"Seniority-Based Pay Should Be Eased for Retirement Age Extension... Raise Wages for Early-Career Workers, Lower for Senior Employees"

Key Task in Extending Retirement Age: Wage System Reform
Improving Seniority-Based Pay Structure by Easing Seniority Emphasis
"Early-Career Employees with Greater Skill Gaps Need Higher Wages"
Early Adoption in the Public Sector Also Worth Consid

Although the government and the ruling Democratic Party of Korea are pushing to extend the retirement age, there are concerns that the seniority-based wage system, which is based on years of service, is hindering progress. To improve seniority-based pay, some argue that the wage level for new hires and employees with fewer years of service should be increased, while the rate of wage increases for mid- and late-career employees with more years of service should be lowered.

Lee Youngmyun, Professor Emeritus of Business Administration at Dongguk University and former President of the Korean Academic Society of Business Administration, contributed an article on this topic in the January 2026 issue of "Nara Economy," published by the Korea Development Institute (KDI). In the article, he discussed wage system reform, which is considered a key issue in the process of extending the retirement age. Professor Lee is an expert in employment policy, having served as co-chair of the Super-Aged Society Continued Employment Research Group and chair of the Continued Employment Committee for Responding to Demographic Changes at the Economic, Social and Labor Council in 2023 and last year.

Citizens are commuting to work at Gwanghwamun Intersection in Seoul on the 2nd.

Professor Lee explained, "Wage system reform mainly targets large corporations, particularly regular production workers at unionized large companies. According to the Korea Labor Institute's '2023 Survey on Wage Systems and Workforce Management,' 90.5% of production workers at companies with more than 1,000 employees receive a base salary determined by a step-based pay scale." He also pointed out, "If the statutory retirement age is extended in a situation where employment stability leads to longer years of service, the financial burden on companies will increase even further."

Previously, when the government extended the statutory retirement age to 60 in 2013, it included wage system reform in the law. However, only a temporary wage peak system was introduced, and no fundamental reform took place. The wage peak system is a policy that guarantees employment until retirement age in exchange for reducing the wages of employees approaching retirement. Professor Lee criticized this, stating, "If you cut wages just because someone is older, even though they are doing the same work, it is not only age discrimination but also undermines motivation to work."

Assuming the government and ruling party's proposal for a phased extension of the retirement age is implemented, Professor Lee suggested "weakening seniority-based pay" as a possible direction for wage system reform. He said, "One way is to raise the starting wage to meet the demands of younger workers and then freeze or lower the rate of wage increases for mid- and late-career employees. The extent to which seniority-based pay is adjusted should be determined through sufficient consultation between labor and management."

In a phone interview with The Asia Business Daily, Professor Lee said, "Even if we cannot abolish the step-based pay system, we should at least improve it. There is a significant skill gap between first-year and fifth-year employees, so wages should be raised more in the early years, while for those with 20 or 30 years of service, the difference is less, so only a slight increase is needed." At this point, the wage system should focus on the base salary, which is paid as a fixed amount. He emphasized, "This should be distinguished from job-based or performance-based pay."

Professor Lee also noted that since it is difficult to introduce a full job-based pay system immediately, reforming job allowances should be a priority. He said, "The difficulty level of each job should be reflected in wage decisions, and it is worth considering the introduction of job competency allowances and job performance allowances."

He also suggested that the public sector could serve as a testbed. Professor Lee said, "We could start by reducing the number of steps in the pay scale for civil servants. If performance is excellent, it would be possible to skip steps or increase the proportion of allowances paid by rank or job category."