"With 10 More Years of Service, Wages Increase by 15%... Korea Needs to Improve Seniority-Based Pay"

[Asia Economy Reporter Jeong Hyunjin] South Korea has been found to have the largest wage increase due to longer tenure at the workplace compared to other OECD countries. It has been argued that if this seniority-based wage system continues, it will negatively impact youth employment and pose a significant obstacle to extending the retirement age.

On the 8th, the Korea Economic Research Institute under the Federation of Korean Industries revealed this through a report titled "Wage System Reform Measures in Response to Changes in the Economic Environment," commissioned to Professor Lee Sanghee of Korea University of Technology and Education. Using OECD data, the report showed that when tenure increases from 10 to 20 years, wages increase by 15.1% solely due to the increase in years of service, marking the largest increase among 28 OECD countries surveyed. The OECD average was found to be 5.9%.

(Source: Korea Economic Research Institute)

Professor Lee, who authored the report, pointed out, "Despite the need to reform the seniority-based wage system to align with changes in the domestic economic environment such as intensified global competition, youth employment, and intergenerational conflicts, no progress has been made so far." He analyzed that the seniority wage system is more widely adopted in large corporations and workplaces with labor unions, which could affect wage disparities between large and small-medium enterprises and discrimination between regular and non-regular workers. He also noted that seniority wages pressure older workers toward early retirement and that forcibly extending the retirement age could severely reduce job creation for the youth.

Countries like the United States, Germany, and the United Kingdom have continuously improved their wage systems to reflect changes in economic environments, such as individualization and decentralization of labor relations. Even in Japan, efforts to incorporate job or role elements from a corporate competitiveness perspective have weakened seniority effects, Professor Lee evaluated. At the same time, during the wage system improvement processes in major advanced countries, the U.S. market wage information, Germany’s job-based collective agreement wages, the U.K.’s job-based wages reflecting agreements and market wages, and Japan’s inter-company wage adjustment functions have also played roles in preventing labor market dualization.

Professor Lee stated, "South Korea has a company-centered seniority wage system similar to Japan’s, but unlike Japan, it lacks wage curve-type personnel management or inter-company adjustment practices, is not a collective agreement wage system through sectoral bargaining like in Europe, nor is it a structure where market wages are well reflected as in the U.S. or the U.K." He added, "These structural issues must be considered when reforming the wage system in the future."

Regarding the domestic seniority wage system, it was evaluated as irrational in compensating regular workers due to its gap with productivity, causing conflicts with youth employment and negatively affecting older workers’ employment through early retirement. Furthermore, based on Korea’s weak sectoral bargaining reality, the report analyzed that proposals to reform the wage system through establishing a European-style sectoral bargaining system or improving labor relations legislation are difficult to realize.

Professor Lee argued, "Discussions on wage system reform cannot be handled through a negotiation structure between worker representatives who do not want to abandon the seniority system and employer representatives who want to introduce job-based pay." He insisted, "Future discussions and policy implementation on wage system reform should be promoted through a method that gathers nationwide public opinion, including not only labor and management representatives but also youth and older generations who are in job competition relationships."

This content was produced with the assistance of AI translation services.