PhD Dissertation (2021)

Analysis of self-employment weakness in the Korean service sector using the concept of self-employment congestion

Access in Korean: 한국 서비스업의 자영업 영세성 분석: 자영업 혼잡률 개념 중심으로

Steven S. Bammel

Dept. of Management Strategy

Graduate School of Hanyang University

This study begins by reviewing the prior literature on self-employment to make a variety of observations about weakness in the Korean self-employment sector. Factors of self-employment weakness are classified into individual factors, structural factors, and miscellaneous factors. The Korean self-employment sector suffers from three interrelated and overlapping characteristics: 1) There are many weak self-employed who are not innovative and exhibit low productivity. 2) Conditions of overcompetition prevail in businesses where weak self-employed are concentrated. 3) Weak self-employed are engaged mainly in service businesses with limited innovative potential. Though no established definition of weak self-employment exists, self-employment weakness is mainly evaluated using four major criteria: self-employment motivation, organizational size, financial results, and business type. The prior literature roughly estimates the proportion of weak self-employed to total workers in Korea to be in the range of 5-25%.

Conceptually, this study views weak self-employed as persons who do not build their business size and do not earn much money, but still remain in the self-employment sector due to a lack of good opportunities in the wage sector. Operationally, this study defines weak self-employed as non-wage workers (both self-employed and non-paid family workers) working in the service sector who earn less than the average income of all job holders (both self-employed and wage earners) and who do not employ any paid workers. The over-concentration of such weak self-employed leads to so-called “self-employment congestion,”and this study proposes that self-employment congestion acts as a burden on development of and productivity in the self-employment sector.

A descriptive analysis of the Korean self-employment sector using KLIPS data (1998-2018) obtained the following results. First, the self-employment congestion rate for the entire Korean service sector in 2017 was 10.95%, and this is a 1.50% drop compared to 1998. Second, the self-employment rate fell, even as self-employment weakness increased. Third, self-employment weakness increased due to a deterioration in self-employment income through the mid-2000s but has since remained stable. Fourth, in the overall economy, the data shows limited income polarization between the self-employment sector and the rest of the labor market. However, this study did not confirm income polarization when the focus was narrowed only to the service sector. Fifth, this study finds that opportunities for the self-employed were more plentiful in low-innovation businesses than in mid- to high-innovation businesses during the analysis period.

A first panel regression analysis of the Korean self-employment sector focused on employment status and used KLIPS data to obtain the following results. First, self-employment congestion in the service sector lowers the earnings of both weak and non-weak self-employed, as well as the wages of wage earners, within individual service businesses. Specifically, the negative effects of self-employment congestion in low self-employment congestion businesses are higher on less-successful self-employed, but the negative effects of self-employment congestion in high self-employment congestion businesses are higher on more-successful businesses, and especially on the top 10%. A second panel regression analysis of the Korean self-employment sector focused on innovation patterns and used KLIPS data to obtain the following results. First, weakness is increasing in Korean mid- and high-innovation service businesses, considered to have high innovative potential, thus negatively impacting economic results, as well as innovation, in these businesses. Second, in low-innovation businesses, the negative effects of increasing self-employment congestion are focused on relatively successful self-employed. Third, though the self-employment congestion rate in high-innovation businesses is relatively low, the negative effects of increasing self-employment congestion on economic results in these businesses are higher than in lower-innovation businesses.

Keywords: self-employment, self-employment rate, self-employment congestion, self-employment congestion rate, self-employment weakness, self-employment weakness rate, service sector, weak self-employment, weak self-employed