Chaebol and the Turn to Services: The Rise of a Korean Service Economy and the Dynamics of Self-Employment and Wage Work

ABSTRACT

This article examines the growing insecurity for the Korean self-employed who were once responsible for a large proportion of domestic service operations. Since the 1980s, changing regional and domestic economic circumstances, the restructuring of regional and chaebol manufacturing operations and liberalisation of the domestic service economy had led to enterprise diversification into the distributive sectors and the systematisation of the domestic service economy. Conducting a historical analysis of service sector development and decomposing the Korean Economically Active Population survey (1989–2011), this article charts the process of Korea’s distributive sector development and its effect on the self-employed. It argues that chaebol systematisation of Korea’s service sector consolidated the domestic economy after 1997 and exerted pressure on the country’s self-employed. Large businesses formalised the service sector, displaced the self-employed, and instead generated mostly non-regular wage work, proletarianising a significant segment of the service workforce.

KEYWORDS:

• Self-employment
• service sector development
• retail
• chaebol
• wage labour

Acknowledgements

The authors would like to thank the editor and three anonymous reviewers for the Journal of Contemporary Asia, Joonwoo Son, Kate Stovel, Bernd Wurpts, Stephanie Lee, Jennifer Branstad, Jake Rosenfeld, Sang-Hyop Lee and Gary Hamilton for helpful comments and suggestions on previous versions of this manuscript.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1. The country’s exports-to-GDP ratio, which consistently grew from the 1960s, took a plunge from 35% in 1987 to 25% in 1990. The figures only recovered to the previous levels after the 1997 financial crisis.

2. In fact, the protective measures regulating physical stores only accelerated the pace of chaebol retailers’ online retail development and likely contributed further to the vulnerabilities of small businesses.

3. All Korean employment figures in this article come from the Korean Economically Active Population Survey.

4. The 1997 financial crisis and resulting mass corporate layoffs briefly reversed this declining trend in self-employment. The self-employment share (including unpaid family workers) in labour, 37% in 1997, briefly rose to 38% in 1998. However, these figures soon after went back into decline to 27% in 2011. Our analysis covers the events up to 2011.

5. We define service systematisation as the application of productivity-enhancing retail formats and technology to distributive practices, a process that gave ascendance to chaebol retailers. This process is discussed in the next section in depth.

6. The gradual decline in the distributive sectors share within services stems from the expansion of other service work, notably, personal services.

7. It is worth noting the especially abrupt decline of unpaid family workers. It is likely that declining household income from self-employment increasingly leads family members to supplement their income through wage labour. As a result, more family businesses, previously reliant on unpaid family labour, are transitioning to single-person enterprises.

8. This is a widely made point in the literature on Korean political economy. For an analysis regarding the end of the Korean state’s developmental role in systematically directing investment flows, see Pirie (2018).

9. In 2010, 30% of Korean workers were self-employed. This figure is similar to other largely agricultural or small-firm economies such as Mexico (34.3%), Italy (25.5%) and Chile (26.5%), but considerably higher than the USA (7.0%), Australia (11.6%) and Canada (9.2%). It is also higher than for economies with similar per capita GDP: Spain (16.9%), Portugal (22.9%) and Taiwan (22%) (OECD Statistics 2015; National Statistics ROC 2015).

10. In 1987, 44% of the country’s self-employed were concentrated in agriculture and fishing, followed by 36% in the distributive sectors. In 2011, 30% of total self-employment was in agriculture and 39% in the distributive sectors (Statistics Korea 2015).

11. Outlet information is compiled from company webpages, annual reports and news reports.

12. The Korean Fair Trade Commission started to problematise these market-dominating practices by chaebol retailers and fined several for fair trade violations. Shinsegae and Lotte, for example, were found to have provided “unfair” discounts on commissions to affiliates, boosted sales through promotion of own products and internal transactions, and exclusively rented out prime space to affiliates (Ku 2013).

13. The first survey of traditional markets conducted in 2008 notes that only 46% of traditional merchants had credit card readers, demonstrating significant underdevelopment compared to modern retailers whose rate stood at virtually 100% by the late 1990s (Agency for Traditional Market Administration 2012).

14. There were 1,695 traditional markets in 2003 nationwide. This declined to 1,517 by 2010.

15. The widely cited data collected by the Korean Labour Institute (KLI) only include establishment-level information. That is, if a supermarket retailer operates 10 outlets, each outlet is measured as an independent entity rather than as part of a larger firm. Frequent misinterpretation of this data is the basis for previous claims of continued dualisation and SMEs’ primary responsibility in the production of non-regular employment.

16. While regional economists most frequently use decompositional, or shift-share analysis (Oguz and Knight 2010), it has also been used to analyse labour markets (Singlemann and Tienda 1985; Steinmetz and Wright 1989).

17. Shift-share calculations yield sector-specific distributive and work-effects figures in the following way: distributive-effect figures come from multiplying previous service employment rates by the counterfactual within distributive percentage changes assuming that only the size of distributive sector has changed within the otherwise unchanging working status (Table 4, rows 5–8); work-effect figures are calculated likewise, but assuming that only the size of the work status has changed while distributive sector size remains unchanged.

Additional information

Funding

This research was supported by the NUS FASS Startup Grant (WBS: R-111-000-150-133).