WITH THE inauguration of President Yoon Seok-yeol in May this year, the South Korean labor market has undergone significant changes. The Yoon administration is addressing the problem of low employment maintenance rates for senior workers by extending the retirement age from 60 to 65 and introducing adjustments to the wage system to compensate for the possible downsides of implementing said agenda. One side-effect of transitioning from an age-based wage system into a performance-based promotion and salary system is the decrease in youth employment rate. As entry into the labor market is becoming increasingly challenging, the public is paying attention to how the extension of the retirement age policy would affect the various problems in the current labor market.

Analyzing the extension of the retirement age policy

   The current retirement age under the South Korean legislature is 60. One reason for extending the retirement age is to benefit elderly workers who are facing hardships due to the discrepancy between the age of retirement and when they receive the national pension. In general, after an elderly individual retires, they have no source of material income as they become economically inactive. Therefore, filling the income gap of elderly retirees is a solution; it would be a solution to sharing economic burdens before the situation becomes unrecoverable, which is the conundrum extending the retirement age to 65 aims to resolve. However, there are problems with upholding even the compulsory age of 60. Extending the retirement age to 65 would be unfeasible since the already extended legislative age of 60 is being inadequately implemented due to the wage peak system[1], social pressures, and honorary leaves encouraging and pushing senior workers to leave before they reach their retirement age. Another reason for implementing said agenda is because it is a way to increase the productive working population by providing a working environment for the inactive elderly population, but experts are divided on the effects of implementing said policy.

   The expected rise in state and social costs resulting from an aging population point to why the agenda to extend the retirement age is a sensitive topic. Under such a prognostication, the welfare burden will enlarge as the costs of taking care of the increased elderly population would fall mostly on younger generations. Thus, matters concerning ways to deal with the senior workers entails the possibility of igniting generational conflict, aggravating political disputes, and exacerbating polarization—not only because keeping elderly workers in the workplace are seen to take away job opportunities from younger workers, but also because the problem in and of itself is a sensitive one that affects the younger generation. In addition, the fact that there are contradicting research results is adding oil to the fire of an already divisive issue. While some experts state that extending the retirement age may either benefit both the younger and elder generation or not influence youth employment at all, others are claiming that the said agenda may deter the younger generation from attaining new employment[2]. 

Free democracy and market economy

   It is necessary to take a look at Yoon’s economic policies to better understand his proposal of extending the retirement age. Since his election, Yoon has pursued flexicurity—measures to make the labor market more flexible through the provision of sturdier safety nets for under-protected workers[2]. Yoon’s measures to increase social services and welfare policies for economic growth all point to his goal of promoting a free democracy and market economy by increasing flexibility within the system. In his own words, Yoon wants to “create jobs and strengthen [the] middle class by shifting the focus of [the] economy toward the private sector rather than leaving it led by the government[3].”

   Yoon’s policy to extend the retirement age, however, faces challenges as it may cause more problems than it solves. The policy has sparked debate regarding whether to resolve the issue by prioritizing youth unemployment or security for older workers. A fixed number of jobs in the labor market, extending the mandatory retirement age will make it more challenging for younger generations to find employment opportunities. To add on, Yoon’s retirement policy is inspired by the northern European labor model. The opposition party has proposed that simply adopting the European model to Korea may not be an appropriate solution as it may not consider the unique differences in Korea’s labor system[5]. Lastly, limitations in physical-capital investment and opposition from the Korean Labor Union are more problems Yoon’s policy has to contend with[4].

Prognostications and solutions

   The demographic prognostication for South Korea is that the working age population is expected to decline[5]. With the adoption of a policy that would extend the retirement age and lead to senior workers staying in the workforce, the working age population is expected to decline even further. To improve conditions within the labor market, Yoon has proposed to discontinue the seniority-based wage system. Korea’s current seniority-based wage system underpays workers who have spent less time in the company and gives a larger sum of money to senior workers who have spent more time at the job regardless of their productivity, capability, and contribution[5]. Yoon’s policy to discontinue the seniority-based wage system would be a means to bolster the relationship between productivity and age—a system that would give more competent employees a higher wage and less competent employees a lower wage and balance out the problems raised by extending the retirement age.

   Regarding the issue of a growing elderly population and shrinking working age population, the main point of any labor policy would be to find a middle ground––a solution to balance the younger generation’s concerns regarding the exhaustion of National Pension Service funds and annuity payments with the older generation’s  fear of losing jobs[1]. This points to how the government needs to deeply analyze and thoroughly address the issue of polarization. Companies will also face difficulties with a higher senior population in the workforce that would lead to low work efficiency, with the additional problem of having to make new duties for senior workers who would not be able to retire[1]. In this case, the challenge would be finding the necessary balance between the burden companies will have to carry and the challenges elderly workers will have to face such as social stigmas regarding productivity. To deal with this problem, establishing a productivity-based pay system and countermeasures, such as early leave programs that give elderly workers monetary aid to cope with the discrepancy between when they receive pensions and when they retire, should be considered.

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   As the benefits of extending the retirement age do not apply to every worker, a flexible approach catering workers in varying sectors needs to be devised to cope with the drawbacks of implementing such a policy. There should be a solution that is cognizant of not only the type of corporation or company the policy would be implemented in but also of the type of people the policy would be applicable for. As such, a more delicate way to tackle the issues of the status quo is urgent—one that does not force all institutions to take a uniform solution, but a multifaceted policy that is considerate of different circumstances and the autonomy of individuals and individual corporations through a joint consultative process.

[1] The Hankyoreh

[2] Wage peak system: A salary payment system where companies gradually reduce wages for senior workers before they reach their retirement age

[3] The Investor

[4] Bloomberg

[5] Yonhap News Agency

[6] e-Labor News