[Interview] KEF Chairman Sohn Kyung-shik: "Labor Market Flexibility Must Come First for Retirement Age Extension"

Uniform and Mandatory Extension Brings Side Effects
No Benefits for 80% of SMEs
Increased Youth Job Insecurity and Generational Conflict
Easing Employment Rules Is Essential
Seniority-Based Wage System Must Be Reformed
Our Society

"How do you expect companies to secure the funds required for extending the retirement age? We must start by improving productivity and reforming the wage system, focusing on performance-based pay. In particular, to change the seniority-based wage structure, it is essential to ease the regulations on amending work rules."

On December 24, Sohn Kyung-shik, Chairman of the Korea Employers Federation, stated in an interview with The Asia Business Daily at the CJ headquarters in Jung-gu, Seoul, that "labor market flexibility must come first" in response to the ruling party's recent push for retirement age extension policies.

Sohn Kyung-shik, Chairman of the Korea Employers Federation, is being interviewed by The Asia Business Daily at the CJ headquarters in Jung-gu, Seoul on the 24th. Photo by Jo Yongjun

Initially, the Democratic Party of Korea proposed a plan to gradually extend the retirement age over 8 to 12 years through a special committee, expressing its intent to legislate within the year. However, with labor and management at odds, the legislation has been postponed to next year. While Chairman Sohn agrees that people need to work longer due to the aging population, he firmly maintains that the retirement age should not be legally fixed at 65.

During the interview, Sohn emphasized the need to ease procedures for amending work rules to address the issue of the seniority-based wage system. Previously, the Democratic Party also suggested excluding wage reductions resulting from retirement age extension from the category of "disadvantageous changes to work rules," which require labor union consent.

He stated, "Currently, our wage system is determined by seniority rather than performance," and added, "To address this, it is necessary to relax related laws so that amending work rules can be done through 'consultation' rather than labor-management agreement." He further explained, "We need to transition to a job- and performance-based wage system, where compensation is determined by the value or performance of the job. Considering the high wage seniority in our country, not only small and medium-sized enterprises but also large companies would find it difficult to bear the costs of extending the retirement age."

Sohn also commented on the Democratic Party's recently announced phased retirement age extension plan, stating, "Labor market flexibility must be achieved first to provide opportunities for older workers while also increasing youth employment," presenting this as a prerequisite. Regarding the possibility of narrowing the gap between labor and management, he remarked, "I feel that our society is not accustomed to compromise," but also noted, "A national consensus is necessary."

He particularly warned about the impact of legally extending the retirement age on youth employment, saying, "It could further exacerbate job insecurity and intensify generational conflict across society," and added, "The older generation must take this seriously." He also urged, "Just as with the trend toward medical school admissions or the 'public service exam crowd,' rather than pursuing relatively comfortable paths, people should take on challenges with passion."

Sohn Kyung-shik, Chairman of the Korea Employers Federation, is being interviewed by The Asia Business Daily at the CJ headquarters in Jung-gu, Seoul on the 24th. Photo by Jo Yongjun

The following is a Q&A with Chairman Sohn.

-How do you assess the Democratic Party's recent proposal for retirement age extension?

▲A uniform and mandatory legal retirement age extension will lead to side effects. We need to discuss this with more flexibility. Instead of extending the retirement age all at once, the timing should be staggered, and wage adjustments should also be handled flexibly. Another important issue is whether small and medium-sized enterprises can actually bear the burden of retirement age extension. While smaller companies are striving to increase productivity and create more jobs, it is realistically not easy.

-What are the potential side effects of a uniform retirement age extension?

▲The dual structure of the labor market could worsen. If the retirement age is extended, only a minority of large companies will benefit, while more than 80% of small and medium-sized enterprises will not. In order to bear the costs of extending the retirement age, the wage system must shift to performance-based pay. Currently, most wage systems are based on seniority, not performance. The problem is that Korean labor law requires labor-management agreement to change work rules such as wage structures. In Japan, a similar system has allowed companies to change wage systems through sufficient labor-management consultations since 2007. Wages will become a major issue going forward, and we need to relax labor laws by learning from Japan's experience. This is an opportunity to first address the labor market challenges facing our society.

Sohn Kyung-shik, Chairman of the Korea Employers Federation, is being interviewed by The Asia Business Daily at the CJ headquarters in Jung-gu, Seoul on the 24th. Photo by Jo Yongjun

-Although it has been postponed this year, won't there be strong pressure to extend the legal retirement age next year?

▲I believe retirement age extension is inevitable. The 70-year-olds of today are not the same as those in the past. Everyone needs to work and live. Therefore, extending the retirement age is unavoidable. However, it must be done at a level companies can bear. Considering the high wage seniority and employment rigidity in our country, even large companies, let alone small and medium-sized enterprises, would find it difficult to absorb the costs.

-Recent estimates suggest the cost of extending the retirement age could reach as much as 30 trillion won. Can companies bear this burden?

▲The era is changing with the advent of artificial intelligence (AI). For companies to simply continue the practices of two or three years ago is too complacent; they must seek and prepare for change in line with the new era. This means adjusting business portfolios. Government support is needed to foster new industries, and in fact, significant support is being provided in the AI sector. Extending the retirement age ultimately comes down to funding. As the retirement age increases, more new jobs must be created, but how can we secure the necessary resources? Companies are considering ways to increase productivity and improve performance to cover the costs of extending the retirement age.

-Then what is the optimal plan for extending the retirement age?

▲The current system, where employees retire at 60 and are then rehired, is appropriate. When rehiring, those with insufficient performance could be excluded. The wage upon reemployment should be newly determined, not at the same level as before retirement. Of course, they would not be assigned the same work as before; instead, their pre-retirement experience could be utilized in new roles or their working hours could be reduced.

Sohn Kyung-shik, Chairman of the Korea Employers Federation, is being interviewed by The Asia Business Daily at the CJ headquarters in Jung-gu, Seoul on the 24th. Photo by Jo Yongjun

-There is significant opposition from labor unions.

▲It would be good if they could understand the importance of international competitiveness. As you know, Korea is an open economy. We earn money through exports, which creates jobs and allows us to pay wages. In this sense, international competitiveness is extremely important. Without competitiveness, how can we sell our products?

-Is the persuasion process going well?

▲There is the Economic, Social and Labor Council, a social dialogue body, and we regularly meet with the Federation of Korean Trade Unions to discuss such issues. The Korean Confederation of Trade Unions is more difficult. Although the chairperson of the Economic, Social and Labor Council has changed, they have not yet clearly indicated their intention to return.

-Can labor and management narrow their differences?

▲It is difficult. I feel that our society is not familiar with compromise and that there is a strong will to push one's own position to the end. Labor and management are in the same boat. It is not about one side thriving alone, nor are companies only seeking profit. The goal is to pay employees fairly and to create a sense of fulfillment at work so that everyone can do well together. Moreover, it is not just about persuading union leaders; a national and societal consensus is needed.

In the past, during the 1997 foreign exchange crisis and again when former President Lee Myung-bak took office and the financial crisis followed, labor and management agreed not to fight because of the crisis, and consensus was reached without major conflict. We are all citizens of Korea, including the unions, so we must persuade each other and reach an agreement.

-The issue of youth employment cannot be overlooked.

▲Numerous studies have already shown that youth employment decreases when the retirement age is extended. We must move toward reaching an agreement with young people; any decision that unilaterally disadvantages one side disregards the youth. Companies must also strive to create more jobs and develop new industries. The Korea Employers Federation is listening to the voices of the younger generation, for example, by hosting the 'Intergenerational Coexistence Job Forum.'