Time for a win-win strategy for the retirement age
Published: 02 Sep. 2024, 19:42
Kim Dug-ho
The author is vice chair of the Economic, Social and Labor Council and an adviser to the JoongAng Ilbo Reset Korea Campaign.
South Korea’s second wave of baby boomers born between 1964 and 1973 numbering 9.45 million are joining the retirement cohort starting this year. Those aged 65 and older will top 20 percent of the total Korean population next year. As life expectancy lengthens, many wish to work as long as possible. According to a survey by Statistics Korea, those aged between 55 and 64 hope to work until 71.
Labor unions want to raise the retirement age. A bill aimed at lifting the statutory retirement age to 65 from the current 60 has been proposed by an opposition lawmaker who used to be a unionist at a financial company. Many unions of public and large enterprises included the agenda in their bargaining for this year. They fear an apparent income void from the gap in the ages of retirement and the commencement of national pension benefit.
The economy structurally must make full use of the older work force. Gen X are well educated, skilled and committed to their work. Their early dropout from the labor force would deal a critical blow to the country’s labor capital. But lifting the legal retirement age is a complex issue. Given the grave dualism in the labor market, a longer working age will only benefit the employees of large companies and come at the expense of jobs for young people.
The legal retirement age has become meaningless for small and midsized companies struggling with labor shortage. According to a survey, 94.3 percent of companies employing 300 or more comply with the legal retirement age, but the ratio is just 21.9 percent for those with fewer employees. Retirement age averages at 60.2 in large companies and 61.5 in smaller companies. Employees on a regular payroll of large companies make up just 15 percent of the employed. As the bulk — 85 percent — are hires of SMEs or microenterprises, raising the retirement age will benefit just a select few.
Under Korea’s labor laws and pay system, compulsory retirement can increase the burden for employers because the wage by the time of retirement triples the starting pay. Companies are already rolling back hiring due to economic uncertainties. Large companies sharply cut new hires in 2013 when the legal retirement age was upped to 60 from 58. Elder and young workers will have to wage a zero-sum game over limited jobs at large companies.
The rise in retirement age can appear positive as it ensures a longer employment period. But the move can bring about clashes of interests between employers and employees — and across generations. The Economic, Social, and Labor Council (ESLC) chooses to use “continuous employment” in the tripartite dialogue among employers, employees and government. It is important to build an environment where all can continue to work.
Approaches to retirement differ by nation. The United States has abolished the legal retirement age as employers are not bound by laws in dismissing or rewarding their employees. They can easily lay off workers according to their business condition. Germany, short in its pension fund, has lifted the retirement age to 68 from 65 despite workers’ opposition. Japan mandated corporations to abolish the legal retirement age, raise it beyond 60 or find other means of continuous employment either through rehiring on outsourcing contracts or employment by subsidiaries or partner companies.
The retirement age has become a brewing talking point. There are complex conflicts of interest and legal constraints. Defining retirement type, pay level, beneficiaries, legal status of workers, subjects in labor contracts and changes in hiring rules all can be tricky. Since the issues are complicated, the discussions need the full attention and participation from all parties. It took six years for Japan to find ways to minimize the conflict over retirement age.
In Korea, the tripartite dialogue has kicked off at the ESLC in June. Although belated, the fact that discussions have finally picked up is a positive sign. To revise the retirement system, the labor market reform is necessary. The labor market is unsustainable if future generations lose their chances due to resistance from vested interests. I look forward to seeing a sustainable growth model for the country in the near future.
Translation by the Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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