Three out of 10 restaurants in South Korea went out of business over a year when the minimum wage jumped by double digits, with the higher labor costs dealing a heavier blow to mom-and-pop shops, study showed.
A research by the Korea Foodservice Industry Research Institute released on Thursday showed that 31.3 percent, or 125 out of the 400 restaurants studied, shuttered during the period from October 2017 to October 2018.
Under President Moon Jae-in’s campaign pledge to lift the hourly minimum wage to 10,000 won ($8.88) by 2020, Korea pushed through a 16.4 percent hike in 2018, the biggest jump since 2001. It raised the wage by another 10.9 percent to 8,350 won this year.
The year-long study tracked 400 nationally representative samples taken from the 430,000 restaurant members under the Korea Foodservice Industry Association, the parent organization of the research body.
Smaller restaurants were impacted more from the wage increase. The failure rate of establishments with a floor space of less than 33 square meters was 38.9 percent. For larger shops of above 66 square meters, the rate was lighter at 26.3 percent.
The percentage of labor costs against total operating costs was 41.3 percent for the shuttered operations, higher than the 35.4 percent of the surviving restaurants.
The toll also fell on franchise eateries, mostly run by retirees and self-employed individuals.
According to a study by the Ministry of Trade, Industry and Energy, the country’s franchise industry sales, including those of both franchisors and franchisees, retreated 2.4 percent year over year in 2017 to 115.4 trillion won, the first decline since 2013. Industry observers estimate this figure to have slumped further in 2018.
By Lee Duk-joo and Kim Hyo-jin
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]