"Extending Retirement Age Is Not a 'Cure-All' for an Aging Society... Start by Improving Seniority-Based Wage Systems"

The Tripartite Commission Publishes 'Social Dialogue Brief No. 7'

"Concerns Over Corporate Cost Burden and Youth Employment Impact
Wage System Reform Needed to Prevent Generational Conflict"

[Sejong=Asia Economy Reporter Moon Chaeseok] A claim has emerged from the Presidential Commission on Economic and Social Research, a tripartite grand compromise body, that extending the retirement age is not necessarily a "panacea" for an aging society, and its limitations must be carefully examined.

On the 30th, in the 'Social Dialogue Brief No. 7' published by the Economic, Social, and Labor Council (ESLC), expert committee member Gumi Hyun suggested, "We must clearly recognize that extending the retirement age is not a panacea and promote a thorough review of the limitations and problems that may arise in the field."

According to him, discussions began in June 2019 during the Moon Jae-in administration when Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated on a public TV debate program, "Since the baby boomer generation's retirement measures are insufficient and could become a significant social burden, it is time for broad social discussions on extending the retirement age." At that time, Minister Hong argued, "Considering that about 800,000 baby boomers leave the labor market annually while only 400,000 enter, the negative effect on youth employment will be mitigated."

Expert Gumi noted that if labor market rigidities such as the seniority-based wage system are not proactively addressed, side effects like a decrease in youth employment could occur. He emphasized that the two contentious issues?rising corporate cost burdens and the substitutability with youth employment?must be narrowed through social dialogue. If employment is extended without improving the seniority-based wage system, where wages increase in proportion to years of service, the increased corporate cost burden will inevitably lead to a reduction in new hires.

According to him, a survey conducted by the Korea Chamber of Commerce and Industry on September 27 of 300 large and small-to-medium enterprises in Korea found that 89.3% reported "difficulties in managing middle-aged and older workers" due to the mandatory retirement age of 60. The most cited reason was "high labor costs," at 47.8%. Regarding the extension of the retirement age to 65, 71.7% responded negatively. Reasons included "premature to extend retirement amid severe youth unemployment" (40.7%), "even if employment is extended, the method of extension is unacceptable" (23.7%), and "opposition to a system that benefits only good jobs in large corporations and public institutions" (7.3%).

Expert Gumi said, "It is time for a concrete review of the seniority-based wage system and promotion and salary increase systems," adding, "Discussions on extending employment for older workers should proceed in a way that precedes discussions on wage system reform, various employment extension methods, and working hour adjustments." He further stated, "Regardless of the method, companies' wage and promotion plans should maintain incentives for long-term service but be adjusted to closely reflect actual productivity to ensure the practical employment stability of middle-aged and older workers."

He viewed that extending the retirement age could result in taking away youth employment opportunities, potentially leading to "generational conflict." Expert Gumi said, "Especially in so-called 'quality jobs' such as public officials, teachers, public enterprises, and large corporations, most will be affected by employment extension, so there is a high possibility of generational conflict over jobs." He added, "Reforming the personnel management system to focus on job roles and abilities rather than age or years of service will improve the productivity of older workers after employment extension and increase wage flexibility, narrowing the gap between the legal retirement age and the actual retirement age in main jobs."

He also advised paying attention to Japan, which first supported wage system reform during its social grand compromise process and then legislated the extension of the retirement age for older workers. He said, "Even if the pace of aging response policies accelerates in Japan, they basically promoted institutionalization by inducing employment extension through support measures such as wage system reform and finally making it legally mandatory." He added, "It is necessary to listen to the opinions of labor, management, and stakeholders, design various concrete employment extension plans, and provide sufficient time for companies and workers to prepare for related institutional and policy changes."

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