Major Issues in Categorizing Small Businesses: Supporting Small Businesses through Improved Categorization

The Korean government is considering providing a fourth round of disaster relief funding to support small businesses hard-hit by the prolonged social distancing measures implemented to contain the spread of COVID-19. However, determining which businesses should benefit from this support is quite tricky. Legal business entities such as microenterprises and privately-owned companies are not the same as struggling, self-employed small businesses. During the second and third rounds of support, only privately-owned microenterprises were eligible for relief. The amount of financial support available varied depending on whether businesses were ordered to limit the number of customers, had restrictions placed on business hours, or suffered losses in revenue. Small business establishments categorized neither as microenterprises nor as privately-owned companies have been excluded from receiving support, regardless of the economic hardship they face. Moreover, privately-owned microenterprises (many of which are far from being small businesses with narrow operating margins) are not excluded from receiving support. This paper explores proposals for policy that would address these issues to ensure greater equity in COVID-19 disaster relief.