[Small Business Structural Reform]① 46% of Retired Self-Employed Are Livelihood-Based... Concentrated in Low-Profit Sectors Like Restaurants and Cafes

South Korea Ranks 7th Among OECD Countries for Self-Employment Rate
Re-employment After Retirement Is Common in Advanced Economies
Korean Firms Avoid Rehiring Due to Employment Security Burdens
Second Baby Boomers Enter Retirement in Earnest
Number of Self-Employed Expected to Reach 2.48 Million by 2032
61.7% of New Self-Employed Enter Low-Profit Sectors

Editor's NoteSouth Korea has the seventh highest proportion of self-employed workers among OECD member countries. Moreover, most self-employed individuals are concentrated in industries with low entry barriers, such as restaurants and real estate (rental business). Due to intense competition in these low-profit sectors, the number of business closures each year approaches one million. Considering that the second baby boom generation (born 1964?1974) began entering the statutory retirement age last year, the number of self-employed individuals aged 60 and over is expected to reach 2.48 million by 2032. This phenomenon of retirees flocking to self-employment places a significant burden on the macroeconomy. To address the challenges facing the self-employed, it is necessary to structurally extend the period of earned income and to improve government financial support to focus on facilitating business closure or industry transition. Asia Economy has analyzed the current state of self-employment in South Korea based on statistical data and government policies. In addition, we aim to suggest policy directions for the government regarding self-employment through the perspectives of various experts and overseas case studies.

Self-employment in South Korea faces two structural issues. The proportion of self-employed is large relative to the size of the economy, and there is fierce competition in low-profit industries. According to data from the Organisation for Economic Co-operation and Development (OECD), in 2023, the countries with the highest proportions of self-employed workers among member nations were Colombia, Mexico, Greece, Turkiye, Chile, Costa Rica, and South Korea, in that order. Except for Mexico, all these countries have a lower economic level than South Korea.

Why is the proportion of self-employed so high? While the answer is complex, there is a survey that helps explain the background. The Bank of Korea's Research Department analyzed why retirees choose self-employment, using data from Statistics Korea's Economically Active Population Survey. The reasons were divided into four main categories: ▲For livelihood (46%) ▲To pursue high income (24%) ▲For leisure (17%) ▲Vulnerable type (13%). Nearly half fall into the livelihood category. Lee Jaeho, Deputy Director of the Macroeconomic Analysis Team at the Bank of Korea, said, "These individuals are presumed to be working long hours to make ends meet due to insufficient preparation for retirement," adding, "Their average monthly pension is 790,000 won, and their average weekly working hours are 46."

As of last year, the average retirement age in South Korea was 52.1 years. This means that people turn to self-employment to earn a living after retirement. In advanced countries such as the United States and those in Europe, it is common for retirees to be re-employed. However, Korean companies are reluctant to rehire retirees.

Professor Ahn Donghyun of Seoul National University's Department of Economics explained, "While companies are the entities that create jobs, in Korea, once someone is hired, it is virtually impossible to dismiss them, so companies avoid re-employment. As a result, most people enter self-employment after retirement."

Professor Ahn also pointed out, "South Korea has an unusually large population born in the 1970s, and since the second baby boom generation, which includes them, began retiring last year, the number of self-employed is likely to continue increasing, and the closure rate is unlikely to decrease any time soon."

61.7% of Elderly Self-Employed Work in Low Value-Added Sectors

The real problem lies elsewhere. The vast majority of self-employed people work in unprofitable sectors. According to Statistics Korea, over the past ten years (2014?2024), the number of self-employed individuals aged 60 and over increased by 470,000. Of these, 61.7% (290,000 people) chose ▲transportation and warehousing ▲accommodation and food services ▲wholesale and retail ▲construction. All of these are sectors that do not require specialized skills or knowledge.

This is also evident in annual statistics on the top sectors for new business openings. According to data from the Korea Small Business Institute, over the past five years (2019?2023), the top three sectors for new business were Korean restaurants (1st), private tutoring centers and study rooms (2nd), and beauty salons (3rd).

However, business suspension rates have also increased. The business suspension rate for restaurants rose from 18.70% in 2019 to 20.05% in 2023; for service industries, from 43.77% in 2019 to 45.51% in 2023; and for accommodation, from 58.46% in 2019 to 63.36% in 2023. Specifically, the sectors with the highest suspension rates were foreign restaurants, Korean restaurants, and cafes.

The fact that entry barriers are low and it is easy to start a business means that competition is extremely intense. In particular, the productivity of self-employed individuals aged 50 and above is very poor. For new self-employed individuals in their 30s, the average annual sales per person is 46 million won, and sales per hour is 26,000 won. For those in their 40s, annual sales per person is 46 million won and sales per hour is 27,000 won, a slight increase.

In contrast, for those in their 50s, annual sales per person drops to 40 million won and sales per hour to 24,000 won. For those in their 60s, annual sales per person falls sharply to 30 million won and sales per hour to 18,000 won. Among those in their 70s, annual sales per person and sales per hour shrink further to 20 million won and 14,000 won, respectively. Due to excessive competition and low productivity, 35% of new self-employed individuals in their 60s earn less than 10 million won in annual operating profit.

The polarization among self-employed individuals is also severe. The Korea Small Business Institute divided self-employed individuals into four groups based on annual sales at Shinhan Card-affiliated merchants and calculated the market share per 1% of each group. Over the past six years (2018?2023), the sales concentration of small self-employed businesses (annual sales of 300 million won or less) did not reach 1 (0.45→0.42) of total sales.

During the same period, the sales concentration of the top group (annual sales exceeding 1 billion won up to 3 billion won) also declined from 5.00 to 4.40, but their market dominance remains significant, so their situation is better than that of small self-employed businesses.

Nah Sumi, a research fellow at the Korea Small Business Institute, analyzed, "The market concentration of the lower-income group in everyday sectors is fundamentally low, and while their numbers are high, their relative sales share continues to decline, worsening poverty. The gap between the overall average and the average for small merchants is increasing across all sectors, indicating that the deepening polarization is a widespread phenomenon in everyday industries."

Promoting Startups in Medium Value-Added Sectors Instead of Restaurants and Cafes... Utilizing Post-Retirement Re-employment Contracts

Experts agree that to improve the problems facing self-employment in South Korea, it is necessary to provide job training and support so that people can start businesses in medium value-added sectors, rather than the current low value-added industries.

Park Jeongsu, CEO of the Industrial Policy Strategy Institute, said, "Self-employed individuals can largely be divided into retired baby boomers and entrepreneurs in their 30s or older. The younger generation has moved into self-employment due to factors such as voluntary retirement as the growth of Korea's manufacturing sector slows," adding, "The government needs to strengthen job training and change support policies so that people can start businesses in medium value-added sectors, rather than low-barrier industries such as restaurants, accommodation, and service businesses."

He also pointed out the need for flexible employment policies to maximize the period of wage employment. Since re-employment after retirement is difficult and the possibility of continued work is greater in self-employment, many choose self-employment. The key issue here is not 'employment extension' but 'employment re-contract.' If the government extends the statutory retirement age to 65, it could have the unintended effect of reducing new youth hires.

Kim Gwangseok, Professor of Economics at Myongji University, emphasized, "Most self-employed people in South Korea start businesses involuntarily and without sufficient preparation, so it is essential to create a structure in which those who retire from companies can be re-employed first."

The case of Japan is worth referencing. As a super-aged society, Japan made 'employment security' measures mandatory in 2004. Japanese companies are required to choose among ▲continued employment ▲retirement age extension ▲abolition of retirement age, allowing employees to work until age 65 at up to 75% of their previous wages.

Professor Kim also noted that if employment re-contracts are not realistically feasible, the government should support retired workers in preparing for entrepreneurship. He said, "Rather than starting businesses in highly competitive and low-productivity sectors such as restaurants and cafes, the government should guide people to spend ample time preparing for self-employment in industries with entry barriers," adding, "Furthermore, the government could consider creating guidelines to distinguish between oversaturated and undersupplied sectors in self-employment, and encourage startups in industries or regions where they are needed."