Lee Chang-yong, the governor of the Bank of Korea, emphasized that "if the retirement age is extended without reforming the seniority system, many problems will arise."
The governor noted at a joint symposium held on the theme of "Poverty and Labor in an Aging Society: Asking for Policy Directions" at the Korea Development Institute (KDI) on the 15th that "if the structure of the seniority system is not changed, issues such as a shortage of demand for older workers and a reduction in youth jobs will arise," and stated, "Changing the seniority system is the most important thing."
He said, "If the wage gap between young and older workers is large, it becomes difficult to reflect productivity in wages and also challenging to hire older workers," adding that "according to a Bank of Korea survey, even if older workers receive only 60% of their pre-retirement wages, their income is higher than that of self-employed individuals, so there will still be a demand to work even if wages fall somewhat."
Currently, the National Assembly is pushing for a plan to extend the retirement age from 60 to 65, citing concerns over "elderly poverty" due to the gap between pension income, which is a source of income for older individuals, and the retirement age.
However, economic experts believe that a blanket extension of the retirement age could lead to side effects such as a contraction in youth employment and reluctance to hire older workers.
According to the KDI, when the mandatory retirement age of 60 was phased in starting in 2016, three out of five older workers benefited from extended employment, but it resulted in a reduction of one job for every young person. Additionally, a noticeable reduction in new hiring has occurred, particularly in large corporations and the manufacturing sector.
The majority of economic experts agree that "we need to seek ways to actively utilize the labor force of older workers for the sake of the Korean economy," emphasizing that "it is not just about simply extending the retirement age; rather, reforming the seniority system is essential for utilizing older workers."
Han Yosub, head of the labor market research team at KDI, stated that the "young old," a term combining young and old, are living longer and healthier than before and have higher education levels, and that effectively utilizing these individuals can offset the negative impact of the declining working-age population on the economy.
He argued, "However, for the young old to engage in productive activities, fundamental changes are needed in the labor market." The head of team added, "Even if employers want to hire older workers as regular employees, the burden of high wage structures and employment protection systems may limit demand, and this could also lead to a reduction in youth jobs."
Economic experts emphasize the need to pay attention to Japan, which has a similar employment market structure to South Korea. Japan implemented the Revised Employment Security Law for Older Workers in 2021, imposing an "effort obligation" on companies to maintain employment for workers up to the age of 70. All corporations can choose one of various methods, such as extending retirement age, abolishing retirement age, introducing a continuous employment system, and outsourcing contracts to ensure the employment of older workers. The most commonly used method among these is known as "re-employment after retirement."
The head of team remarked, "The Japanese approach is something we can definitely start and is a viable alternative," adding, "We need to create an environment that is friendly to older workers."
Lee Jae-ho, vice administrator at the Bank of Korea's Research Bureau for Macroeconomic Analysis, emphasized that "to alleviate the excessive entry of older workers into self-employment, creating an environment where they can work long-term in stable wage jobs is the most important thing."
He analyzed, "Even if older workers receive only 60% of their pre-retirement wages, it is at a level higher than the median income of self-employed individuals. If they can continue to work after 60, there is a high possibility that they will prefer wage jobs, even if their income decreases."
Meanwhile, it has been suggested that in order to expand the employment of older workers, a multifaceted approach is needed, including not only reform of the seniority system but also the establishment of platforms and expansion of vocational training.
Eom Sang-min, a professor of economics at Kyunghee University, said that "it is essential to provide older workers with a job search process aimed at increasing productivity along with transparent wage information," and added, "To achieve this, it is necessary to activate labor-related platforms and expand industry-based programs such as local job matching programs."