Conglomerates in dilemma over manpower expansion

President Lee Jae-myung speaks during a Cabinet meeting at the presidential office in Seoul, Thursday. Joint Press Corps

Major conglomerates are facing a dilemma over President Lee Jae-myung’s pro-labor policy of raising the legal retirement age, as it could prevent job creation for the younger generation, industry officials said Thursday.

Lee’s major policies include the gradual extension of the retirement age from 60 to 65, along with introducing a 4.5-day workweek system.

Both are drawing concerns from major business groups, as they are expected to increase labor costs and make it tough to ensure productivity under possibly reduced working hours.

However, his proposals seem highly feasible thanks to the parliamentary majority of the ruling Democratic Party of Korea (DPK). The ruling bloc holds 167 seats in the 300-seat National Assembly.

If both pledges pass the National Assembly, industry officials argue they will have to tighten their belts either by reducing recruitment of new employees or shrinking investment.

“If the policies are realized, companies will have to cover more labor costs to pay for the experienced older workers for a longer period of time,” an official from a conglomerate said. “To ensure profitable growth, companies will be less likely to hire young workers under the labor environment.”

On top of that, the policies may create a series of other unexpected side effects across the industry, such as a deeper generational conflict, according to the official.

Data showed that the expansion of the legal retirement age will create an unbalanced labor structure to most companies.

President Lee Jae-myung, second from left, then the chairman of the Democratic Party of Korea, speaks with Korea Enterprises Federation Chairman Sohn Kyung-shik, right, at the latter's headquarters in Seoul, Nov. 11, 2024. Joint Press Corps

According to data from the Federation of Korean Industries, local firms will have to bear an additional labor cost burden of some 30.2 trillion won to mandatorily hire some 590,000 regular workers aged between 60 and 64. The figure is equivalent of the labor cost required to employ 902,000 workers aged between 25 and 29, according to the data.

Reflecting on such negative effects on local firms, major business lobbies advised the Lee administration to adopt a policy of rehiring experienced workers after their retirement on a contract basis.

“The unilateral and forcible extension of the legal retirement age will make it harder for companies to hire new employees, which will bring a sense of frustration to the young generation,” an official from the Korea Enterprises Federation said.

The government, instead, needs to review measures for co-prosperity of all age groups by encouraging companies to reemploy retired workers and hire new workers at the same time, rather than making the retirement age extension mandatory, according to the official.

Another official from a company also raised concerns over the 4.5-day workweek, as it could weaken corporate productivity at a time when most large firms face increased management uncertainties due to global protectionism and economic uncertainties, such as near-zero economic growth.

“Only a few big firms will be able to embrace the reduced work-hour system without much difficulty, but this is not the case for most small- and mid-sized enterprises, which still face manpower shortage problems,” the official said.

“The scenario does no good to boost the economy and corporate growth.”