his household. He said, "I have been supplementing living expenses by working part-time as a food delivery rider, but now I seriously need to consider job options," adding, "I worked in the accounting department of a mid-sized company for nearly 20 years, but it seems difficult to find an office job now."

With COVID-19 vaccinations underway and social distancing measures easing, small business owners and self-employed individuals are hopeful that the economy will recover by this fall, but the reality remains challenging. Heads of households unable to find jobs are breaking insurance policies they have paid into for a decade, and self-employed people are closing their businesses one after another.

This situation is clearly reflected in statistics. According to the Small and Medium Business Institute, as of April, the number of self-employed individuals was 5.545 million, a 0.7% (37,000) decrease compared to the same period last year. The number of self-employed with one or more employees decreased by 4.7% (65,000) to 1.323 million, marking 29 consecutive months of decline. Conversely, self-employed without employees (4.222 million) increased by 0.6% (27,000).

The outlook for small business owners is also bleak. According to the Small Enterprise and Market Service’s “May Small Business Market Economic Trend Survey,” the economic outlook index for small business owners in June was 71.5, down 0.1 points from the previous month. After rising consecutively in March and April, it declined again starting in May. An economic outlook index above 100 indicates that many small business owners have a positive view of future prospects, while below 100 indicates the opposite.

A representative from the small business sector said, "With sales sharply down and fixed costs like rent continuing, even if it means taking losses, they have no choice but to liquidate assets immediately," adding, "In a situation where even operating stores is difficult and livelihoods are threatened, even the small monthly payments of 10,000 to 20,000 KRW become a heavy burden."

Other statistics ironically reflect this situation. While cancellations of Yellow Umbrella Mutual Aid Fund subscriptions and loans are increasing due to business closures, the number of new subscriptions is rapidly rising. Last year, the annual number of Yellow Umbrella subscriptions was 185,933, but from January to May this year, 203,313 subscriptions were made, surpassing last year’s total.

Regarding this, an official from the Korea Federation of SMEs said, "The increase in cancellations and loans is matched by the rise in subscribers to mutual aid funds like Yellow Umbrella, which is a paradoxical phenomenon seen during economic crises," adding, "Small business owners and self-employed individuals who are managing to survive view insurance and mutual aid as a last line of defense, trying to save whatever they can to invest in the future."

No Min-seon, head of the Future Strategy Research Group at the Small and Medium Business Institute, advised, "The government needs to actively promote digital transformation for small business owners and self-employed individuals and strengthen support for business conversion," adding, "Rather than focusing solely on loan-based policies, consulting support should be enhanced to help those who want to close their businesses but cannot, enabling them to find breakthroughs through business transformation."