hankyoreh

Elderly South Koreans attend a job fair for senior citizens at the Mapo District Office in Seoul in February 2016. South Korea’s over-65 population is expected to exceed 10 million by 2025. (Shin So-young

In Japan, more diapers are sold for senior citizens than for babies. South Korea has yet to reach that point, but its birth rate is lower than Japan’s and its aging rate is faster. Responding to the issue of the workforce shortage this aging trend is poised to cause for South Korea in the near future, the government recently announced plans for increasing the “productive age” population. In particular, it plans to consider introducing a system of continued employment to adjust the retirement age to 65 years as of 2022. Another factor is the increase in the National Pension benefit starting age to 65 years as of 2033, despite senior citizen poverty being a serious issue.

The system benchmarks Japan. After instituting mandatory retirement at 60 in 1998, the Japanese government began gradually increasing that age in 2006; as of 2013, it stood at 65. Japanese companies have the option of increasing the retirement age, instituting continued employment systems, or doing away with retirement ages; around 80% have opted for continued employment, offering reduced wages through contracted positions and the like after employees officially retire at 60. The current attempts in Japan to increase the retirement age to 70 are encountering little in the way of social conflict. While the workforce shortage issue has been severe, the government has been long been preparing for it, and an understanding has developed between labor and management. Most helpful of all has been a sharp drop in the youth unemployment rate as the economy has recovered amid the so-called “Abe-nomics” policies since 2013.

While its policies may be the same as Japan’s, South Korea’s reality is different. Businesses have objected, citing cost burdens – but the biggest concern about raising the retirement age is that it will only benefit certain workers, namely regular employees at large corporations and public sector employees who are capable of working up until retirement age. Compared with Japan, South Korea has few workers who work for decades at the same workplace until retirement age. The average period of continuous employment for all workers is around six years, or just half the period in Japan; for workers at small businesses, it is much lower. For young people facing a shortage of quality jobs and middle-aged workers struggling with uncertain employment prospects, an increase in the retirement age could be bad news indeed, reducing the number of new jobs available.

One of the biggest issues in the South Korean labor market is how heavily seniority is reflected in wages. An international comparison shows that South Korean workers who remain at the same workplace for 30 years or more end up making 3.3 times the salary they did when they first joined, compared with 2.5 times for Japan and 1.7 times for Europe. Since the seniority-based pay system is by nature one in which wages rise relative to productivity the longer a person works, companies have been pressuring their employees to retire before they even reach their 50s, and the financial burden from increasing the retirement age grows even larger. Considered the origin of seniority-based pay, Japan has long been working to retool its wage system. Since the 2000s, the so-called “yakuwari” system has become more widely adopted as a Japanese model of duty-based pay.

To ensure that a higher South Korean retirement age does not merely benefit vested interests, seniority-based pay system reforms or implementation of a wage peak system will be needed. In particular, many are calling on the public sector – which offers good treatment in addition to guarantees on employment until retirement age – to lead by example. While annual pay for lower-level general employees is not high, the average last year for all government employees was round 62.64 million won (US$52,414), while the average for all public enterprises was 78.43 million won (US$65,637). In contrast, workers in general made an average of 36.34 million won (US$30,412), with 69.5 million (US$50,178) representing the lower end of the top-earning 10%. The competition rate for the government employee examination is said to be enormous, but young people are basically making a rational decision.

Of course, if we consider that South Korea has a lower rate of public sector employment than other advanced economies, with firefighters, postal workers, and others facing poor working conditions, we will also need increased public sector employment and the conversion of irregular workers to regular status, as the government is pushing to do. At the same time, there also needs to be an effort to reduce the role of vested interests, including deterrents on the wages paid to high-earning employees with long periods of employment. The reason public sector reforms are the subject of so much talk and so little action despite widespread support for them may have to do with political factors, and an awareness of what a well-organizing voting bloc the public sector represents.

The recent situation surrounding Minister of Justice Cho Kuk has resulted in issues being raised about inequality of opportunity under hereditary capitalism, where wealth is passed down through the generations by means of education. The matter of wealth and income equality will also need to be tackled ultimately to resolve this issue. Another effect of the situation has been to draw renewed attention to the poaching of the legal system through collusion by business, authorities, and the media. This sort of corruption has laid the groundwork for unfairness and inequality, and judicial and prosecutorial reforms are obviously needed.

staff photographer)

But the so-called “gold spoons,” the chaebols, and the prosecutorial authorities are not the only ones with vested interests. Inequality in South Korea – as exemplified by the high concentration of income among the top 10% of earners – is in many ways tied to the vested interests of the employees at the top levels, including the public sector and regular worker unions at large corporations. To prevent a higher retirement age from exacerbating inequality, and to make this a truly fair and equitable country, we will need labor market reforms that keep these vested interests in check.

By Lee Kang-kook, Ritsumeikan University

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