A bill proposing to extend Korean workers’ retirement age to 60 is likely to pass the National Assembly this month. The bill has already won approval from lawmakers on the parliament’s Environment and Labor Committee and will likely pass a floor vote during the April 29-30 plenary session.
If enacted, the reform bill will make it compulsory for employers to set the minimum retirement age of their workers at 60. Currently, the relevant law simply recommends that companies set their contractual retirement age at 60 or above. Quite expectedly, a large majority of companies ignore the clause.
A 2010 government survey found that the average stipulated retirement age of companies with 300 or more employees was 57.4. The survey also found that workers of these firms actually retired at 53.2 years of age on average, suggesting that some workers retired much earlier than the stipulated age.
The bill proposes that the new legally binding retirement age be applied first to large public and private companies ― those with 300 or more workers on the payroll ― starting in 2016 and to the remaining smaller firms from 2017.
Korea faces an urgent need to keep aged people in jobs longer. Due to a rapid population aging, the nation’s workforce is forecast to shrink from 2017. If senior workers retire early, the pace of contraction will accelerate. A drop in labor input will result in slowed economic growth.
Another reason to prolong the working lives of senior employees has to do with the old-age pension. If workers retire at 55, they have to wait six years to be eligible for the state-run pension. The large gap between the retirement age and the pension eligibility age is one reason for the widespread poverty of aged people in Korea.
While the case for postponing the retirement age is overwhelming, it is not easy to help older people stay in jobs longer. In the first place, it could increase labor costs of the companies unless they manage to adopt a more flexible wage system.
In Korea, many companies still adopt a rigid seniority-based compensation system. Under this formula, the longer an employee works, the higher his wage rises. But his productivity does not necessarily improve in tandem. As a result, raising the retirement age could increase companies’ financial burden.
For this reason, employers are mostly opposed to delaying the retirement of their workers. They argue that the government and political parties should push for a reform of wage systems before seeking to lengthen the employment period of older workers. Without a doubt, this is a valid point.
In this regard, the bill requires companies to restructure their wage systems before the extended retirement age is enforced. Yet it stops short of suggesting specific measures, leaving the task of reforming wage systems to negotiations between labor and management.
However, the Ministry of Employment and Labor says the true intent of the bill lies in having a wage peak system in place before the retirement age is extended. Under a wage peak formula, an employee’s wage will be adjusted if he reaches a certain age, say five to three years before the retirement age.
The ministry plans to embark on a campaign to encourage management and labor to introduce a wage peak system. It has already started to provide wage subsidies to companies that embrace the formula. It will draw up a guideline that companies can rely on in reforming their salary systems.
Whether or not the extended retirement age system makes a soft landing largely depends on how labor unions respond to it. They are obviously happy with the prolonged retirement age.
Yet they are against any attempt to introduce a wage peak system on the grounds that adjusting the wages of senior workers constitutes discrimination against them. Some powerful unions may be able to keep their present wage systems even after the retirement age is postponed.
But this attitude is short-sighted. It will not be long before they realize that they cannot have cake and eat it too. Furthermore, their refusal to cooperate will make it difficult for the government and political parties to further extend the retirement age.
Recently, Japan has allowed workers to continue to work until 65, if they wish. And many advanced countries have abolished the retirement age altogether. Trade unions need to see beyond immediate gains.
