The Collapse of Small Businesses Shown by MERS... Facing the 'COVID-19 Attack,' Employees Are Laid Off and Owners Run Alone

Korea Foodservice Industry Research Institute, 'COVID-19 Impact Monitoring 3rd Survey' Results Show Customer Numbers Drop by One-Third
Labor Cost Savings Amid Sales Decline... Employee Working Hours Reduced, Layoffs, Shift to Single-Person Family Management
Self-Employed Business Collapse Proven by MERS... Foodservice Self-Employed Urge "Government for Effective Support Measures"

[Asia Economy Reporter Lee Seon-ae] "When will things calm down? Last year, due to the burden of increased labor costs from the minimum wage hike, I had to let go of two employees. But this year, unexpected variables hit, and sales have dropped exactly by 50%. It's halved. If I don't reduce labor costs, I face the risk of closing down, so I even let go of the remaining employees. For now, I have to run the store alone." - Mr. Kim, owner of a baekban (Korean set meal) restaurant in Incheon.

Due to the spread of the novel coronavirus infection (COVID-19), self-employed restaurant owners are taking a direct hit with decreased sales. They are enduring by letting go of employees or reducing working hours to cut labor costs. The trend of switching to 'one-person management or family management' due to the burden of labor costs from minimum wage increases is expected to accelerate further this year with the unforeseen COVID-19 situation.

According to the results of the '3rd Survey on the Impact of COVID-19 on the Food Service Industry,' jointly conducted by the Korea Foodservice Industry Research Institute under the Korea Foodservice Industry Association and the Ministry of Agriculture, Food and Rural Affairs on the 29th, the number of customers in the food service industry decreased by 32.7% around the 19th. The survey was conducted through face-to-face interviews over four days from the 18th to the 21st, targeting 600 member establishments of the Korea Foodservice Industry Association.

Self-employed restaurant owners unanimously say that to avoid closure, they have no choice but to reduce labor costs. Mr. Lee, who runs a snack bar in Jongno, said, "Compared to around this time last year, sales have dropped by about 55%, and since COVID-19 seems to be prolonged, I plan to reduce labor costs," adding, "I let go of serving staff, and for now, my younger sibling and mother will come to the store to help." Mr. Park, who runs a baekban restaurant in Dongdaemun, said, "Customer visits have suddenly stopped as if by magic, and with current sales, it's hard to even cover rent," adding, "I recently talked to a part-timer about reducing working hours, but if even that is not feasible, I plan to manage the store alone."

Accordingly, the trend of restaurant employees disappearing and stores being run alone or by family members is expected to accelerate. According to the 'Statistical Yearbook 2019' by the Korea Foodservice Industry Research Institute, wages for owners and family members increased from an average of 4.56 million KRW in 2015 to 15.57 million KRW in 2016, and surged to 21.2 million KRW in 2017. The institute emphasized that while this statistic alone may not fully confirm the increase in self-employed food service businesses without employees or those operated by family members, it is a noteworthy statistic considering the continuous increase in self-employed individuals without employees in the Economically Active Population Survey.

In fact, one-person self-employed businesses are steadily increasing. Analyzing the Economically Active Population Survey by Statistics Korea, the number of self-employed people last year was 5,605,600, shrinking by 32,300 from the previous year, marking the lowest in 24 years since 1995 (5,569,000). Particularly, self-employed individuals with one or more paid employees showed the largest decrease (113,600) since 1998 (247,000). The number of 'self-employed without employees,' working alone or with family, increased by 81,300. This increase was the largest in 18 years since 2001 (102,200). Typically, the decrease in self-employed with employees and increase in those without employees is interpreted as a phenomenon where self-employed business owners, facing worsening business conditions and labor cost burdens, reduce staff and replace them with themselves or unpaid family workers. The minimum wage was raised by 16.4% in 2018 and 10.9% in 2019, increasing labor cost burdens amid sluggish business conditions.

Seoyonghee, senior researcher at the Korea Foodservice Industry Research Institute, said, "As wages to be paid to employees continue to increase, the number of employees is being reduced or converted to part-time work," interpreting, "The total amount or proportion of employee wages remaining constant is due to the shift to family management, where wages are paid to family members, ultimately increasing the total profit of not only the business owner but also the owner's household." He added, "This trend was especially prominent in 2017 when the minimum wage sharply increased, and with the spread of unmanned and automated facilities in the future, restaurants without employees are expected to continue expanding."

The Korea Foodservice Industry Research Institute predicted that the impact on the food service industry will intensify as COVID-19 cases rapidly increase. The institute stated, "Due to the occurrence and prolongation of the COVID-19 crisis, the decrease in customers in the food service industry is continuously worsening," and urged, "The government should promptly prepare and implement effective and concrete support measures for frontline food service businesses."

As the situation unfolds this way, anxiety is spreading among self-employed individuals that the domestic economy will inevitably be hit. In particular, they recall the 2015 Middle East Respiratory Syndrome (MERS) outbreak. At that time, the damage to self-employed businesses was clearly demonstrated. In 2015, the number of self-employed people decreased by 98,000 compared to the previous year, marking the largest decline since the global financial crisis in 2009 (-256,000) and 2010 (-107,000). The consumer price inflation rate in 2015 was 0.7%, the lowest since 1998 (0.8%) after the foreign exchange crisis. A low consumer price inflation rate means consumption was contracted.

This content was produced with the assistance of AI translation services.