The Korea Herald


Good and bad tidings for Korean workers

By KH디지털2

Published : Dec. 13, 2015 - 17:33

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Working life for most workers in Korea is punishing, with the nation having among the longest working hours among the Organization for Economic Cooperation and Development member countries. Only in the last decade did the five-day work week replace the six-day work week.

Even more burdensome is that nearly all workers are involuntary put into retirement at an early age. Korea is the only OECD country that allows employers to arbitrarily set a mandatory retirement age that applies to all employees in a workplace. Consequently, most Korean employees are forced to retire in their mid-50s. Thereafter, they typically must find low-paying precarious employment as taxi drivers, security guards and as small-scale entrepreneurs until finally retiring altogether from the labor market in their early 70s.

Starting in 2016, the fate of employees will improve when legislation comes into effect that sets 60 as the mandatory retirement age across the nation for large employers. By 2017, all employers will be compelled to keep their workers until age 60.

For workers, this later retirement age from their main job provides additional years of employment security. This is no small matter in a society suffering from ultralow fertility rates where many young adults believe they will not earn enough over their lifetime to bear the cost of raising a child to adulthood. 

However, the new legislation permits employers to implement peak wages; that is, to cap and reduce compensation for workers in their mid and late 50s. For example, an employer that currently has 55 as the retirement age can reduce wages by 10 percent (or more) each year for workers who reach age 55. Thus, at age 56, a worker will be paid 90 percent of what he or she earned the previous year, while at age 59, less than two-thirds will be earned.

The ability to introduce peak wages was the price employers extracted in the political bargaining around retirement age, in return for their support to set the retirement age at 60. From the perspective of employers, the productivity of older workers -- those in their mid-50s -- is lower than their wages. Hence, these workers must be paid less.

Politicians also support peak wages, seeing them as a means to reduce youth unemployment. The government believes that paying older workers less will allow companies to allocate more money to hire younger workers entering the labor market.

Yes, the perspectives of employers and the government are flawed. Older workers don’t earn more than their productivity, and employer associations have never provided any evidence of this. Research has consistently shown that there is no relationship between age and productivity, with the exception of jobs that require maximal physical effort. These jobs that necessitate only physical strength have largely disappeared from the Korean labor market.

Rather, employers have always preferred -- and continue to prefer -- hiring young workers at low wages and retiring them as early as possible. It is in this way that total compensation at the workplace is kept low.

At the same time, the government is mistaken in seeing the earnings of older workers as impeding on the opportunities of young people. The OECD and economists have been very clear for decades that public policies do not -- and cannot -- shift jobs from one generation to the next.

The view that if older workers remain in their jobs longer there will be few jobs for youth is common in Korea, but is not backed up by the experience of other nations or economic theory. The argument that older workers take or keep jobs from young people is similar to the erroneous belief that limiting employment opportunities for women is necessary to protect jobs for men.

Setting age 60 as the retirement age is progressive and reflects the reality that most individuals reaching that age are healthy, high-performing and experienced workers. At the same time, introducing peak wages perpetuates the negative stereotype that by their mid-50s all workers are less productive than those who are younger.

Peak wages are a unique feature of Korean workplaces, with no other nation paying workers less for doing exactly the same job solely because they are a year older. Japan, which most closely resembles Korea in its labor market, workplace practices and retirement policies, increased its nationwide retirement age to 60 without resorting to peak wages.

Korean workers can only hope that employers and government will soon realize the futility of using age to determine productivity, and of pitting one generation against the other. Then when peak wages fade away, workers will truly be able to rejoice.

By Thomas R. Klassen

Thomas R. Klassen is a professor of public policy and administration at York University in Toronto, Canada. He is currently a visiting professor at Yonsei University. --Ed.