Value context and insight. lkm@koreatimes.co.kr
Rehiring after retirement better than retirement age extension: BOK
The main opposition Democratic Party of Korea launches a retirement age extension task force at the National Assembly on Yeouido, Seoul, April 2. Yonhap
By Lee Kyung-min
Extending the retirement age without overhauling the seniority-based pay system will exacerbate youth joblessness and labor market polarization, a central bank report said Tuesday.
The criticism centers on greater older employee retentions at large conglomerates and an increase in early retirements, resulted by the 2016 retirement age extension without pay system overhaul, according to the Bank of Korea (BOK).
Korea should rehire retired employees, instead of extending the retirement age, the report suggested. Otherwise, job opportunities will be further limited for young people and more jobseekers will increasingly favor large conglomerates over small companies even when it means delaying or landing jobs for years.
According to the report, the number of wage workers — including irregular and temporary employees — aged between 55 and 59 rose about 80,000 between 2016 and 2024. The number of regular workers rose by about 100,000.
However, over the same period, wage workers aged between 23 and 27 decreased by about 110,000, while that of regular workers in the same age group dipped by about 40,000.
“Many firms opted to delay or scale down new hiring in 2016 and onward, an easier way of a cost-cutting measure to comply with the new law that lacked pay system overhaul,” a BOK official said.
“A retirement age extension without a revision to the current seniority-based pay system and labor market rigidity will lead to a higher risk of prolonged youth unemployment and more pronounced labor market duality,” the official said. “It will be a repeat of what happened 10 years ago.”
The central bank said rehiring retired employees is a viable alternative to the retirement age extension.
“New hires will be subject to new labor contracts, encompassing a new pay system, working conditions and flexible hiring and firing,” the official said.
More than a third, or 38 percent, of companies use the rehiring after retirement, the central bank data showed. Their pay systems are more task-oriented than seniority-based, prioritizing individual skills.
“A flexible wage and working hours allow a greater number of firms to rehire older workers with extensive skills and expertise in their fields,” the official said. “Still, making the system mandatory will backfire, so allowing grace period and discretion to firms to better adjust to the needs of each will draw a better outcome.”
The new recommendation will translate into an annual growth rate increase of 0.1 percentage points over the next decade, offsetting growth rate decline stemming from population declines.
The new system will bolster the income of older adults since an additional monthly income of 1.79 million won ($1,216) will be secured compared to landing a low-income, temporary job offered by the government.