Calls to Raise the Retirement Age Are Premature

Labor unions in the finished automobile industry have stepped forward demanding that the retirement age be extended to as high as 65. Since union members at key Korean Confederation of Trade Unions workplaces are clustered around retirement age, this appears to have prompted calls for extending the mandatory retirement age. However, forcing an extension of the retirement age without complementary measures would serve only as a short-term benefit for existing workers.

In the long run, it is highly likely to produce side effects that harm society as a whole, such as worsening corporate financial structures, intensifying youth unemployment, and undermining industrial competitiveness. Therefore, before accepting the demands of unions seeking to protect vested interests, discussions should first focus on making the wage peak system and job-based pay system mandatory.

Korea is experiencing rapid aging and a decline in its working-age population. Accordingly, in the long term, voluntary reemployment between companies and workers past retirement age is likely to occur. In light of this, there is no reason to force an extension of the retirement age.

The government needs to devote policy efforts to providing education programs for reemployment. When the retirement age was extended to 60 through the 2013 revision of the Elderly Employment Act, the failure to mandate complementary measures such as the wage peak system and job-based pay system caused major confusion. As the base salaries companies had to bear increased, they had little choice but to reduce performance-based pay. Employees’ motivation and performance declined, and the burden of higher prices borne by consumers also grew.

Extending the retirement age without first transitioning to a wage peak system and job-based pay system negatively affects not only companies but workers as well. That is because the excessive burden of labor costs blocks young people from entering new jobs. Moreover, with the economy on the verge of collapse due to COVID, it is obvious that recklessly extending the retirement age would freeze new hiring even further.

In the end, the unions’ current demand for a retirement-age extension is nothing more than an attempt to protect their iron rice bowl by kicking away the ladder of social advancement for young people. One young person, concerned about these side effects, even posted a Blue House petition opposing the retirement-age extension. The issue now appears to be worsening generational conflict between the older generation and Generation Z.

Representative policies that can preemptively prevent the risks of extending the retirement age are the wage peak system and the job-based pay system. The former extends employment to stabilize workers’ income, while gradually lowering wages from a certain age onward to reduce the burden on companies. The latter sets base pay according to the relative value of each job, such as its difficulty and level of responsibility, rather than according to seniority.

If these measures are properly utilized, workers can earn a stable and high income if they work hard, while companies can retain capable employees longer and still reduce their burden, creating a mutually beneficial structure. In the past, retirement-age extensions were made mandatory while such measures were not, which only increased union benefits. As a result, as of 2021, the adoption rate of the wage peak system among workplaces with 300 or more employees stood at only 54%. In the case of the job-based pay system, only 21 of the total 340 public institutions had adopted it, for a rate of just 5.8%.

If an extension of the retirement age without the prior adoption of the wage peak system and job-based pay system is forced once again, young people will lose opportunities for new employment and have no choice but to turn to low-quality jobs such as contract work, freelancing, or part-time work. Overall social productivity will decline even further, and conflicts among various groups—including older and younger generations, and regular and non-regular workers—will also worsen.

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

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Original title: 성급한 정년연장 요구

Author: Sung-no Choi

Date: 2021-09-16

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24220