1. [Research Background] Business conditions in Korea's self-employment sector are significantly deteriorating. This decline is mainly attributable to the rapid growth of online platforms, coupled with economic factors such as sluggish domestic demand. While online platforms have brought significant benefits to consumers by facilitating seamless demand-supply connection and cutting down information costs, they are also believed to have widened the gap between self-employed individuals who can utilize such platforms and those who cannot.. This paper analyzes the polarization of the self-employment sector led by the growth of online platforms and suggests policy directions to address the disparity.
2. [Polarization in the Self-employment Sector] To identify how online platforms have driven structural shifts in the self-employment sector, this paper analyzes the effects of the platforms primarily on retail and food service industries, which have higher proportions of self-employed businesses.
(1) E-commerce platform (retail industry): The effects of the rise of e-commerce platforms vary by region, business, and industry. Firstly, in terms of regional trends, the growth of non-store retailers (such as distance sellers) propelled by online shopping is concentrated in the Seoul metropolitan area, while the decline in traditional, in-store retailers in non-Seoul metropolitan areas has become more prevalent, thereby widening the regional disparity.
While growth was relatively favorable for those that operate both online and offline sales channels or diversified their product portfolio, as well as large businesses with resources and brand recognition, those without such advantages faced steeper declines in business conditions. (For example, when the share of online shopping within a region increased by 1 percentage point, the growth gap between self-employed businesses in the top and bottom 20 percent by sales grew by 5.1 percentage points in the Seoul metropolitan area and by 7.2 percentage points in non-Seoul metropolitan areas.)
Moreover, the growth of online retail platforms has increased the number of jobs in the courier service industry and demand for time-intensive services, such as leisure and sports activities, while negatively impacting the commercial real estate rental industry with higher vacancy rates of commercial buildings.
(2) Food delivery platforms (food service industry): The rise of online platforms has polarized the food service industry to the advantage of large restaurants―a trend that was more pronounced in non-Seoul metropolitan areas. (With each 10-percentage-point increase in the regional share of delivery platforms, the growth gap between top and bottom 20 percent of restaurants in terms of sales widened by 3.2 percentage points in the Seoul metropolitan area and 6.3 percentage points in non-Seoul metropolitan areas.) The performance of long-established or delivery-based restaurants has also diverged considerably from restaurants without these advantages.
3. [Effects of Financial Support for Self-employed Businesses] In light of deteriorating business conditions due to the COVID-19 pandemic, oversaturation of the self-employment sector, and the rise of online platforms, the government expanded its financial support for self-employed businesses. The analysis of recipient businesses' performance on an individual level shows that the financial support improves the sales by 8.8 percent on average and reduces the probability of business closure by 1.6 percentage points. At the regional level, the financial support is more effective in non-Seoul metropolitan areas that face more serious deterioration in business conditions.
However, the benefits of the financial support are concentrated in certain groups of businesses, such as those that are newly established, led by young entrepreneurs, and smaller in scale, while other groups experience little effect. Small-scale support (less than KRW 20 million) or long-term support also has negligible effects. The analysis also suggests that financial support for businesses with very low productivity and declining sales creates negative externalities, namely causing inefficient resource allocation and stunting the growth of other businesses.
Nevertheless, the share of financial support was actually found to have increased during the analysis period for the groups of self-employed businesses seeing relatively little benefit from the support and suffering from low productivity.
4. [Policy Recommendations] Given the improvements in consumer benefit and productivity stemming from online platforms, the rise of the platform economy will continue in conjunction with the digital transformation. As such, support for self-employed businesses should take a two track approach: a safety net policy to mitigate the shock of failure for self-employed individuals who were pushed out of the competition and a growth-supportive policy to enhance capital accessibility and secure opportunities for growth for promising self-employed individuals. In specific:
(1) The focus of financial support must be on growth-supportive policies that help innovative self-employed individuals realize their potential. To this end, an adequate scale of support should be provided for selected recipients, prioritizing new, young entrepreneur-led, and small-scale businesses. It is also important to strengthen preliminary screening and post-evaluation in the selection process to prevent excessive startups and moral hazard.
(2) The social safety net, including unemployment insurance, which helps outcompeted self-employed individuals bounce back from failure and start again, should be designed to prioritize the protection of individuals, not their businesses. To this end, it is necessary to expand eligibility and ease the requirements for claims to enhance the effectiveness of unemployment insurance.
(3) Non-Seoul metropolitan areas, which are being hit harder by the impact of online platforms, should direct their efforts primarily into establishing shopping hubs in hub cities, developing services specialized to each region, and improving online accessibility, along with enhancing the capabilities of local self-employment support institutions to design effective programs and select a ppropriate recipients.