[Retirement Age Extension, A Time for Choice] Retirement Age Extension vs. Reemployment... Weighing the Economic Gains and Losses

Annual Additional Cost of 30 Trillion Won if Retirement Age Extended to 65
Number of Young Workers Decreased by 110,000 After Retirement Age Set at 60

An analysis suggests that the economic gains and losses for companies and society can vary significantly depending on how the continued employment of older workers is managed. If the statutory retirement age is raised from the current 60 to 65, it is estimated that, in the fifth year after the system is introduced, annual employment retention costs could increase by up to 30.2 trillion won. This amount is equivalent to the cost of employing approximately 902,000 young workers.

According to a research report titled "Cost Estimates and Implications of Extending the Retirement Age," commissioned by the Korea Economic Research Institute and authored by Professor Kim Hyunseok of Pusan National University, in the first year of introducing the 65-year retirement age, the employment of 58,000 regular workers aged 60 would be extended, and employment retention costs (including four major insurance premiums and indirect costs) are expected to reach 3.1 trillion won.

By the fifth year of the system, regular workers aged 60 to 64 would become subject to the extended retirement age, with the number estimated at about 590,000, excluding voluntary attrition. The additional costs associated with this would reach 30.2 trillion won annually. Based on the average monthly wage of young workers aged 25 to 29 (2,791,000 won in 2023), this is equivalent to the cost of employing approximately 902,000 young workers.

Some analyses indicate that this cost structure has a direct impact on youth employment. After the retirement age was changed in 2016, side effects such as a decrease in youth employment and wages became a reality. In its recent report "Super-Aged Society and Continued Employment Measures for Older Workers," the Bank of Korea stated that after the statutory retirement age floor (60 years) was introduced in 2016, for each additional older worker aged 55 to 59, the number of young workers aged 23 to 27 decreased by 0.4 to 1.5. Overall, from 2016 to 2024, the number of older wage workers increased by about 80,000, while the number of young wage workers decreased by about 110,000.

In his paper "The Effect of Extending the Retirement Age on Youth Jobs," Professor Kim Daeil of Seoul National University's Department of Economics estimated that, after the introduction of the 60-year retirement age and up to 2019, the number of full-time wage jobs for young people aged 23 to 27 decreased by 6.0%. Among regular positions, the decline was 4.5%. This not only negatively affected birth and marriage rates but also exacerbated the dual structure (polarization) of the labor market. According to the Bank of Korea report, only 21.8% of companies implemented a retirement age system last year, and among them, companies with 300 or more employees accounted for 95.3%. As a result, criticism has been raised that discussions about extending the retirement age ultimately serve to benefit workers who already hold good jobs.

In response, business circles point out that the impact of extending the retirement age on investment and new hiring should be carefully considered. At the same time, since the need for continued employment of older workers differs by industry and company, they argue that matters related to retirement age should be left to the autonomy of each company.

Lee Sangho, head of the Economic and Industrial Division at the Korea Economic Research Institute, said, "The Korean labor market is rigid, and the seniority-based wage system does not reflect productivity, which creates a significant burden for companies in utilizing older workers. Before introducing an extension of the retirement age, we need to increase labor market flexibility and reform the wage system to reflect job value and productivity, thereby creating an environment where companies can actively utilize older workers."