The number of self-employed individuals in South Korea has fallen to crisis levels, with 2024 marking the first annual decline in three years. Experts attribute the downturn not only to sluggish domestic demand but also to broader structural shifts transforming the economy.
Statistics Korea reports that the self-employed population stood at 5.5 million in January 2024, a drop of over 200,000 compared to the previous two months. On an annual basis, the number of self-employed individuals has fallen by 0.6 percent from the previous year, dropping to 5.66 million. This marks the first yearly decline since 2021 and brings the self-employed population near pandemic-era lows, barely surpassing the 5.49 million seen in January 2023. The current figure is also lower than the self-employed numbers during past financial crises, including 5.9 million in 1998 and 5.74 million in 2008.
A major factor contributing to the decline is the ongoing struggles of small merchants, who have been facing dwindling sales amid a prolonged slump in domestic demand. Government data shows that Koreans have been spending less than they earn in recent quarters, with fourth-quarter spending growth at just 2.5 percent— the slowest pace since early 2021.
This consumption downturn has deeply impacted the self-employed, with 7 in 10 reporting declines in both sales and net profit. A recent survey by the Federation of Korean Industries, which questioned 500 self-employed individuals, revealed an average 13 percent drop in sales and net profits. The outlook remains grim, with nearly 60 percent of respondents expecting further declines this year. Alarmingly, 43.6 percent of those surveyed anticipate shutting down their businesses within three years due to continued poor performance, economic uncertainty, and worsening financial conditions.
While weak domestic spending is a key factor, experts believe the decline in self-employment is also part of a larger structural shift reshaping the economy. Kim Sang-bong, an economics professor at Hansung University, pointed out that the rise in overseas spending post-pandemic must also be considered when evaluating consumption patterns. He noted that trends such as the decline in after-work gatherings (hoesik) and the shift to online platforms for food delivery and grocery shopping have had significant impacts on small businesses.
These changing consumption patterns are not only a result of the economic downturn but are also part of a broader transformation across various industries. Kim also cited the recent liquidity issues at supermarket giant Homeplus as further evidence of this shift.
Jeong Se-eun, an economics professor at Chungnam National University, explained that the decline in self-employment is a natural outcome of Korea’s shrinking population and demographic changes. “Fewer people to spend and fewer people to start businesses,” Jeong noted. The challenge lies in helping those leaving self-employment transition into other sectors of the economy, while also addressing the impact of new technologies like artificial intelligence, which are already affecting small businesses.
Kim added that the drop in self-employment is likely to continue as Korea’s economy restructures to become more competitive. He argued that many self-employed individuals lack competitiveness and that rather than simply supporting policies to sustain or open new businesses, the government should focus on assisting these individuals in transitioning to more competitive sectors.
Stay tuned to The Asia Review for further updates on this story.
