Korea to push ahead with peak wage system

The government and the ruling Saenuri party agreed Tuesday to push to expand the controversial “peak wage system” into the private sector by mapping out guidelines that enable companies to change employment regulations without unions’ approval.

The decision came as part of President Park Geun-hye administration’s drive for labor market reform during a meeting between the ruling Saenuri Party members of the parliamentary environment and labor committee and Minister of Employment and Labor Lee Ki-kwon.

The government’s plan, however, is expected to add fuel to outrage among the nation’s two largest labor organizations ― the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions ― that view the peak wage system as disadvantageous for workers. They believe the scheme only benefits employers by making it easier for them to lay off workers.

Under the peak wage system, companies would pay senior employees reduced salaries after the workers peak at a certain age, generally between 55 and 60, in return for extending their retirement age by a few years.

“Amid growing concerns over youth unemployment and job insecurity for the older generation, the peak wage program is needed to create an employment-friendly structure that encourages companies to hire more young people,” Labor Minister Lee said at the meeting.

“The focal points in reforming the wage system are ordinary wages and reduced working hours,” Lee said, calling on the environment and labor committee to swiftly legalize the issues in the upcoming parliamentary session this month.

With the official retirement age set to rise by two years to 60 next year, the government has pushed ahead with plans to overhaul what it saw as “rigid” labor market to make it flexible for companies to hire and fire people.

The government believes that the peak wage program is a key to tackling the youth unemployment problem here.

It argues that without such a measure, companies will be even more reluctant to hire new employees, thus reducing room for young job seekers to enter the labor force.

“The peak wage system helps senior employees hold on to their jobs until they reach retirement age,” said a research fellow Ahn Joo-yeop from government-run Korea Labor Institute. “When workers in the top 10 percent of the income bracket give up their pay raises, the resources can be used to create 150,000 to 218,000 jobs for the young,” he added.

According to the government data, the jobless rate among people between 15 and 29 stood at 10.2 percent as of April, significantly higher than the country’s overall 3.9 percent.

But the government’s decision to push for reform plans led to fierce opposition from the labor unions.

When the government held a public hearing in Seoul last week to discuss guidelines that will allow companies to change employment rules without unions’ approval, some 200 trade union members blockaded the conference room with desks and chairs to prevent the labor minister from entering. He had to leave the scene about 10 minutes after arrival.

Enraged by what the unions claimed was the government’s unilateral decision, the unionized workers chanted at the scene, holding up the placards that read “Stop the peak wage system that forces workers to accept reduced pay” and “The change in employment regulations (without unions’ approval) is illegal and against the Labor Standards Act.”

“The government is trying to use the public hearing to show that it is listening to laborers, but (given the history) we know that it is nothing more than a gesture to force us to accept their policies,” the Korean Confederation of Trade Unions said in a statement released shortly before the incident.

“Without guaranteeing that employees won’t be laid off and retirement age will be extended in every company, the government is only trying to slash our wages first, taking sides with companies in the name of boosting the economy,” the organization added.

Earlier in April, the trilateral negotiations to discuss employment conditions among laborers, employers and lawmakers failed, highlighting a tough road ahead for the government to seek support from the labor circles.

The government has already decided to implement the peak wage system for 316 state-run organizations starting next year, with its plans to draw up guidelines to expand the scheme into private sector by the end of June.

Meanwhile, the two main labor unions vowed all-out war against the government’s push for labor market reforms. The Federation of Korean Trade Unions will vote in mid-June on whether it will go on an all-out strike to protest the government’s proposal.

By Ock Hyun-ju  (laeticia.ock@heraldcorp.com)