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Wrong prescriptions

July 20,2018
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Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

The unprecedented threat of self-employed business owners taking a collective action to demand no further hikes in the minimum wage must have stung. The government and ruling party vowed to hasten efforts to pass a bill forcing credit card companies to cut commissions charged to vendors and landlords to extend leases to 10 years rather than five. The anti-trust agency also moved to investigate convenience store chains’ headquarters. The ruling party head claimed that franchisees were troubled more by bullying from their headquarters and landlords than higher labor costs from hikes in the minimum wage.

Defending its cherished income-led growth economic policy, the liberal administration may be trying to turn shop owners’ antagonism away from a government pushing up the minimum wage and toward rich landlords and franchisers. To win further favor from the self-employed and small business owners, the government offered more tax deductions. It is also considering introducing an earned income tax credit for the working class and increasing the state subsidy for companies hiring more new recruits. If the government and ruling party think those gestures will work, they clearly are oblivious to what self-employed businesses are really angry about.

South Korea is a land of the self-employed. Self-employment accounts for 25.5 percent of the country’s total working class, including unpaid family workers. The figure is sharply above the 15.8 percent average for nations in the Organization for Economic Cooperation and Development (OECD). With every three out of 10 shop owners being self-employed, competition can be hectic. There are 10.8 eating places per 1,000 persons in Korea, compared to 0.6 in the United States. Competition turns particularly brutal when the economy is in a slump.

A self-employed business owner takes home an average of 3 million won ($2,652) a month, which is no different from 10 years ago. But household incomes for salary-earners averaged 5.58 million won in the first quarter. Debt has piled up. A self-employed household was indebted 113 million won on average as of 2016, 1.5 times more than the 77 million won owed by salary-earners. Overwhelming debt eventually leads to doom. After three years in business, the survival ratio for self-employed businesses is only 37 percent. In other words, two out of every three self-employed businesses go broke in their first three years.

The pain is shared by 3.5 million small merchants with staffs of 10 or fewer. The bottom 50-percent income bracket of small merchants took home 2.41 million won a month on average in the first quarter — down 1 percent from 2.43 million won a year ago — after the minimum wage went up 16.4 percent from last year’s level in January. Upon learning that household income data pointed to deterioration in the bottom-income class in May, President Moon Jae-in called it a “sore” point. But he cannot imagine how afflicted the 3.5 million merchants are. The policy to accelerate raises to the minimum wage in order to make lives better for the bottom-wage earners comes at their own expense. They are enraged that the government only takes pity on laborers and has little sympathy for shopkeepers who sometimes earn less than the part-timers they employ.

The collapse of self-employed businesses has bruised Moon’s income-led growth policy. If shops close because owners cannot afford their labor costs, both the owners and staff would be out of work. Hanwha Investment Securities said household incomes remain stagnant due to a deterioration of self-employed business.

Things won’t get any better. The baby-boom generation born from 1958 to 1963 has started going into retirement. This year, 730,000 people born in 1958, and next year, another 740,000 born in 1959 will be out of work. Like most Korean retirees, they cannot live on their severance payments and will be forced to hunt for shop locations to make a living. With a greater population making less and less, the economy can hardly be expected to grow.

Jobs are made by companies. But Korea Inc. is keeping a low profile under the oppressive policies of the liberal government. Only the president can change this situation. Moon must encourage companies. He must scold the ruling party floor leader for claiming that Samsung grew big by exploiting its contractors and suppliers. He should reprimand chaebol critics in the ruling party and Blue House.
Instead of promoting our corporations, the government and ruling party are busy turning the corporate sector into scapegoats. It’s no wonder jobs are hard to come by. If they keep it up, they will be remembered as third-class leftists.

JoongAng Ilbo, July 19, Page 30