[Square] In the Era of Great Transformation, Jobs Are Created by Small and Medium Enterprises

In yacht racing, the only chance for the second-place competitor to catch up with the leader is when the wind changes direction. The secret behind South Korea's Samsung and LG TVs surpassing Japan's Sony and Panasonic was their ability to seize the paradigm shift from analog to digital.

Despite the global pandemic, South Korea's successful K-quarantine minimized damage to the industrial sector, turning the crisis into a catalyst for innovation and growth. Many companies have seen rapid increases in sales and profits by adapting to the non-face-to-face economy through a shift in mindset.

The problem lies in jobs. According to the Statistics Korea Economically Active Population Survey, the number of discouraged job seekers in June was 583,000, an increase of 46,000 from a year earlier. Among them, those in their 20s and 30s account for 46.8%, or 273,000 people. Furthermore, 386,000 young people, who are responsible for South Korea's future, remain unemployed.

This situation is largely influenced by various regulations that tighten restrictions on companies, such as the rapid minimum wage increase without considering payment capacity and productivity, the uniform implementation of the 52-hour workweek ignoring industry characteristics, and the enactment of the Serious Accident Punishment Act. These have led companies to reduce new investments and employment domestically and increase cases of relocating overseas.

The solution is a major shift in economic policy to create a business-friendly environment where entrepreneurship is activated, startups increase, and new investments expand, so that all citizens have no worries about jobs. Small and medium-sized enterprises (SMEs) are the backbone of the national economy, accounting for 99% of all companies and 83% of employment, and are the source of job creation.

First, various regulations that dampen corporate motivation and hinder the growth of new industries must be abolished. If outdated regulations remain unchanged or legal and institutional foundations to support innovation and growth are not proactively established, SMEs will lose competitiveness, become obsolete, and jobs will disappear.

Addressing the polarization between large and small-medium enterprises is also urgent. Large companies, which make up 0.3% of all firms, account for 57% of operating profits, while 99% of SMEs account for only 25%. This reduces SMEs' capacity to pay wages, resulting in a 2.1 times monthly income gap between workers in large and small-medium enterprises. Although SMEs face a shortage of over 210,000 workers, young people deepen job mismatches by hoping only to work for large companies, even if it means retaking college entrance exams multiple times. The issues faced by self-employed and small business owners, who make up over 25% of the economically active population, also stem from a lack of quality jobs and polarization between large and small-medium enterprises.

Jobs are created by companies. Governments worldwide strive to nurture businesses. Jobs lead to income, and demand with purchasing power can create a virtuous cycle that sustains SMEs. At this turning point in the economy, society, and culture, setting the right direction and preparing accordingly can seize new opportunities.

On March 9 next year, South Korea will hold the 20th presidential election to choose a leader for the next five years. By then, COVID-19 will have subsided, and the world will face an era of great transformation. We hope the next presidential candidates prioritize policies on how to resolve polarization and create jobs, rather than pledging reckless money printing with taxpayers' money.

Choo Moon-gap, Head of Economic Policy Division, Korea Federation of SMEs / Ph.D. in Business Administration