Proportion of Young Workers in Manufacturing Halved Over 20 Years... 3 out of 10 Are Aged 50 or Older

Long-standing Labor Controversy... Productivity Decline Inevitable Due to Aging Population
"Time to End 'Cheolbapton' Seniority System and Shift to Job- and Competency-Based Pay"

On the 12th, students were looking for jobs at the 'Startup Job Fair' held at the Engineering Building of Yonsei University in Seodaemun-gu, Seoul. Photo by Mo Honam munonam@

[Asia Economy Reporter Moon Chaeseok] On the 26th, the Federation of Korean Industries (FKI) released data on the 'Aging of Manufacturing Workers,' highlighting that the proportion of young workers among employees is steadily decreasing nationwide, and the production sites are aging more rapidly compared to major countries such as the United States and Japan.

According to the FKI survey, over the 20 years from 2001 to last year, the proportion of young workers among all manufacturing workers dropped from 29.7% to 14.8%, a decrease of 14.9 percentage points. In contrast, the proportion of elderly workers aged 50 and above nearly tripled, rising from 11% to 31.9% during the same period. The manufacturing sector accounts for 27.8% of the Gross Domestic Product (GDP), overwhelmingly higher than the second-ranked business services sector at 10.2%. This indicates that the manufacturing sector, which bears a significant portion of the national economy, is aging.

Specifically, comparing the proportion of workers by age group in Korea between 2001 and 2021, those aged 15-29 decreased from 29.7% to 14.8%, a drop of 14.9 percentage points; those in their 30s decreased from 33.9% to 26.4%, a decline of 7.5 percentage points. Meanwhile, the 40s age group increased from 25.4% to 27%, up 1.6 percentage points; the 50s age group rose from 9.0% to 23.9%, up 14.9 percentage points; and those aged 60 and above increased from 2% to 8%, up 6 percentage points.

The 'aging' phenomenon in Korean manufacturing is even more pronounced when compared to major countries like the United States and Japan. In particular, it is expected that the average age of workers will surpass that of Japan, which is already a 'super-aged society' with 29.1% of its population aged 65 and above. The FKI anticipates this crossover to occur this year.

Looking at data from 2011 to last year, the average age of manufacturing workers in Korea increased from 39.2 to 43 years, a rise of 3.8 years; in Japan, it increased from 41.6 to 43.1 years, up 1.5 years; and in the United States, it rose slightly from 44.1 to 44.2 years, an increase of 0.1 years. If this trend continues, the FKI projects that the average age of manufacturing workers in Korea will surpass that of Japan this year and exceed that of the United States by 2025.

The FKI diagnosed that as workers age, labor costs increase and labor productivity may decline. In particular, the increase in labor costs could become a serious issue due to Korea's unique 'seniority-based wage system.' According to the 'Supplementary Survey on Business Labor Force' released by the Ministry of Employment and Labor last year, 57.6% of companies with 100 or more employees implement the seniority-based wage system. This is more than 20 percentage points higher than the 29.0% for skill-based pay and 37.6% for job-based pay.

The seniority-based wage system automatically raises wages based on years of service, regardless of labor productivity or work efficiency. As workers age, companies must pay higher labor costs. Consequently, if companies reduce new hires to manage labor costs, it could negatively impact employment opportunities for future job seekers.

A bigger problem is that the rate of increase in labor costs, including wages, is faster than the rate of increase in labor productivity. Comparing the total labor costs and labor productivity in manufacturing between 2011 and 2020 based on data from the Ministry of Employment and Labor and the Organisation for Economic Co-operation and Development (OECD), total labor costs rose by 23.5%, from approximately 4.89 million KRW to about 6.04 million KRW, while the productivity index increased by only 16.2 percentage points, from 99.5 to 115.6.

Here, total labor costs refer to the average monthly amount paid by employers to workers, including fixed and overtime wages, bonuses, performance pay, as well as indirect labor costs such as retirement benefits and statutory labor costs. The productivity index is measured assuming 2015 as '100.'

Choo Kwang-ho, head of the FKI Economic Headquarters, argued, "In a situation where worker aging is intensifying, the wage system should shift from seniority-based to job- or skill-based pay." He emphasized, "To increase youth employment, it is necessary to innovate university education systems to cultivate talent that meets industrial demand and to make the rigid labor market more flexible to lower the entry barriers for young job seekers."

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