One in Five Workers in South Korea is Self-Employed: How It Differs from the U.S. and Europe

South Korea's proportion of self-employed individuals is nearly double that of major developed countries like the United States and Europe. A lack of quality jobs and early retirements have led to self-employment effectively serving as a 'second labor market.'

According to the National Data Agency, as of June this year, the number of self-employed individuals reached 5.804 million, accounting for 19.9% of the total workforce of 29.154 million.

This figure surpasses that of the U.S. (6.1%), Germany (8.6%), Japan (10%), and the OECD average (approximately 15-16%). Typically, as economies develop, the number of small self-employed businesses decreases while corporate employment and professional services increase; however, South Korea continues to maintain a high proportion of self-employment.

The primary reasons cited for this trend include a shortage of quality jobs, early retirements, and necessity-driven entrepreneurship. The lack of a robust re-employment market for retirees, combined with a surge in startups in sectors with relatively low entry barriers—such as restaurants, cafes, and convenience stores—has led to self-employment taking on the role of a 'second labor market.'

In contrast, developed countries like the U.S. and those in Europe have well-established social safety nets, including stable wage employment, health insurance, pensions, and unemployment benefits, which reduce the incentive for necessity-driven entrepreneurship. The service industry in these regions is often dominated by large chains and corporations, and the regulatory burdens related to labor, safety, and hygiene, along with high labor costs, make it difficult for individual entrepreneurs to enter the market.

In South Korea, the significant wage gap between large and small businesses, along with the difficulty of finding stable employment after early retirement in one's 50s, also contributes to the rise in self-employment. Many retirees use their severance pay as startup capital, and as the number of establishments grows faster than consumer demand, excessive competition in sectors like restaurants and cafes is intensifying.

The aging population is also contributing to a rapid increase in the proportion of older self-employed individuals. As the first baby boomer generation (born between 1955 and 1963) retires, the number of older self-employed individuals has risen from 1.42 million in 2015 to 2.1 million in 2024. The Bank of Korea projects that as the second baby boomer generation (born between 1964 and 1974) begins to retire, the number of self-employed individuals aged 60 and over could reach 2.48 million by 2032, representing about 9% of the total workforce.

The Bank of Korea has analyzed that the influx of unprepared retirees into self-employment could pose a burden on economic growth. Self-employment among older individuals often yields lower productivity and profitability compared to other age groups, potentially exacerbating the issues of oversaturation in self-employment and slowing economic growth.

Experts note that while self-employment has served as a buffer for workers not absorbed by businesses and the labor market, it also acts as a structural factor that intensifies low productivity and excessive competition. Kim Sang-bong, a professor of economics at Hansung University, stated, "The high proportion of self-employment in South Korea is largely due to historical factors where self-employment rapidly increased in the distribution and service sectors during industrialization. The government's continuous support through financial aid and tax benefits has prevented proper market restructuring."

He added, "Policies should shift towards supporting business closures and re-employment, particularly encouraging young people to pursue quality jobs in the industrial sector rather than self-employment."