Factors Influencing the Likelihood of Leaving Self-Employment in Korea Sung-Hee Kim

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FAMILY
Kim
et al.AND
/ LEAVING
CONSUMER
SELF-EMPLOYMENT
SCIENCES RESEARCH JOURNAL
Factors Influencing the Likelihood of
Leaving Self-Employment in Korea
Sung-Hee Kim
Yeojoo Institute of Technology, Korea
Deanna L. Sharpe
University of Missouri–Columbia
Hye-Yeon Kim
Cheju National University, Korea
Self-employed business owners in Korea are likely to be male with at least a high school education
and no young children in the home. Evidence is that businesses of the self-employed in Korea are
small, primarily focused on sales and trade, and financially vulnerable. Willingness to leave selfemployment is less likely for those who are male, enjoy work, have high household expenditures,
are satisfied with the work of the business, and are optimistic about the future potential of their
business.
The rate of self-employment in Korea has been gradually increasing.
Twenty-eight percent of all workers were self-employed in 1990. In
1999, 28.8% of all workers were self-employed. If only non-farm
workers are considered for the same years, the proportion of selfemployed is 21.8% and 25.0%, respectively. If unpaid family workers
are considered (they represent 10.3% of all workers and 6.1% of all
non-farm workers), the rate of self-employment is about 40% of all
workers and 31% of non-farm workers (National Statistical Office of
Korea, 1999).
Traditionally, self-employment in Korea has conveyed an image of
a business that is relatively small, has inadequate finances, and is not
well organized. Recently, however, several economic and social factors have fostered a more positive image of self-employment. In the
1980s, employers in large firms in Korea introduced early retirement
plans to reward workers while reducing high operating costs. As a
result, workers changed the way they thought about and engaged in
employment. They no longer expected to hold one job over the
Family and Consumer Sciences Research Journal, Vol. 30, No. 4, June 2002 554-569
© 2002 American Association of Family and Consumer Sciences
554
Kim et al. / LEAVING SELF-EMPLOYMENT
555
working years. Workers who retired early but who still wanted to
work could get another job or they could start their own business
using their retirement benefits to finance the endeavor.
The term venture enterprise was introduced toward the end of the
1980s to describe new high-risk and high-return businesses that have
helped to change both industry and information technology in Korea.
The employers and employees in these enterprises are generally
regarded as young, highly educated, capable, creative, and pursuing
a high level of self-actualization. These new venture enterprises numbered on average 2,042 per month in 1998, 4,934 in 1999, and 9,331 in
2000 (Korea’s Ministry of Finance and Economy, 2001). Growth of
these venture enterprises has sparked interest in self-employment
among young workers.
During the Korean economic crisis of 1998, many businesses closed
and workers lost jobs and benefits. Finding employment was difficult. In February 1999, the unemployment rate was 8.6%, up from
2.6% in November 1997. Self-employment, in effect, provided a safety
net for workers who otherwise would have been unemployed (Ryew
& Choi, 1999). This economic crisis affected labor force mobility. Following the crisis, the rate of leaving salary employment for selfemployment has decreased while the rate of leaving unemployment
for self-employment has increased. At the same time, it has become
more difficult to leave self-employment for a salaried job (Ryew &
Choi, 2000).
Taken together, early retirement, changing concepts of work, growing appeal of self-employment, and a changing Korean economy
have contributed to the growth of new businesses in Korea. In the
year 2000, the number of business starts as reported by an organization of corporations in eight Korean cities was 3,455 per month on
average, a 35% increase over the 2,558 per month averaged in 1999
(Korea’s Ministry of Finance and Economy, 2001).
Although self-employment has expanded opportunity for workers and has helped many to maintain labor force participation, it is a
risky endeavor. The Korean government and business community
provides little economic support for establishing a business. Compared
with salary income, self-employment income has greater fluctuation
and there is the ever-present risk of business failure. Pensions, insurance, and other employment-related benefits are limited for selfemployed workers. These negative features of self-employment can
influence business owners to leave self-employment. Also, some new
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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL
businesses fail. The number of “dishonored businesses” was 207 in
1999 and 233 in 2000, reflecting a failure rate of around 10%. Business
failure can lead to unemployment for the former business owner,
decreasing family income and increasing family stress.
At present, little is known about self-employment in Korea. The
purpose of this study is to examine the characteristics of selfemployed workers and their businesses in Korea and to explore the
willingness of self-employed individuals to leave self-employment.
Self-employment is beginning to gain greater respect as a career
option and to play a larger role in the Korean economy. When selfemployment facilitates labor mobility and expands opportunity,
national economic productivity is enhanced. Recent changes in the
Korean labor market, however, have reduced opportunities for formerly self-employed workers to return to salaried work. Consequently, leaving self-employment can mean unemployment,
decreased family income, and increased family stress. In light of these
issues, it becomes important to examine the factors associated with
willingness to leave self-employment.
LITERATURE REVIEW
The labor economics literature suggests there are two roads to selfemployment. Moore (1982) argued that the workers who are relatively less capable become the self-employed in a divided labor market. According to Moore, self-employment is like a “bottom tier” of
employment. In a labor market where workers are differentiated by
various abilities and characteristics, self-employment would be the
form of employment for workers who were not successful in obtaining employment by others. Evans and Leighton (1989) also suggested
that less capable workers were likely to be self-employed. On the
other hand, Blau (1987) and Lucas (1978) maintained that selfemployment is the result of a highly capable individual’s deciding to
be self-employed to get more rewards and to realize personal potential. Thus, two contrasting images of self-employed workers are
presented.
The importance of self-employment has been only recently recognized in Korea. Limited literature on self-employed workers in Korea
exists. In the sociological literature, Kim (1986) and Choi (1991) were
interested in the relationship between self-employment and social
Kim et al. / LEAVING SELF-EMPLOYMENT
557
class. These studies regarded self-employed workers, especially nonfarm self-employed workers, as middle or below middle class but different from blue-collar workers. In the field of management, the characteristics of small businesses have been of interest. Although there
are those who own large firms, self-employment is typically associated with having a small business. Small businesses are likely to be
financially vulnerable because of such obstacles as smaller funds to
start, high costs to produce goods, and difficulty getting bank loans
(Korea Federation of Small and Medium Business, 1999; Yong, 1998).
Park (1988) found that the typical self-employed worker is likely to
have a small business that is financially vulnerable and not well organized. Specifically, among the self-employed with a small business,
workers had lower educational levels, their partners were unemployed, and they did not have sufficient funds to effectively operate
the business. Also, single mothers or female heads of household were
more likely to be self-employed. He concluded that the “small selfemployed” can be characterized as someone who owns a business
that can be started without much money, ability, or special skills, and
who can accept lower income and longer working hours.
More recent research indicates that some characteristics of selfemployment may be changing. Some labor economists have examined the flow of self-employed workers into and out of the labor market. For example, Kum & Cho (2000) studied the decision to be selfemployed. Using the 1998 Korean Labor Panel Study (Korean Labor
Institute, 1998), their study showed that self-employed workers in
Korea who voluntarily left salaried work generally had high levels of
human capital and income. This type of self-employed worker stood
in contrast to those who became self-employed because they were less
capable workers, making it difficult for them to get salary jobs or
because their reservation wage was too high relative to the available
wages and salaries.
By using National Statistical Office data, Ryew and Choi (2000)
reported that the rate of entering into self-employment was highest
for those in their late 30s and lowest for those around 55 years old,
with an upward trend after that age. The rate of ceasing self-employment
was 50% before age 25, 7.5% in the late 40s, and then 16% after age 65.
As Quinn (1980) pointed out, this trend indicates that self-employed
workers leave their employment more slowly than salary workers do.
In contrast, Evans and Leighton (1989) suggested that the probability
of a salary worker’s entering self-employment does not relate to age.
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Ryew and Choi (2000) found that among non-farm female workers,
self-employment was more likely to be found among those who were
primary earners or had a partner; those who lived in town; those who
were hired as daily or temporary workers; and those who were in
wholesale or retail trade, restaurants or hotels, or construction or service work. Age and education level were not related to entering selfemployment.
METHOD
Conceptual Framework
The Sustainable Family Business Research Model proposed by
Stafford, Duncan, Danes, and Winter (1999) provides the conceptual
framework for this study. In this framework, both the family and the
business are portrayed as purposeful social systems that act to transform resources and constraints into achievements that are consistent
with the goals of each system. Business sustainability, it is proposed,
results from the combined influence of successful achievement in the
family and business systems as well as suitable response to disruption in the pattern of interpersonal and resource transactions within
and between the family and business systems. Whereas interface
between the family and business systems is an integral part of the
model, variance in the size of that interface is also recognized. The
greater the separation between family and business, the smaller is the
overlap between the systems.
It is reasonable to assume that staying in business (business
sustainability) is an objective of the self-employed worker. To reach
this objective, resources such as the human capital stock and economic resources of the self-employed worker are utilized in both the
family and business systems. Task accomplishment in the family or
business system can be constrained. For example, the need to care for
a child younger than age 6 can limit time available for other family or
business tasks. Controlling for business characteristics, a selfemployed worker’s attitude and satisfaction with various aspects of
his or her business may also constrain the ability to achieve success,
especially within the business system. The level of success achieved in
both the family and the business system, in turn, can influence willingness to leave self-employment.
Kim et al. / LEAVING SELF-EMPLOYMENT
559
Data and Sample
Data for this study come from the 1999 Korean Household Panel
Study. The Daewoo Economic Research Institute in Seoul, Korea, collected the data (Daewoo Economic Research Institute, 1999). This
national survey, conducted yearly since 1993, was designed to obtain
information about the social and economic activities of individuals
and households in Korea. The survey sample of 6,320 was selected by
multistage stratified random sampling techniques. This study focused
on the 713 self-employed workers in the national survey. Householdlevel data were obtained from households that contained one selfemployed worker. Personal-level data were obtained from the selfemployed worker. There were 590 male self-employed workers and
123 female self-employed workers.
Model
Logistic regression was used to learn the odds of being willing to
leave self-employment (Demaris, 1992). The model used in this study
was
Prob[yi = 1] = exp(di)/[1 + exp(di)],
where y indicates willingness to leave self-employment, and di is a
vector of self-employed worker and business characteristics. This is
an exploratory study. Following the conceptual framework, variables
were selected on the basis of the literature and the information available in the original data collection. The definition and measurement
of the variables used in this study are shown in Table 1.1
The dependent variable was willingness to leave self-employment.
Although a measure of actually leaving self-employment would have
been preferred, that information was not available in the data. For this
study, it is assumed that business owners who indicate that they are
willing to leave self-employment would actually do so if given the
opportunity.
On the basis of the conceptual framework and existing literature,
certain resources and constraints were hypothesized to be associated
with willingness to leave self-employment. Resources consisted of
human capital and economic resources. The self-employed worker’s
age (as a proxy for experience) and education (measured in years)
were measures of human capital. Workers with more life and work
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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL
TABLE 1: The Definition and Measurement of the Variables
Variable
Dependent variable
Independent variables
Resources
Human capital of self-employed worker
Age
Education
Economic resources of self-employed worker
Spouse not employed full-time
Annual household expenditure level
Constraints
Time of self-employed worker
Children younger than age 6 in the home
Attitude toward work
Self-employed worker satisfaction with:
Income of the business
Working hours of the business
Future of the business
Work itself
Business characteristics
Business owner gender
Business location
Type of business
Construction
Wholesale and retail trade
Transport, storage, and communication
Other
Definition and Measurement
Are you willing to quit being
self-employed?
1 = yes; 0 = no
Age measured in years
Education measured in years
1 if yes; 0 otherwise
Annual household expenditures
measured in won (unit =
10,000 won/year)
1 = yes; 0 = no
Do you agree or disagree with
the statement that to work
hard is to enjoy life?
1 = do not agree
3 = neutral
5 = strongly agree
1 = very unsatisfied
3 = neutral
5 = very satisfied
1 = very unsatisfied
3 = neutral
5 = very satisfied
1 = very unsatisfied
3 = neutral
5 = very satisfied
1 = very unsatisfied
3 = neutral
5 = very satisfied
1 = male; 0 = female
1 = non–home based; 0 = home
based
1 if yes; 0 otherwise
1 if yes; 0 otherwise
1 if yes; 0 otherwise
1 if yes; 0 otherwise
Kim et al. / LEAVING SELF-EMPLOYMENT
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TABLE 1 Continued
Variable
Number of employees
Annual total sales of the business
Annual net income of the business
Definition and Measurement
Number of people employed in
the business, including family,
relatives, and other
employees
Sales measured in won (unit =
10,000 won/year)
Income measured in won (unit =
10,000 won/year)
experience and with higher levels of education would be expected to
be less willing to quit self-employment. Economic resources were
measured as spouse employment and household expenditure level.
Self-employed workers whose spouses were not employed full-time
might not have the financial resources to weather a downturn in the
self-employed business. In this study, household expenditures were
a proxy for household income levels. The permanent income
hypothesis (Friedman, 1957) suggests that annual total expenditures
represent life span consumption patterns better than annual income,
especially when annual income is variable as it often is with selfemployment. Lower levels of economic resources were expected to be
positively associated with willingness to quit self-employment.
In this study, constraints focused on the presence of young children
in the home, attitudes of the self-employed toward work, and satisfaction of the self-employed with various aspects of their business.
Young children in the home can restrict time available for work. In
Korea, self-employment has typically been associated with running a
small business that has limited funding and long work hours. Having
to care for a young child can be an interference in a business with these
characteristics. Thus, it was expected that, all else equal, those with
young children might be more willing to quit self-employment.
Favorable attitudes toward work (agreeing with the statement that
the reason for working hard is to enjoy life) and satisfaction of the
owner with the business would likely be negatively associated with
willingness to quit self-employment. In the logistic regression, several variables were used to control for differences in business characteristics (Avery, Haynes, & Haynes, 2000). These variables included
gender of the business owner, business location (home based or not),
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TABLE 2: Willingness to Remain Self-Employed and Reasons for Quitting (N =
713)
Whether or not self-employed will quit
No
Yes
Reason willing to quit
For more income
Not fit to my personality
Health
Child care and household work
Miscellaneous
Frequency
Percentage
608
105
85.3
14.7
46
28
20
3
8
43.8
26.7
19.0
2.9
7.6
type of business (construction; wholesale and retail trade; transport,
storage, and communication; and other). In addition, the number of
employees, and annual total sales, and net income of the business are
reported in the descriptive statistics.
FINDINGS AND DISCUSSION
Table 2 reports characteristics of those who were and were not willing to leave self-employment. Most respondents (85.3%) were not
willing to leave self-employment. This result supports Ryew and
Choi’s (2000) viewpoint that in Korea, self-employment is relatively
stable. Among those who said they were willing to leave selfemployment, income was a main reason. Self-employment seemed
not to guarantee enough income. Personality and health were also
important reasons to leave self-employment.
Selected characteristics of self-employed workers are reported in
Table 3. On average, self employed workers were male, high school
graduates, and were in their 40s. Also, they were likely to have no
children younger than six in their households. The average annual
household expenditure level was about 20,060,000 won, which is
approximately 20,000 U.S. dollars.2 Self-employed workers who were
willing to leave self-employment were significantly more likely than
their counterparts to be female, have children younger than 6 in their
households, have a lower level of household expenditures, and disagree with the statement that the reason to work hard is to enjoy life.
TABLE 3: Characteristics of the Sample (N = 713)
Total Sample
Categorical Variable
General characteristics of self-employed
worker
Gender
Male
Female
Education level
Less than middle school
High school
More than college
Presence of children younger than age 6
in the home
Yes
No
Employment status of spouse
Full-time
Not full-time
Continuous Variable
563
Age (years)
Education (years)
Attitude toward work (5-point scale)
Annual household expenditure level
(10,000 won)
*p < .10. **p < .05.
Frequency
Percentage
Not Willing to Leave
Self-Employment
Frequency
Percentage
Willing to Leave
Self-Employment
Frequency
Percentage Chi Square
590
123
82.7
17.3
511
97
84.1
15.9
79
26
75.2
24.8
4.866*
210
356
147
29.5
49.9
20.6
176
310
122
28.9
51.0
20.1
34
46
25
32.4
43.8
23.8
1.891
229
484
32.1
67.9
185
423
30.4
69.6
44
61
41.9
58.1
5.410*
627
86
87.9
12.1
539
69
88.7
11.3
88
17
83.8
16.2
1.979
M
SD
t-Test Value
M
SD
M
SD
43.28
11.39
3.38
9.23
3.15
1.13
43.21
11.38
3.43
9.07
3.17
1.11
43.70
11.43
3.12
10.14
2.99
1.22
–0.462
–0.152
2.373**
2,006.39
1,047.07
2,038.30
1,068.20
1,822.90
899.10
2.199**
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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL
Table 4 presents the characteristics of the businesses owned by the
self-employed. In this study, the businesses of the self-employed
on average had two employees, generated 24,000,000 won
(U.S.$24,000) of net income per year, and had about 10 working hours
3
per day. These findings suggest that most businesses of the selfemployed are small, generate relatively low income, and require long
hours. Those who had fewer employees were more willing to leave
self-employment, a finding that implies that businesses that
employed more workers were more successful and that business
owners may have felt a greater responsibility to keep the business
running. For those willing to leave self-employment, satisfaction with
various aspects of the business was relatively lower than for those not
willing to leave self-employment. Those who were willing to leave
self-employment were likely to be relatively dissatisfied with income,
working hours, the future of their business, and the work itself. Interestingly, for both groups of self-employed workers, satisfaction levels
were highest for the work itself. Also, if the type of business was
wholesale and retail trade, leaving self-employment was more likely
as compared with other types of business.
Results of logistic regression on the willingness to leave selfemployment are shown in Table 5. Human capital of the selfemployed worker as measured by age and education did not have a
significant effect on willingness to leave self-employment, similar to
the results of Evans and Leighton (1989) and Ryew and Choi (2000).
These findings, however, stand in contrast to the conclusion of Kum
and Cho (2000) that self-employed workers in Korea were divided
into two groups—capable workers and inevitably self-employed
workers.
Economic resources play a significant role in the willingness to
remain self-employed or not. Willingness to quit self-employment
was positively associated with not having a spouse employed fulltime but negatively associated with higher levels of household
income as proxied by household expenditures.
Those who had children younger than age 6 in their households
were likely to leave self-employment. This result can imply that when
a self-employed business is in the early start-up stage, time demands
of the business and care of young children can conflict. Care for a
young child is difficult when the parent must work longer hours as a
self-employed worker. Yong (1998) reported that the work schedules
of members of small business did not provide consistent days off from
TABLE 4: Self-Employed Business Related Characteristics
Total Sample
Categorical Variable
Business location
Home based
Not home based
Type of business
Construction
Sales and trade
Transport
Miscellaneous
Continuous Variable
Characteristics of the business
Number of employees
Annual total sales of business
(10,000 won/year)
Annual net income of business
(10,000 won/year)
Respondent satisfaction with aspects
of business
Income
Working hours
Future of the business
Work itself
565
*p < .10. ***p < .001.
Frequency
Percentage
Not Willing to Leave
Self-Employment
Frequency
Percentage
Willing to Leave
Self-Employment
Frequency
Percentage Chi Square
295
418
41.4
58.6
248
360
40.79
59.21
47
58
44.76
59.24
0.583
79
331
91
212
11.1
46.4
12.8
29.7
72
271
77
188
11.8
44.6
12.7
30.9
7
60
14
24
6.7
57.1
13.3
22.9
7.202*
t-Test Value
M
SD
M
SD
M
SD
2.3
4.66
2.44
4.99
1.53
1.56
11,339.13
21,042.10
11,414.12
21,002.38
10,878.54
21,396.98
0.219
2,369.23
1,503.05
2,394.45
1,347.68
2,225.32
2,198.34
0.763
2.51
2.77
2.82
3.08
0.86
0.96
0.88
0.72
2.57
2.83
2.89
3.15
0.85
0.94
0.85
0.65
2.13
2.40
2.35
2.68
0.84
1.04
0.93
0.93
3.537***
4.888***
3.959***
5.634***
4.969***
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TABLE 5: Results of Logistic Regression
Variable
Parameter
Estimate
Standard
Error
0.021
0.061
0.016
0.051
0.945***
0.000**
0.349
0.000
0.684***
–0.277**
0.271
0.118
–0.147
–0.191
–0.516***
–0.589***
0.177
0.143
0.180
0.204
Resources
Human capital of self-employed worker
Age
Education (years)
Economic resources of self-employed worker
Employment status of spouse (regular job omitted)
Household expenditure
Constraints
Time
Presence of children younger than 6
Attitude toward work
Satisfaction with:
Income from business
Working hours in business
Future of the business
Work of the business
Business characteristics
Self-employed worker male
Business is not located in home
Type of business (construction omitted)
Wholesale and retail trade
Transport, storage, and communication
Other
–1.294***
0.003
0.503
0.276
–0.745
–0.203
–0.616*
0.506
0.396
0.328
Intercept
–2 log likelihood
Concordant
–3.058**
90.057
78.3%
1.287
*p < .10. **p < .05. ***p < .001.
the business. This burden of long or irregular working hours was
worse when young children were in the home.
Self-employed workers who agreed that hard work contributed to
enjoyment of life were less willing to leave self-employment. Satisfaction with future of the business and work of the business also had a
significant effect on the willingness to leave self-employment. Those
who believed positively in the future of their business and who were
satisfied with the work of the business were less likely to leave selfemployment. Choi (1991) reported in his study that self-employed
workers were worried about the future of their business; however, the
subjective satisfaction with their business was relatively high.
Kim et al. / LEAVING SELF-EMPLOYMENT
567
Among the business-related variables, willingness to leave selfemployment varied according to gender of the business owner and
type of business. Specifically, male business owners were less likely
than female business owners to be willing to leave self-employment.
Although no difference in willingness to quit self-employment was
found among most business types, those who had a business classified as “other” were less likely to be willing to quit as compared with
those in the construction business. It is noteworthy that location of the
business had no effect on willingness to leave self-employment,
because research has found that a home-based business is favorable to
household management (Heck, Stafford, Winter, & Hennon, 1993).
SUMMARY AND CONCLUSION
This study examined the characteristics of the self-employed in
Korea, their businesses, and the factors related to the willingness of
workers to leave self-employment. A conceptual framework based on
Stafford et al.’s (1999) Sustainable Family Business Research Model
was proposed to guide the research. The profile of self-employed
workers in this study provides some support for the traditional image
of self-employment. That is, support was found for the idea that the
self-employed have small businesses that are financially vulnerable
and not well organized, and they work longer hours. This image is in
contrast to the concept of the self-employed as capable young workers achieving high rewards as promoted by the venture enterprises. In
this study, neither age nor years of education was significantly associated with willingness to leave self-employment.
The self-employed workers who were less likely to leave selfemployment seemed to fit the image of “inevitable” self-employed
workers. Since the economic crisis of 1998, it has been difficult for new
workers or former self-employed workers to get wage and salary jobs
(Ryew & Choi, 2000). To leave self-employment requires the opportunity to secure other employment. If such employment is not readily
available, one might not be able to leave self-employment, even
though he or she desires to and even though the work situation in selfemployment is not good. When self-employed workers view the
future of their business positively and are satisfied with the work of
the business, the problems associated with self-employment can be
endured.
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FAMILY AND CONSUMER SCIENCES RESEARCH JOURNAL
Study results related to gender of business owner, presence of children younger than 6, household expenditure level, and some business-related variables, suggest that some public policy directives
may be needed to help certain self-employed workers. Specifically,
for those self-employed workers in the bottom tier of the labor market
(the inevitable self-employed), those who are female and who have
younger children and low finances may need support. For this type of
worker, leaving self-employment would almost certainly mean
unemployment. The resulting decline in family income could put
family members at risk of not being able to meet basic needs because
Korea does not have a social welfare system comparable to that of the
United States. Training programs in business operation provided by
the government or the business community, development of special
funds that could be used to support those female self-employed with
lower levels of human and economic capital, or child care centers that
would serve those self-employed workers who have longer working
hours and low finances could help this group remain in selfemployment and out of the ranks of the unemployed.
NOTES
1. Monetary measures in this study were scaled to facilitate empirical estimation of
the model. When units of measure are large relative to other variables, conversion of the
model under maximum likelihood can be difficult to achieve. Scaling addresses this
problem.
2. One thousand Korean won was equivalent to U.S.$1.00 in 1997.
3. For reference, in 1988, average annual household income for wage and salary
workers was 25,596,000 won ($26,000) and household expenditures for wage and salary workers were 18,432,000 won ($18,000) in all cities. Also, in 1988, average hours of
work were 50.1 hours per week, or about 7.1 hours per day (National Statistical Office
of Korea, 1999).
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