(EDITORIAL from Korea Herald on July 10) – Pearson Global News & Education

Saving self-employedBusiness closures top 1 million for first time; career change programs should be utilized The number of business owners that wound up their operations topped 1 million for the first time in history last year. Retail and restaurant businesses accounted for nearly half of the closures. This means that many business owners are still struggling with debt due to high interest rates, high inflation and stagnant sales. In South Korea, early retirees in their 40s and 50s tend to take out loans to start a business for a living only to close it as they could not withstand the economic slowdown and fierce competition. Makeshift measures cannot get them out of this structure. Government policy must be focused on structural reforms rather than short-term measures. According to data compiled by the National Tax Service, released on Sunday, 1,008,282 individual and corporate businesses filed for closure in 2024. It marks the first time that business closures have surpassed the 1 million mark since the data began to be compiled in 1995. Retail businesses were hit hardest, accounting for 29.7 percent of all business closures, followed by restaurants at 15.2 percent and real estate businesses at 11.1 percent. In terms of the share of the self-employed in the total number of employed people, South Korea is highly ranked compared with major economies. Though its ratio briefly dipped below 20 percent in 2023, the figure is still two or three times as high as that for the US and Japan. More than half of South Korea's owner-operators are in their 50s and older. Considering that 9.54 million second-generation baby boomers began to retire, business start-ups and shop openings are expected to increase further. Unless the oversupply of the self-employed is resolved, it seems inevitable to see business closures increase. In a move to help the financially strapped self-employed, the Lee Jae Myung administration has come up with cash handouts and debt relief measures. On July 4, the National Assembly approved the government's 31.8 trillion won ($23.9 billion) second extra budget including 12.17 trillion won for cash handouts to all citizens. The supplementary budget contains a program to write off debt owed by the economically vulnerable including small business owners. But cash handouts and debt relief are just a quick fix using public money, not a long-term solution. Rather, an increase in money in circulation could stimulate inflation, which leads to a decrease in consumption, thus eventually incurs losses to the self-employed. The most serious adverse effect of debt write-offs is a moral hazard that tempts individuals to take on more debt and neglect debt repayment as they expect debt relief to come someday. President Lee said in a town hall meeting on Friday that he is considering additional debt write-off measures. Under the extra budget, the government will wipe out personal debts of up to 50 million won which is overdue for seven years or longer. Debt to be forgiven totals 16 trillion won, and 1.13 million debtors will benefit. It is to some extent unavoidable to erase debt owed by hard-working but financially struggling credit delinquents in a move to help them stand on their own feet again. But the president's public remark on additional debt write-offs could worsen the side effects of debt relief and shake the nation's credit system. The government must make it clear that the debt to be forgiven this time is an exceptional one-off step. One of the fundamental solutions to improve the dire situation facing the self-employed is to strengthen career change programs that will help their reemployment. Pouring tax money alone cannot fix the problem of mass business closures, as they are largely affected by industrial changes. As seen in the days of the Moon Jae-in administration, when the rapid rise in the minimum wage triggered the collapse of many self-employed people, it is more effective to remove excessive management restrictions such as high personnel costs. Policy should be focused on long-term structural reforms to induce people from self-ownership to reemployment.(END)

Saving self-employed
Business closures top 1 million for first time; career change programs should be utilized

The number of business owners that wound up their operations topped 1 million for the first time in history last year.

Retail and restaurant businesses accounted for nearly half of the closures.

This means that many business owners are still struggling with debt due to high interest rates, high inflation and stagnant sales.

In South Korea, early retirees in their 40s and 50s tend to take out loans to start a business for a living only to close it as they could not withstand the economic slowdown and fierce competition.

Makeshift measures cannot get them out of this structure.

Government policy must be focused on structural reforms rather than short-term measures.

According to data compiled by the National Tax Service, released on Sunday, 1,008,282 individual and corporate businesses filed for closure in 2024.

It marks the first time that business closures have surpassed the 1 million mark since the data began to be compiled in 1995.

Retail businesses were hit hardest, accounting for 29.7 percent of all business closures, followed by restaurants at 15.2 percent and real estate businesses at 11.1 percent.

In terms of the share of the self-employed in the total number of employed people, South Korea is highly ranked compared with major economies. Though its ratio briefly dipped below 20 percent in 2023, the figure is still two or three times as high as that for the US and Japan.

More than half of South Korea’s owner-operators are in their 50s and older. Considering that 9.54 million second-generation baby boomers began to retire, business start-ups and shop openings are expected to increase further. Unless the oversupply of the self-employed is resolved, it seems inevitable to see business closures increase.

In a move to help the financially strapped self-employed, the Lee Jae Myung administration has come up with cash handouts and debt relief measures.

On July 4, the National Assembly approved the government’s 31.8 trillion won ($23.9 billion) second extra budget including 12.17 trillion won for cash handouts to all citizens. The supplementary budget contains a program to write off debt owed by the economically vulnerable including small business owners.

But cash handouts and debt relief are just a quick fix using public money, not a long-term solution.

Rather, an increase in money in circulation could stimulate inflation, which leads to a decrease in consumption, thus eventually incurs losses to the self-employed.

The most serious adverse effect of debt write-offs is a moral hazard that tempts individuals to take on more debt and neglect debt repayment as they expect debt relief to come someday.

President Lee said in a town hall meeting on Friday that he is considering additional debt write-off measures.

Under the extra budget, the government will wipe out personal debts of up to 50 million won which is overdue for seven years or longer. Debt to be forgiven totals 16 trillion won, and 1.13 million debtors will benefit.

It is to some extent unavoidable to erase debt owed by hard-working but financially struggling credit delinquents in a move to help them stand on their own feet again. But the president’s public remark on additional debt write-offs could worsen the side effects of debt relief and shake the nation’s credit system.

The government must make it clear that the debt to be forgiven this time is an exceptional one-off step.

One of the fundamental solutions to improve the dire situation facing the self-employed is to strengthen career change programs that will help their reemployment.

Pouring tax money alone cannot fix the problem of mass business closures, as they are largely affected by industrial changes.

As seen in the days of the Moon Jae-in administration, when the rapid rise in the minimum wage triggered the collapse of many self-employed people, it is more effective to remove excessive management restrictions such as high personnel costs. Policy should be focused on long-term structural reforms to induce people from self-ownership to reemployment.
(END)