Discussion continues over extending the retirement age

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By Yoon Ja-young

As the country finds itself with an aging population, the government is exploring ways to keep senior workers in the labor force. But it is looking into various options and treading carefully as an abrupt, one-sided extension of the legal retirement age will likely face backlash from younger workers as well as jobseekers.

With the country's record-low birthrate continuing to drop, Korea's population started to decrease last year ― the number of babies born totaled only 272,400, while 305,100 people died. The working age population, or those aged from 15 to 64, started to decline even earlier, in 2018. That figure is expected to fall to 29.66 million in 2038 from 37.65 million in 2018.

These realities mean that in the future, the government will be able to collect less tax revenue from workers, while there will be more elderly retirees who need financial support. Every 100 individuals in the working age population will have to support 76 elderly people in 2065, which is the highest number of elderly among the Organization for Economic Cooperation and Development (OECD) member countries.

To dampen the shock of this demographic cliff, extending the retirement age is being explored as one possible solution.

Potential impact on young jobseekers, employers

The administration, however, is taking a cautious approach as it considers extending the legal retirement age. It has started using the term, "extension of employment," instead. This broader term includes various options to ease the burden of the growing population of aging workers on the government, society and businesses: rehiring workers who have retired, eliminating the retirement age completely and extending the retirement age from 60 to 65.

In particular, some politicians fear that extending the retirement age will mean losing support from young voters. If the retirement age is extended, businesses will decrease new hiring due to increased labor costs, which will exacerbate youth unemployment.

"When considering the pace of the aging of the population, it will be necessary to extend the retirement age. However, extending it too much at one time can become an excessive burden on private companies. They may end up inducing the voluntary retirement or resignation of workers, and most of all, there is concern that they might reduce the hiring of new workers," said Joseph Han, an associate fellow at the Korea Development Institute.

Korea already extended the retirement age to age 60 step by step beginning in 2016, and it turned out that while jobs did increase for senior workers between the ages of 55 and 60, employment dropped for young people below age 30. According to an analysis by Han, as businesses in the private sector have extended the retirement age to 60, for every one older worker who benefited from the extension, the number of new hires among young workers has decreased by 0.6.

The issue is causing intergenerational conflict.

The labor unions of the country's three carmakers, Hyundai, Kia and GM Korea, have submitted a petition to the National Assembly requesting extension of the retirement age to age 65, but the very next day, someone claiming to be a young worker at one of the carmakers demanded that Cheong Wa Dae reject their request in his petition. The petitioner said that it will hinder businesses from hiring young skilled workers and make the current unemployment problem even worse.

Businesses are also pessimistic about the idea. While meeting former Democratic Party of Korea head and presidential contender Lee Nak-yon last month, Korea Employers Federation Chairman Sohn Kyung-shik said that the government should be "cautious, as the extension of the retirement age from the status quo can diminish jobs for young people."

Employers fear that the issue may result in snowballing labor costs, because workers receive salary increases each year in the country's prevalent, seniority-based salary system. The Korea Economic Research Institute (KERI) estimates that the extension of the retirement age to 65 would incur 15.9 trillion won in additional cost to employers.

"To lessen the burden on employers, an extension of the retirement age should be accompanied by an overhaul of the wage system, to include wages based on job functions or the 'wage peak system,'" said Yoo Jin-sung, a research fellow at the institute.

Government-owned enterprises have been coping with the issue by adopting this "wage peak system," in which workers are allowed to work until 60, but their salaries begin to decline three to five years before retirement.

According to estimates by KERI, the burden on employers incurred by retirement age extension can be slashed by 2.7 trillion won if employees accept an annual 5 percent wage cut from 60 to 64 in return for extension of retirement age to 65.

Cautious approach, alternative options needed

Experts agree that the extension of retirement age should be gradual, after years of thorough discussion and preparation. As the young population entering the labor market will start to decline starting at the end of the 2020s, the negative impact on youth employment will be smaller by then.

Han also notes that working until official retirement age is possible only in a handful of workplaces, such as in the public sector or in some conglomerates, where life-time job security until retirement is the norm. "Workers frequently face (involuntary) early retirement or resignation at small to medium sized firms. Furthermore, the situation of irregular workers is unrelated to the extension of the official retirement age most of the time."

He thus stresses that the government should come up with policies for older workers who are not protected by the retirement age, including the creation of flexible jobs where they can choose their work hours.

Seoul National University Economics Professor Lee Chul-hee also noted in a column for Hankook Ilbo, the sister paper of The Korea Times, that self-employed and the small business workers are not likely to benefit from the extension. They often leave jobs earlier than the official retirement age, but continue working elsewhere at lower wages. "For older workers who lack the capability to work, extending the social safety net and social welfare may be more helpful than extending the retirement age," he notes.

The KERI's Yoo calls for a case-by-case approach, stressing flexibility.

"Some businesses want workers with expertise and a high level of skills. They will want to continue hiring those older workers, and those workers will also want to work (after retirement) even at lower wages. Businesses that mainly rely on young workers, meanwhile, will only face increased costs and find it burdensome if the extension of the retirement age becomes obligatory," he said.

"The goals of job security, enhanced corporate competitiveness and sustainable economic growth should be pursued simultaneously," Yoo said.