Rethinking wages is key to extending retirement age

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Rethinking wages is key to extending retirement age

Audio report: written by reporters, read by AI


 
Sung Sang-hyeon
 
The author is a professor of Business Administration at Dongguk University




 
In a rapidly shifting economic landscape, Korea must aim to become a society where anyone willing to work can find a suitable job and secure a decent living, and where businesses can readily hire the talent they need. Restoring vitality to the labor market is essential to achieving this goal, and the key lies in reforming how wages are determined.
 
A fair, rational wage system — one that reflects the value of work and rewards performance — is fundamental to economic progress. Pay structures should encourage people to work and develop skills, not discourage them through inequality or inefficiency.
 
Recent data shows that job seekers are experiencing a hiring freeze more severe than during the early stages of the Covid-19 pandemic. The photo shows the Western Employment Welfare Plus Center in Mapo District, Seoul, in April. [NEWS1]

Recent data shows that job seekers are experiencing a hiring freeze more severe than during the early stages of the Covid-19 pandemic. The photo shows the Western Employment Welfare Plus Center in Mapo District, Seoul, in April. [NEWS1]

Discrimination has no place in compensation. Paying less to employees who perform the same tasks simply because they are women, young, elderly, disabled, or non-regular workers is unjust. Free markets ultimately weed out firms that practice such inequality. Companies staffed by those more skilled at navigating internal hierarchies than doing their jobs are unlikely to remain competitive.
 
Wages must correspond to the value of work. Is it justifiable for wages to rise every year even when the nature and difficulty of the job remain unchanged? The assumption that productivity increases with tenure may not always hold true. Seniority-based pay systems disadvantage capable young workers, those in irregular positions who find it difficult to stay long-term and employees with career breaks. They also fail to serve the long-term interests of the older employees they are meant to protect, especially when such employees are paid more without acquiring new skills.
 
Korea missed a critical opportunity to reform its wage structure when it extended the mandatory retirement age to 60 in 2013. Due to political compromise, the change did not include a requirement to overhaul wage systems. This inaction contributed to labor market stagnation. The so-called “wage peak system,” which cuts pay based solely on age, emerged around that time. But in a system where wages reflect job value and capability, such age-based cuts would be unnecessary.
 
Today, as discussions on further pushing back the retirement age resume, Korea is presented with another chance to reform its wage framework. Such reform could offer solutions to several entangled issues: the income gap between retirement and pension eligibility, structural labor market dualities based on company size, gender and employment status, plus the need for quality jobs for seniors.
 

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A performance- and role-based wage system should not be seen as a threat to workers but as a support mechanism. It protects vulnerable groups, motivates personal development and helps workers build sustainable careers. For businesses, it provides a system for retaining productive employees.
 
Germany offers a useful comparison. Its economy thrives on small and medium-sized enterprises in part because wage disparities between large and small companies are minimal. Workers are motivated to develop expertise thanks to wage systems that reward job performance rather than tenure.
 
Japan, once a symbol of lifetime employment and seniority-based pay, has also transitioned gradually to performance-based compensation. As a result, it has extended the retirement age to 65 and beyond, while returning to economic growth. Since its economic reforms in the late 1970s, China has also tied job roles and performance to compensation, helping drive its rise as a global economic power.
 
Of course, the experience and commitment of older workers must be respected. Long tenure and employment stability are goals worth pursuing. A job-value-based wage system supports both. At the same time, younger workers must be given hope, women must be free from discrimination, and the proliferation of irregular jobs must be curbed.
 
Part-time employees work at a coffee shop in Seoul on Oct. 28, 2024. According to the National Statistical Office’s KOSIS portal, as of August 2024, non-regular workers accounted for 1.46 million, or 43.1 percent, of all wage earners in their 20s—the highest August figure since data collection began in 2003. [NEWS1]

Part-time employees work at a coffee shop in Seoul on Oct. 28, 2024. According to the National Statistical Office’s KOSIS portal, as of August 2024, non-regular workers accounted for 1.46 million, or 43.1 percent, of all wage earners in their 20s—the highest August figure since data collection began in 2003. [NEWS1]

 
The entrenched seniority system that favors regular male employees in large corporations has outlived its usefulness. It now contributes to job insecurity and dissatisfaction. Wage systems are no longer a peripheral issue — they are foundational to addressing the many challenges Korea faces: mismatches in the youth job market, small business hiring difficulties, irregular employment, retirement insecurity and senior poverty.
 
There is neither moral justification nor practical benefit in rejecting fair compensation for work. It is time for labor and management to come together with a long-term vision and embrace the structural changes needed. Reforming the wage system is no longer optional — it is essential to building a more inclusive and sustainable economy.


Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
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