During the COVID-19 Period, 'Moderately Okay' Self-Employed Suffered Greater Damage

Hana Financial Research Institute 'Changes in the Self-Employed Market Due to COVID-19 and Digital Transformation'

Middle-Income Self-Employed Hit the Hardest

Top Companies See Little Income Change Due to Winner-Takes-All Strengthening

Lower-Tier Companies Increase Sales Opportunities Using Delivery Apps Compared to Before

On the 3rd, a restaurant in Myeongdong, Seoul, where self-employed people’s worries are deepening, is quiet. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Sim Nayoung] Amid the contraction of business income for self-employed individuals during the pandemic, it has been revealed that middle-income self-employed workers suffered greater losses. Income changes at the upper and lower extremes were relatively less pronounced. The winner-takes-all dominance of top-tier businesses and the expansion of sales opportunities for lower-tier businesses through delivery applications weakened the competitiveness of middle-tier self-employed workers.

On the 10th, Hana Financial Management Research Institute's report titled "Changes in the Self-Employment Market Due to COVID-19 and Digital Transformation" analyzed the Household Trend Survey by Statistics Korea to assess the situation of households engaged in self-employment. When dividing the monthly business income of self-employed individuals into quintiles, the third quintile (middle 40-60%), representing the middle income group, recorded a business income of 2.82 million KRW in 2021, a 2.7% decrease compared to 2.9 million KRW in 2019. After a 4.3% drop in 2020 (2.77 million KRW) during the peak of COVID-19, there was a slight rebound the following year, but recovery remained limited.

In contrast, the monthly business income of small-scale self-employed individuals in the first quintile (bottom 20%) increased by 9%, from 680,000 KRW in 2019 to 750,000 KRW in 2021. The fifth quintile (top 20%) also saw a slight increase of 0.6%, from 6.39 million KRW to 6.43 million KRW.

Why did the middle of the self-employment market break? The report analyzed that well-known restaurants or large stores in the upper income bracket maintained the "superstar effect," attracting customers regardless of timing. Researcher Kim Muntae explained, "With online platforms expanding the competitive range from walking distance to motorcycle delivery distance, the concept of being 'number one in the neighborhood' lost meaning, and demand concentrated on some top-tier businesses."

A restaurant in Myeongdong, Seoul, is quiet on the 3rd as the worries of self-employed people deepen. Photo by Mun Ho-nam munonam@

Regarding lower-tier small-scale self-employed individuals, Researcher Kim said, "They benefited from delivery app effects more than before COVID-19, enabling sales even at stores that were previously hard to access." He added, "The income of middle-tier self-employed workers decreased, causing some to fall into the lower tier, and some originally in the lower tier closed their businesses and were excluded from the survey, creating an illusion that lower-tier income increased."

Pressed from above and squeezed from below, the position of the "moderately okay" middle-tier self-employed workers is likely to narrow further. Support policies for self-employed individuals have focused on the lower tier, as seen in the New Start Fund, and interest on loans increased during the pandemic is rising with the current interest rate hike cycle. Additionally, loan maturity extension support policies will end at the end of this month.

Professor Ha Jun-kyung of Hanyang University’s Department of Economics pointed out, "The digital technology utilization rate among small business owners remains low, so the government should provide digital transformation consulting support to help middle-income self-employed workers, who are in a blind spot of support, increase their sales." He also emphasized, "Their financial distress risks must be carefully monitored."