"Can't Even Earn 1 Million Won a Month" Repeated... Self-Employment, Approaching 1 Million Closures, Record High [News in Numbers]

Real Economy Barometer 'Self-Employment'
48.9% Cite 'Business Slump' as Reason for Closure
Consumer Wallets Closed Due to Domestic Demand Slump

The number of business operators who filed for closure last year approached one million, marking the highest figure since statistics began to be compiled. The most common reason for closure was 'business downturn,' which is analyzed as a result of consumers tightening their wallets due to domestic demand stagnation. In a situation where many business owners cannot even earn '100,000 won per month,' consumer sentiment has worsened further since the 12·3 Emergency Martial Law incident, causing greater damage to self-employed individuals and small business owners. Although interest rates are expected to be further lowered next year, which may somewhat ease the burden of high interest rates, it seems difficult to recover sales enough to relieve debt burdens, highlighting the need for measures to revitalize domestic demand and support small business owners.

According to the report "Recent Characteristics and Implications of Business Closures" released by the Korea Employers Federation, the number of business closures last year was 986,000, the highest since statistics began in 2006.

Looking at the trend of business closures over the past five years, the number decreased from 922,000 in 2019 to 895,000 in 2020, 885,000 in 2021, and 867,000 in 2022, but surged by about 120,000 last year, significantly increasing the number of closures. Examining the closure rate, it steadily declined from 11.7% in 2016 to 8.2% in 2022, but rose to 9.0% last year, an increase of 0.8 percentage points from the previous year. This marks the first rise in seven years.

By industry, the highest numbers of closures were in retail (277,000), other services (218,000), and food service (158,000). In particular, closure rates were high in industries with many small business owners, such as food service (16.2%) and retail (15.9%).

The Korea Employers Federation interpreted the high closure rates in food service and similar sectors as due to low entry barriers leading to fierce competition among operators, and the difficulty in bearing costs, as the proportion of workers earning below minimum wage (the ratio of workers earning less than the minimum wage among all workers) reached 37.3%.

Additionally, the closure rate of small-scale simplified business operators (13.0%) was significantly higher than that of general business operators (8.7%) or corporate business operators (5.5%). Compared to 2020, the number of simplified business operators who closed in 2023 increased by 36.4%, higher than the increase rates of general business operators (1.9%) and corporate business operators (12.0%). Among business types, simplified business operators were the only group to see a continuous increase in closures over the past three years.

The most common reason for closure was 'business downturn.' Among business operators who closed last year, 48.9% cited 'business downturn' as the reason, the highest since 2010 (50.2%). This is attributed to accumulated labor cost burdens from minimum wage hikes and ongoing domestic demand stagnation.

As a result, about 75% of self-employed individuals were found to earn less than 1 million won per month. According to data submitted by the National Tax Service to Park Seong-hoon, a member of the National Assembly’s Planning and Finance Committee from the People Power Party, among 11,464,368 individual business income tax filings in 2022, 7,600,918 cases (75.1%) reported monthly income below 1 million won (12 million won annually). Among these, 944,250 cases (8.2%) reported zero income, nearly reaching 100,000 cases.

Amid an already difficult situation, the 'Emergency Martial Law incident' poured fuel on the fire. According to the Small Business Federation’s "Urgent Survey on Small Business Outlook after the 12·3 Emergency Martial Law Incident," 88.4% of respondents reported a decrease in sales from their businesses since the incident.

With the Bank of Korea announcing plans to further lower the base interest rate next year, the burden of interest rates may ease somewhat, but since the rate cut itself is a response to concerns about economic recession, it is uncertain whether it can prevent the surge in business closures. Lee Seung-yong, head of economic analysis at the Korea Employers Federation, said, "As the economy is expected to be more difficult next year than this year, measures to revitalize domestic demand and support small business owners must be actively implemented."