Korea Losing 'World-Class Scholars' Due to Mandatory Retirement... "Next 5 Years Are the Golden Window" [Retirement Age Extension, Time to Choose]

Continued Employment for Seniors as an Opportunity to Reform Seniority-Based Wage Systems
Without Institutional Support, Side Effects Such as Reduced Youth Hiring
"Autonomy in Employment Rules and Incentives Needed"

World-renowned theoretical physicist Lee Kimyung, former vice president of the Korea Institute for Advanced Study, left his lab last year upon reaching the mandatory retirement age. His next destination was the Institute of Mathematical Sciences in Beijing, China. In Korea, after reaching retirement age, Lee was no longer provided with the conditions to continue his research. An acquaintance familiar with Lee said, "I understand that Lee inquired with the institute about whether he could continue his research after retirement," adding, "Unfortunately, he was unable to change the system." Park Namkyu, a Sungkyunkwan University professor and Nobel Prize candidate recognized as an authority in solar cells, also said, "I wish there were a system without a mandatory retirement age." He is an exceptional case, having been appointed as the nation's first 'tenured professor.'

Even those who are fully capable of working are often forced to step down from the industrial field simply because of their age. Tens of thousands of senior engineers who have led the semiconductor, shipbuilding, and materials, components, and equipment industries are being pushed out of the workforce as they reach retirement age. A significant number of them choose to go abroad. According to the Korea Institute of S&T Evaluation and Planning (KISTEP), as of 2020, there are 360,000 skilled workers aged 50 or older. Most of them wish to continue working even after retirement.

Experts say that the next five years represent a golden window to address the retirement age issue. As the youth population is set to decline rapidly, resistance to extending the retirement age is somewhat lower than in the past, and productivity is about to drop sharply due to 'low birthrate and aging population.'

According to "Revolution Korea," a book by former Minister of Government Policy Coordination Koo Yooncheol, the number of babies born in Korea dropped from 640,000 in 2000 to 495,000 in 2002?a decrease of 150,000 in just two years. Those born in 2000 are now 25 years old and entering the job market. This means the number of people entering the workforce will continue to decrease. Koo stated, "To cope with the complex decline in the labor force, it is necessary to consider gradually extending the retirement age until 2032, when the workforce will shrink to the 400,000 range."

However, while there is a need to rehire senior workers, some point out that retaining everyone without discrimination is not efficient. Heo Jaejun, president of the Korea Labor Institute, said, "Rather than applying retirement age extension across the board, it is more desirable to selectively retain skilled workers based on their level of expertise." In other words, a system that selectively rehires based on performance and expertise is necessary. Some large companies are rehiring highly experienced personnel through programs such as 'master' or contract positions, but these cases remain very rare. To expand this across industries, a selective reemployment system based on performance and capability must be established first.

Experts emphasize the need to move away from the current system, where wages automatically increase with age, to a structure where pay is determined by the nature of the work and actual performance. They also point out the necessity of making the system more flexible so companies can make decisions suited to their circumstances. For example, proposals include creating a new wage standard applicable after retirement age, providing subsidies to companies that employ seniors for a certain period, or introducing special laws to protect senior workers.

◆ Senior Employment Must Contribute to Corporate Productivity = Kim Heesung, professor at Kangwon National University Law School, stressed that senior employment policies should benefit both workers and employers. Kim said, "Improvements to systems and frameworks for promoting or extending senior employment should be discussed in a way that not only helps seniors keep their jobs but also contributes to cost savings and productivity gains for companies."

As the importance of designing systems for senior employment grows, labor-management conflict over extending the retirement age to 65 is also intensifying. There are concerns that if a blanket legal extension of the retirement age is implemented, large corporations and public institutions with seniority-based wage systems will face increased labor costs, which could lead to side effects such as reduced new hiring or termination of non-regular worker contracts.

Kim noted, "It is obviously necessary for skilled seniors to remain in the labor market and continue working, but there needs to be reflection on whether it is appropriate to mandate this by law." He added, "Small and medium-sized enterprises already allow seniors to work longer if they wish, but if a uniform (legal) retirement age extension is implemented, the benefits will be concentrated among large company unions with seniority-based wage systems."

Without a reform of the wage system, there are concerns that long-serving workers will benefit from both extended retirement and high wages, creating structural problems. The resulting increase in corporate costs could further reduce youth employment and deepen the dual structure of the labor market. He added, "We also cannot ignore the argument that seniors keeping good jobs could prevent young people from filling those positions."

◆ Extending to 65 Would Increase Total Wages by 20%, System Must Change = Lee Jiman, professor at Yonsei University's School of Business, identified 'wage system reform' as a prerequisite for extending the retirement age. He explained, "If the wage system is not reformed and the retirement age is uniformly extended to 65, the total lifetime wages for large companies (with seniority-based pay) could increase by up to 20%. In an era of low growth, companies will have no choice but to reduce their workforce and total labor costs."

Professor Lee's calculation of corporate labor cost is as follows. For example, if a company pays a new employee 1 million won per month, the salary gradually increases so that by age 60, the employee earns about 3 million won a month. If the retirement age is extended from 60 to 65, the company would have to pay that higher salary (3 million won) for an additional five years. As a result, the total salary paid over the entire employment period would increase by about 18-20%.

This means companies would have to spend that much more. In response, companies may reduce new hiring or cut back on hiring non-regular workers, whose labor costs are lower. Lee warned, "There are concerns about side effects such as reduced new hiring and termination of contracts for non-regular workers with weaker bargaining power," and suggested, "A wage system different from existing employment rules is needed."

Although there have been consistent calls to reform the high-wage system to be job- and performance-oriented, no concrete results have been achieved. Agreement is needed on how to set compensation standards based on actual job contributions, and companies will incur additional costs to establish new performance evaluation systems. Factors such as friction with labor unions, the burden of performance, and the potential loss of key talent due to increased turnover must also be considered.

◆ Need for Flexible Employment Rules and Incentives = As a practical alternative, there are proposals to introduce a separate wage system. The idea is to apply existing employment rules up to the current retirement age of 60, but allow companies to autonomously adjust wages and employment conditions for those working up to 65, with the government ensuring flexibility. Policy support, such as providing incentives to companies that continue to employ seniors, is also deemed necessary.

Jo Junmo, professor of economics at Sungkyunkwan University, explained, "Current employment rules generally prohibit changes unfavorable to workers, so if the retirement age is raised from 60 to 65, the seniority-based wage system will remain unchanged." He emphasized that simply extending the retirement age would increase the burden on companies and reduce jobs for youth and non-regular workers, so a new framework separate from existing labor laws is needed.

Professor Jo believes that enacting a special law with a wage system and protection measures tailored for seniors would allow flexible expansion of senior employment while avoiding the rigidity of current labor laws. However, he noted that the Democratic Party supports the labor sector's call for a blanket retirement age extension, making implementation difficult. He stressed, "Incentives must first be provided to encourage companies to autonomously utilize senior workers," adding, "A realistic approach would be to gradually raise the 'de facto retirement age' through a phased roadmap and incentive system, as in Japan, and then formalize it into law at an appropriate time."