"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

The government and the ruling Democratic Party of Korea are pushing to extend the retirement age, but there are concerns that the seniority-based wage system, which is based on years of service, is acting as a stumbling block. In order to improve the seniority-based system, some argue that the wage level should be raised in the early years of employment, while the rate of wage increases should be lowered in the mid to late stages of employment.

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 addressed the reform of the wage system, which is considered a key issue in the process of extending the retirement age. Professor Lee is an employment expert who served as co-chair of the Research Group on Continued Employment in a Super-Aged Society and as chair of the Committee on Continued Employment in Response to Demographic Changes at the Economic, Social and Labor Council in 2023 and 2024.

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

Professor Lee explained, "Wage system reform mainly targets large companies, especially regular production workers at unionized large enterprises. According to the Korea Labor Institute's '2023 Survey on Wage Systems and Human Resource Management,' 90.5% of production workers at companies with more than 1,000 employees receive a base salary based on a seniority pay scale." He further pointed out, "If legal retirement age is extended in a situation where employment is stable and years of service are increasing, the burden on companies will become even greater."

Previously, in 2013, the government extended the statutory retirement age to 60 and stipulated wage system reform in law. However, only a temporary wage peak system was introduced, and full-scale reform was not achieved. The wage peak system is a scheme that guarantees employment until retirement by reducing the wages of employees approaching retirement age. Professor Lee criticized this, saying, "If you suddenly 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 that the government and ruling party's plan to extend the retirement age is implemented in stages, Professor Lee suggested "easing seniority-based pay" as a possible wage system reform measure. He said, "One way is to raise the initial wage level to meet the demands of younger workers, and then either freeze or lower the rate of wage increases in the mid to late stages of employment. The extent to which seniority should be adjusted must be determined through sufficient consultation between labor and management."

In a phone interview with The Asia Business Daily, Professor Lee commented, "Even if we cannot abolish the seniority pay system, shouldn't we at least improve it? There is a significant difference in skill between first-year and fifth-year employees, so wages should be raised more in the early years, but by the 20th or 30th year, the difference is not as great, so only a slight increase is needed." At this point, the wage system refers to the base salary that is paid consistently. He emphasized, "This should be distinguished from job-based or performance-based pay."

Since it is difficult to introduce a job-based pay system immediately, Professor Lee identified the reform of job allowances as a prerequisite. He stated, "The difficulty level of each job should be reflected in wage decisions. It is worth considering the introduction of job competency allowances and job performance allowances."

He also noted that introducing such reforms first in the public sector is worth considering. Professor Lee suggested, "We could start by reducing the number of seniority steps in the civil servant pay scale. If performance is excellent, employees could skip steps, or the proportion of allowances paid by rank or job could be increased."