[Op-Ed] The More the Retirement Age Rises, the Narrower the Door to Youth Employment

Raising the Retirement Age: Young People Lose Employment Opportunities, and Companies Face Higher Labor Costs

When one additional older worker is hired, opportunities to hire young workers decline by as many as two

The business community opposes raising the statutory retirement age, citing concerns over heavier wage burdens and greater labor market rigidity for firms

As the retirement age continues to rise, the employment cliff facing young people grows even steeper. The future of young people, which should be filled with promise, is becoming increasingly uncertain as job opportunities shrink.

With the ruling party expected to propose a bill to raise the retirement age to 65, debate over extending the retirement age is reigniting. Young people are opposed to a uniform extension because it would deprive them of employment opportunities, while companies are negative about it because of the added labor cost burden.

At a time when there is already a shortage of quality jobs sought by young people, extending the retirement age for older workers would result in taking away labor market opportunities from the young. This leads to an “employment cliff,” which is particularly damaging for young people, for whom the experience of building a career is itself highly meaningful. This is not merely a problem for the younger generation. Unless legislation and policy can provide them with sufficient job opportunities, the broader economic harm to our society will be unavoidable.

Extending the retirement age for older workers reduces firms’ capacity to hire new employees. According to a report by the Korea Employers Federation (KEF), when retirement age extension results in one additional older worker being employed, opportunities to hire young workers decline by as many as two. If firms are forced to choose constraints over flexibility in workforce management, they will have no choice but to focus more on retaining older workers rather than discovering and developing new talent.

The additional costs generated by retirement age extension place a significant burden on firms, and those costs are ultimately passed on to consumers. Since most companies in Korea adopt a seniority-based wage system, wages rise with age while productivity declines. As this gap widens, firms face greater burdens and lose competitiveness. As a result, Korean companies are placed at a disadvantage in competing with foreign firms that are freer from such regulation. If competitiveness declines and firms become distressed, domestic companies will be pushed out and unemployment will surge to an irreversible level.

The business community opposes raising the statutory retirement age out of concern that it would intensify firms’ wage burden and labor market rigidity. In fact, after the retirement age was legislated in 2013 to be at least 60, labor market flexibility did not improve in tandem, and the burden on firms increased even further. This applies not only to direct labor costs such as wages but also to indirect labor costs such as social insurance premiums and severance pay. In countries where seniority-based wage systems are prevalent, proposals like this should not be discussed before wage system reform is addressed first.

A voluntary continued-employment system is more efficient than an unconditional extension of the retirement age. Japan has also adopted this approach. Applying the same standard to all workers while disregarding individual differences also places an excessive burden on older workers. Above all, it deprives young people of opportunities to work. Measures should be 마련되어야 한다 for older workers to work flexibly and freely according to the circumstances faced by each industry and sector.

The more the retirement age rises, the narrower the door to employment becomes for young people. We need to think once again about what truly matters for our society right now: a forced extension of the retirement age, or job creation for the younger generation. We must build a flexible employment system that not only provides quality jobs and helps strengthen corporate competitiveness, but also enables older workers and the younger generation to prosper together.

Haein Kim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 정년이 늘어날수록 청년 취업의 문은 좁아진다

Author: Hae-in Kim

Date: 2024-12-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=27221