In a rare meeting with a group of self-employed businesspeople last week, President Moon Jae-in said he felt sorry for the growing difficulties they face. He pledged to strengthen support for them, but fell short of suggesting concrete measures.
Economists say the whopping 27.3 percent rise in the minimum wage over the last two years -- pushed through as a pillar of the Moon administration’s income-led growth policy -- is mainly responsible for the deepening predicament of self-employed businesses in the country.
During the meeting at the presidential office, Moon said his administration would try to reflect the opinions of the self-employed and other small business owners in the process of determining minimum wage levels in the future. But he did not respond to demands to freeze the wage in the coming years or to apply it differentially by industrial sector or region.
Emerging from the meeting, few participants seemed convinced that Moon had understood their difficulties and was ready to do what is needed to prevent them from being pushed over the edge.
Moon needs to have a greater sense of urgency in addressing the task of easing the hardships of the self-employed, who account for about a quarter of the country’s working population.
Recent data on the worsening financial conditions of the self-employed should heighten his sense of urgency.
According to data presented to a lawmaker by a local credit rating company, financial debt owed by the self-employed rose nearly 14 percent from a year earlier to 432 trillion won ($383 billion) at the end of 2018. Compared with three years earlier, the figure represented a 45 percent increase.
The number of self-employed people borrowing money from banks and other lenders also increased 9.3 percent to 1.94 million last year.
What is particularly worrisome is that the number of those who have defaulted on their debts for more than 90 days soared 18.9 percent over the cited period to 27,917.
Moreover, interest rates on loans extended to self-employed businesses have continued to climb.
Higher debt service costs, the increased minimum wage and decreased consumption amid an economic slowdown have pushed a growing number of self-employed businesses to shut down.
The increase in the number of self-employed businesses forced to close would further dampen domestic demand, and their failure to pay back debts would cause damage to lenders and destabilize the financial market.
The actual size of debts owed by the self-employed is presumed to be far greater than what is tallied by the credit rating firm, as they usually rely on household loans as well as business loans.
In the immediate term, it is necessary to implement measures to ease the debt service burden on self-employed businesses by replacing their borrowing from nonbanking lenders that carry higher interest rates with cheaper policy loans and by extending the period of repayment.
But there are limits to what such measures can do to ease the suffering of the self-employed.
The Moon administration should be more positive toward overhauling the commission tasked with setting the minimum wage, in an effort to enable it to pay more heed to demands from self-employed people and other small business owners.
More broadly, it needs to abandon the income-led growth policy backed by a range of pro-labor measures, including steep minimum wage hikes. An analysis of the effects of the policy, conducted recently by the Korean Economic Association, showed that the country’s gross domestic product, investment and employment fell by 0.13 percent, 5.14 percent and 0.16 percent, respectively, during the first year of the Moon presidency compared to the previous three years.
Last week, Moon said self-employed businesses ought to be treated as an “independent area of economic policy.” He added that his government has been doing more than any previous administration to help small businesses, noting it took the unprecedented step of creating the post of a presidential secretary in charge of self-employed businesses.
He also said the government plans to issue 18 trillion won worth of gift certificates that can only be used at mom-and-pop stores and traditional markets by 2021, and to ensure every traditional market has adequate parking lots.
It would be naive to wish -- as Moon did last week -- that such measures would make this year the first year that conditions for self-employed businesses start to improve.
