ED Raising the retirement age

Yang Kyung-soo, third from left, chairman of the Korean Confederation of Trade Unions, speaks during a press conference calling for the passage of legislation to extend the legal retirement age, at the National Assembly in Yeouido, Seoul, Wednesday. He was joined by Jinbo Party lawmaker Yoon Jong-o and representatives of the Federation of Korean Trade Unions. Yonhap

Korea is reaching a demographic turning point. With one of the world’s fastest-aging populations and the national pension eligibility age set to rise to 65 by 2033, extending the retirement age has become an unavoidable national issue. The country’s two major labor unions, the Federation of Korean Trade Unions (FKTU) and the Korean Confederation of Trade Unions (KCTU), are now pressing the government and ruling party to legislate a 65-year retirement age before the end of the year. The Democratic Party of Korea has voiced its support, arguing that older workers deserve job security and a stable income until they can receive their pensions.

The rationale sounds compelling, yet the proposal’s current form is fraught with risk. The unions demand a five-year extension without any wage reduction, an approach that may appeal politically but is economically unsustainable. An across-the-board extension that preserves seniority-based pay would raise labor costs dramatically, strain small and medium-sized enterprises and likely crowd out youth employment. According to the Bank of Korea, for every additional senior worker employed, the number of young workers decreases by between 0.4 and 1.5. Youth employment has already fallen for 35 consecutive months, and more than 440,000 young people are now categorized as neither working nor actively seeking work.

If older employees stay longer in highly paid positions, younger generations will inevitably bear the brunt of the problems. Korea cannot afford to sacrifice its youth labor market, already weakened by automation, shrinking industries and sluggish job creation in the name of political populism.

Japan, facing similar demographic pressures decades earlier, offers a more nuanced model. Rather than simply extending the statutory retirement age, Japan adopted what it calls “employment security measures.” Since 2013, companies have been required to guarantee job opportunities for employees up to age 65, but are given flexibility in how to do so — through abolishing retirement altogether, extending it or rehiring workers after retirement. Most Japanese firms chose the reemployment system, allowing older workers to return under new contracts with adjusted pay and responsibilities. Wages are reduced gradually after age 55, while duties are redesigned to match changing capacities and maintain productivity.

This flexible approach has yielded remarkable results: The employment rate among Japanese men aged 60 to 64 now stands at 84 percent, and 65 percent for women. It has also prevented the explosion of personnel costs that an automatic wage-protected extension would have caused. Japan’s experience shows that the key to longevity in employment is not simply raising the age limit, but restructuring the entire career system to sustain both productivity and fairness.

Korea should draw a clear lesson from this. Realistic and sustainable reforms must include three elements: a revamped wage system that shifts from seniority-based to performance- and job-based pay; a range of flexible employment extension options for companies to choose from; and a broader social consensus that balances generational interests. Without structural reform, a blanket five-year extension will only aggravate inequalities, weaken competitiveness and deepen the divide between generations.

Furthermore, the rush to legislate before the year’s end is deeply concerning. Extending the retirement age is not a matter to be “pushed through” in two months to fulfill campaign promises. It demands national dialogue among labor, business and government that is grounded in data, realism and shared responsibility. Rushed policymaking may leave the nation with a rigid, costly system that will be difficult to reverse.

The question is not whether to extend the retirement age, but how to do so wisely. Korea’s labor market must evolve from one that protects seniority to one that rewards contributions and capabilities throughout a person’s working life. Only by adopting Japan’s flexible and pragmatic approach can the nation achieve both economic vitality and social harmony in an age of longevity.

Extending the retirement age should not be seen as a political favor or a short-term populist pledge. It is a profound socioeconomic reform that requires patience, compromise and foresight, the qualities that define a mature society.