What We Need Is to Abolish Mandatory Retirement, Not Extend It

Calls to extend the mandatory retirement age yet again are stirring controversy. With the side effects of the retirement age of 60, implemented in 2016, still unresolved, it is hard to see a legally mandated retirement age of 65 as anything but premature. Only five years ago, when the government forced the retirement age to 60, our society went through major confusion. Yet even now, with frustration still high among young people who have not been able to find jobs, labor unions and some in politics are making irresponsible claims.

The government’s legally mandated extension of the retirement age has threatened workers’ jobs and has even taken away employment opportunities from young people. Of course, it has also increased the burden on business owners and raised the costs of conflict with labor unions. Assistance costs for the unemployed have risen, and the social costs caused by the growing number of job seekers are also considerable. The burden on the government budget is likewise enormous.

Even apart from the issue of economic cost, forcing a retirement-age extension by law is an infringement on freedom. Every individual should be free to engage in voluntary transactions. It is wrong for the government to override the freedom to decide the length of one’s working life and determine it instead. Making employment contracts mandatory up to a certain retirement age deprives both workers and employers of their freedom. When the employment period is determined through a free contract between the parties, it can generate more jobs and greater income. When the government imposes it by law, the side effect is a reduction in employment and a decline in the income of workers as a whole.

Labor unions claim that extending the retirement age serves the interests of union members, but this argument fails to recognize that it reduces the earned income of both union members and society as a whole. One of the most representative side effects of the retirement-age extension—“increased labor cost burdens for firms and a rise in early retirement”—jumped sharply from an annual average of about 370,000 before implementation to about 510,000 afterward. Another consequence is “worsening youth unemployment.” Looking at the trend in the number of unemployed people in their 20s, after the retirement age of 60 or older was made mandatory, the figure increased by more than 70,000 compared with before.

While extending the retirement age, the government and labor unions did not take other measures that could have reduced its side effects. If the costs resulting from mandatory retirement-age rules had been appropriately shared by labor and management, those side effects could have been reduced. In particular, because many workplaces use a seniority-based wage system, the productivity gap created by extending the retirement age should have been offset through a wage peak system, an annual salary system, or a job-based pay system. But the government and labor unions turned away from this. Under such circumstances, trying to raise the retirement age again to 65 undermines the economy’s autonomous functioning and reflects a bias toward political logic. Forcing wages that are detached from productivity is a measure that hurts both workers and employers.

If we take reality into account, the government should not present a uniform standard for all workers, as it does with retirement-age extension. Rather, employment contracts for those aged 60 and over who have passed retirement age should remain a recommendation, not a mandate. And decisions on whether a worker should continue employment should be made through flexible labor contracts based on autonomous agreement between labor and management, taking into account not only industry-specific conditions but also each individual’s abilities and qualifications.

Japan offers a precedent. Since last April, Japan has been implementing the Act on Stabilization of Employment of Elderly Persons, which allows workers who wish to do so to continue working until age 70. This is not compulsory, but an obligation to make efforts without penalties. When employees turn 66, companies can choose retirement, a five-year extension of the retirement age, or various forms of reemployment, and firms make efforts to reemploy their staff.

The most desirable approach is to abolish the retirement age system on the basis of labor flexibility and greater autonomy. In a free-market system, political coercion with clear limits only provokes resistance. The time has come to abolish the retirement age and consider flexible choices tailored to the autonomous abilities and qualifications of individual firms and workers.

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

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Original title: 정년연장이 아닌 정년제 폐지가 필요하다

Author: Sung-no Choi

Date: 2021-12-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24448