South Korean small business owners are seeing real earnings fall below pre-pandemic levels, with rising costs eroding profits despite recovering sales, according to a new study.
The National Assembly Futures Institute surveyed 3,088 self-employed individuals nationwide through in-person interviews, online surveys, and focus group interviews. The findings, released Monday, show average annual revenue for 2022-2024 reached 172.4 million won ($124,000), nearly matching the pre-COVID level of 171.44 million won in 2018-2019 and rebounding from a pandemic low of 140.5 million won.
However, net income after expenses declined to 47.8 million won from 51.52 million won before the pandemic—a drop of 3.72 million won. Operating costs rose to 124.6 million won from 119.92 million won over the same period.
"Self-employed workers are grinding themselves down to save on labor costs, yet their real income often remains at subsistence level or in negative territory," the report stated.
Debt burdens are intensifying. Using last year's debt level as a baseline of 100, pre-pandemic debt stood at 70.5 before surging to 98.0 during the pandemic. While easing to 88.1 in 2022-2024, debt is rising again amid high interest rates and weak domestic demand.
Some 44.7% of all self-employed individuals carry debt averaging 59.2 million won. About 20% of debtors pay more than 500,000 won monthly in interest, with 5.6% paying over 1 million won.
Banks provided 65.9% of financing, while 18.0% came from personal loans from acquaintances and family. Secondary financial institutions accounted for 4.7%. Many borrowers who exceeded bank lending limits turned to higher-rate options including secondary lenders and credit card loans. The delinquency rate among secondary-institution borrowers reached 10.0%—nearly four times the overall average of 2.6%.
Among respondents, 63.5% were former wage workers. For those aged 70 and above, 30.1% entered self-employment from unemployment.
"In many cases, entering self-employment was not a voluntary choice but the result of exiting the labor market," the report noted.
Key challenges cited include raw material costs (68.7%), intensifying competition (66.2%), difficulty acquiring new customers (65.9%), and rent burden (60.5%). Lump-sum loan repayment requirements and demolition and restoration costs make even closure difficult.
"Self-employment policy must shift from simple financial support toward structural soft-landing assistance," the report emphasized. "Above all, transition packages connecting career changes, reemployment, and self-employment are needed."
The report added: "With sales recovery failing to translate into profit recovery, easing repayment burdens and improving cost structures matter more than short-term liquidity support. Creating safe exit pathways is urgent to end the forced 'hanging on' that traps owners operating at a loss."