Do Not Legally Mandate a Higher Retirement Age

The harmful effects of the mandatory retirement-age extension imposed by law 2 years and 5 months ago have been substantial. The side effects showed that only some people benefited, while the burden increased for the vast majority of workers and businesses. The benefits were concentrated on a small minority of workers—about 10%—who receive high wages at the government, public enterprises, and large corporations. In these workplaces, as the number of retirees decreased, new hiring became more difficult. As a result, an employment cliff emerged that blocked young people from finding jobs for long periods, worsening social polarization.

It is inappropriate for the government to now say it will once again consider extending the retirement age when it has failed to resolve those side effects. The first priority should be efforts to address the harm caused by legislating a retirement-age extension. Above all, reform of the wage system, including a wage peak system, must come first.

When the retirement-age extension was made mandatory, wage-system reform was supposed to be pursued alongside it, but that effort was derailed by politicians’ populist giveaways and obstruction by labor unions. In reality, the wage peak system remained at the level of being introduced only symbolically in a handful of workplaces. Though late, government institutions should now at least be required to reform their seniority-based wage systems into job- and performance-based pay systems.

Some argue that the retirement age should be extended further in preparation for a super-aged society. That is detached from reality. The aging issue and the retirement-age issue are separate matters. They must be considered separately. Even if the retirement age is mandated by law, in reality the only workers who actually retire at that age are a small, privileged labor group. They are already high-income earners. Funnel­ing even more income to this upper tier cannot be a solution to population aging.

The reality is that most workers take early retirement around age 50. If the retirement age is forcibly extended, the actual retirement age may instead fall. No organization can keep workers for long when they are paid high wages that exceed their productivity. In fact, in most workplaces, workers’ productivity begins to decline around age 50. If the nature of the work and wages cannot be adjusted rationally, it becomes difficult to maintain employment. Forcing the retirement age by law is nothing more than an armchair argument rooted in legal omnipotence that ignores reality.

Then in an age of 100-year lifespans, how can older people in their 60s, 70s, and 80s continue to work and find jobs under better conditions? What the government should do is not force a retirement age by law, but help retirees acquire skills suited to new jobs through retraining. Socially as well, it is a more desirable direction to help them find jobs in workplaces with stable pay rather than pushing them into reckless investment as self-employed business owners.

Japan and Western countries do show a tendency to delay retirement. But their circumstances differ from ours. Social consensus is possible there because companies want retirement-age extensions and because such extensions have positive social effects. In addition, advanced countries do not have militant labor unions like the Korean Confederation of Trade Unions, and because they have rational wage systems, the harmful effects of extending the retirement age are smaller.

Japan did not legally force an extension of the retirement age to 65. It allowed companies to choose whether to extend the retirement age, abolish the retirement system, or retain workers through re-contracting. More than 80% of companies chose a form of employment under which, for those who wished to keep working, working hours and wages were set through one-year renewable contracts.

In fact, a mandatory retirement system is not a desirable institution. There is no reason to discriminate in employment based on age. The desirable direction is to abolish the retirement system and create conditions in which rolling recruitment, free contracting, and dismissal when necessary are possible. Just as Anglo-American countries abolished mandatory retirement systems, Korea as well should make abolition of the retirement system a long-term goal and move to improve the laws and institutions needed for that purpose. To do so, all regulations that legally restrict employment periods and wages should be removed, and the business environment should be improved so that firms and workers can freely agree on diverse forms of work, contract periods, and wage arrangements according to the nature of the work and performance.

Sung-no Choi, President, Center for Free Enterprise (CFE)

---

Original title: 정년연장을 법으로 강제하지 말아야

Author: Sung-no Choi

Date: 2019-06-24

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=24&idx=20287