Revive Korea’s “Lost Growth Engine” Through Sweeping Deregulation of the Service Sector

We must remove the shackles of stagnant service-sector productivity

and open the gates to healthcare and the sharing economy to find a new path forward

by expanding consumer choice and realizing high added value

Contrary to the headline unemployment rate, Korea’s economy is grappling with a structural employment problem. While the official unemployment rate remains low, the perceived unemployment rate among young people is still high.

In particular, while quality jobs remain limited, employment continues to grow mainly in short-term, low-productivity positions, repeatedly deepening distortions in the labor market. These are structural problems stemming from the industrial structure and regulatory environment, making them difficult to resolve through conventional policy responses alone.

To raise the economic growth rate, securing new growth engines is essential, and the service sector lies at the center of that effort. Korea’s economy has developed rapidly through a manufacturing-centered growth strategy, but improving the productivity and competitiveness of the service sector has now emerged as the key task for the next stage.

Korea’s service industry still has not been able to fully realize its potential amid excessive regulation and barriers to entry. In healthcare, telemedicine remains restricted. In mobility, ride-sharing services conflict with existing institutional frameworks. In the lodging and platform industries, shared accommodation and platform-based services are also blocked by regulation.

The same is true in finance and education, where strict regulations on licensing and business methods constrain the spread of new business models. Across major service industries, regulation continues to lag behind the pace of innovation.

These constraints ultimately lead to a productivity problem. As of 2023, labor productivity in Korea’s service sector remained at about 37.9 million won, and the year-on-year increase was only 0.5%. Over the past decade or so, the average annual growth rate has also been just 0.6%, indicating a virtual state of stagnation.

Moreover, labor productivity at SMEs remains only about 52% of that of large enterprises, and the productivity gap between very small businesses and large-scale businesses has become entrenched at a threefold difference.

Looking at the economic structure, although the share of the service sector continues to expand, its productivity level remains low. This means that while the service sector has grown quantitatively, it has not developed sufficiently in qualitative terms.

In particular, employment is concentrated in low-value-added service industries such as wholesale and retail, lodging, and food services, while the shift toward high-value-added service industries such as information and communications, professional scientific and technological services, and digital platforms is proceeding slowly. As a result, labor and capital are being allocated inefficiently, creating a structure in which economy-wide productivity declines and growth slows.

The core issue lies in the accumulated regulations spread across the service sector. They make it difficult for new business models to emerge. Digital-based services are characterized by crossing the boundaries of existing industries, but regulation still maintains a fragmented, industry-by-industry structure, preventing innovation from being institutionally accommodated. In the end, regulation limits consumer choice and undermines the vitality of the entire industry.

The service sector is a field where ideas themselves become competitiveness. Yet new attempts at innovation in services are all too often blocked before they even reach the market because of opposition from vested interests in existing markets and excessive ex ante regulation.

While innovative models such as telemedicine, ride-sharing, and platform services are spreading rapidly overseas, in Korea they repeatedly fail to take root due to legal and institutional uncertainty. In such an environment, it is difficult for innovation to accumulate, and productivity gains are equally hard to expect.

What is urgently needed is rationalization of regulation in the service sector, including a shift in platform regulation toward ex post regulation, the activation of telemedicine and other non-face-to-face services, permission for Airbnb, easing restrictions on business hours and location-based industry classifications, reform of regulations on the use of personal information and data, and the utilization of foreign labor.

Deregulation can simultaneously drive innovation and productivity growth in the service sector while expanding consumer choice and markets, becoming the foundation for the service sector to emerge as a new growth engine of the Korean economy.

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Original title: 서비스업 규제 대수술로 韓 경제의 '잃어버린 성장 엔진' 되살려야

Author: Ho-gyeong Lee

Date: 2026-04-09

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=28793