Regulatory Costs by Company Size Cause 111 Trillion Won GDP Loss... "Incentive Structure Needed to Boost Productivity"

SGI Analysis by KCCI:
Impact of Company Size-Based Regulations and Labor Market Rigidity
60% of Small Companies Remain Small After 5 Years
Productivity of Small Companies Only 30% of Large Firms
Small Companies' Employment Share at 42.2%, Highest Among OECD Countries
Entrenched Low Productivity... "Bold Redesign Needed"

The Sustainable Growth Initiative (SGI) of the Korea Chamber of Commerce and Industry asserted in its report, "Diagnosis of the Causes of Low Growth in the Korean Economy and Innovation Measures for the Corporate Ecosystem," released on January 20, that "differentiated regulations by company size" are undermining the growth potential of Korean companies. The report argues that as companies grow larger, benefits decrease while burdens increase, thereby distorting the ecosystem.

SGI, using a structural model, found that the loss in gross domestic product (GDP) due to differentiated regulations by company size amounts to approximately 4.8% (111 trillion won as of 2025). The report stated, "When companies halt their growth, large corporations with higher productivity have less capacity to hire, while more workers are concentrated in smaller companies with relatively lower productivity, resulting in a decline in the overall efficiency of the economy." It further analyzed, "Additionally, the rigidity of the labor market leads to either an increase in unemployment or workers becoming stuck in inefficient sectors, thereby weakening the nation's growth potential in a vicious cycle."

According to the report, the proportion of small companies that remain at a small scale (10-49 employees) even after five years has surged to 60%, a sharp increase compared to the 40% range in the 1990s. The report attributed this trend to companies increasingly choosing to remain in their current state to avoid regulations rather than pursuing growth.

SGI also pointed out that differentiated regulations by company size are blocking the virtuous cycle of "entry-growth-exit" in the economy. The report noted, "The probability of a small company advancing to a medium-sized company has been halved from 3-4% in the past to the 2% range recently, and the probability of growing into a large company has fallen below 0.05%. Meanwhile, the exit rate, which used to reach 60%, has recently dropped below 40%."

As a result of these effects, SGI argued that the corporate ecosystem in Korea has become distorted. Labor productivity in small companies is only 30.4% of that of large companies, but an excessive concentration of workers in small companies is exacerbating the low productivity of the national economy.

In fact, the employment share of small companies (10-49 employees) in the Korean manufacturing sector stands at 42.2%, which is nearly double the OECD average of 22.7%. In contrast, the employment share of large companies (250 or more employees) is only 28.1%, about half the OECD average of 47.6%.

SGI proposed several measures to restore dynamism to the corporate ecosystem, including establishing a "growth or exit" support system, fostering an investment-centered funding ecosystem, and introducing incentive-based support programs. The report emphasized, "By annually evaluating innovation indicators such as sales and employment growth rates, support limits should be boldly increased for companies that perform well to help them scale up, while support should be immediately discontinued for companies lacking innovation intent, thereby shifting to a performance-linked support system."

It added, "A new basic deduction regardless of company size should be introduced, and additional deduction benefits should be provided in proportion to contributions to the national economy, such as investment and employment, in order to design a virtuous cycle where 'growth itself becomes a benefit.'"

Park Jeongsu, Professor of Economics at Sogang University, commented, "It is positive that the government has recently recognized the structural problems hindering corporate growth and has proposed countermeasures, but the key is rapid implementation on the ground." He stressed, "Through bold redesign of regulatory and tax systems, we must reestablish an incentive structure that enables companies to voluntarily enhance their productivity."