Korea has sharpest wage growth among midlevel employees in OECD: report

In Korea, wage goes sharply up between the 10th year to the 20th year in employment, due to a widespread seniority-based salary system, a report said Monday.

According to an analysis by professor Lee Sang-hee of Korea Polytechnic University, South Korea saw the sharpest hike in one’s salary of 15.1 percent in the 10-year period, compared to other members of the Organization for Economic Cooperation and Development. 

The OECD average was a 5.9 percent increase. 

Professor Lee said in the report, which was published by the Korea Economic Research Institute, that the discrepancy is due mainly to a seniority-based salary system adopted by many companies here, by which the primary basis for a pay increase is the employee’s tenure.

Locally known as “hobongje,” the hierarchical pay system that gives employees increases in salary every year regardless of their productivity is more likely to be found at large companies with labor unions, the scholar pointed out. 

Labor Ministry data showed that 54.9 percent of Korean companies operated on this system in 2020, trending down from 58.7 percent in 2019 and 60.3 percent in 2017.

Although many companies have called for a change toward performance-based pay to lessen their financial burden in maintaining low-performing, long-term employees, no clear progress has been made mainly due to opposition from labor unions.

The KERI, the think tank affiliated with the country’s major business lobby, the Federation of Korean Industries, argued in the report that the senior-based wage system hinders diversity in the country’s job market, putting pressure on elderly workers to retire early, while making it harder for young people to get employed.  

While the Korean labor market is fixated on seniority, the US has a market-based pay system that determines a worker’s value by the demand and supply of his or her skills, the report pointed out. 

Professor Lee said it may be difficult for companies to do away with the system, as they have to work out a deal with current workers who have every incentive to protect it. 

“To tackle the issue, a popular consensus is essential, as it is directly linked to youth and elderly jobs,” the professor said. 

According to OECD data, South Korea’s average salary stood at $42,300 as of last year, ranking it 19th out of 35 OECD member countries. It was the highest since 2003 when the country placed 24th with $32,100. The OECD average in 2020 was at $48,600. 

(ddd@heraldcorp.com)