A recent analysis by the Bank of Korea revealed that if the retirement age is extended without revising the wage system, for every elderly worker added, one young worker will be lost. This phenomenon is more pronounced in jobs preferred by the youth, especially in large corporations. The Bank of Korea argued that expanding reemployment options post-retirement, which allows for adjustments in working conditions, is more desirable than extending the retirement age.
On the 8th, the Bank of Korea released a report titled "BOK Issue Note: Responses to an Aging Society and Employment Continuation for Older Adults." The report was prepared with the participation of the Employment Research Team of the Bank of Korea's Research Department and Professor Kim Dae-il from Seoul National University's Department of Economics.
South Korea, which has entered an ultra-aged society (where the proportion of the population aged 65 and older exceeds 20%), is experiencing a decrease in labor supply, which is degrading its growth potential. According to the researchers, under the assumption that the current employment rates by gender and age are maintained, the labor supply is expected to decline by 1.41 million people over the next decade, which could reduce the Gross Domestic Product (GDP) by 3.3% (0.33% annually) over the same period.
In response, the government amended the law in 2013 to uniformly set the retirement age at 60 and implemented it starting in 2016. This policy significantly affected employment in large corporations with unions, increasing the employment rate of wage workers aged 55 to 59 by 1.8 percentage points and the number of employees by approximately 100,000 from 2016 to 2024.
However, there were significant side effects, including a contraction in youth employment. An analysis of the impact of retirement age extension on the employment of those aged 23 to 27 between 2016 and 2024 shows that the employment rate of wage workers decreased by 6.9% (about 110,000 people), while the employment rate of regular workers fell by 3.3% (about 40,000 people). Considering that the number of elderly workers increased by 100,000 during this period, it is estimated that for each elderly worker added, the number of young workers decreased by 0.4 to 1.5.
The researchers noted, "The decline in youth employment occurred because, without changing the wage system, the sudden extension of the retirement age increased the number of elderly workers, prompting corporations to reduce new hiring, which is relatively easier to adjust, in order to lessen expense burdens. Moreover, the positive employment effect for elderly workers resulting from the retirement age extension was also significant in large corporations with unions, which corresponded to a greater decline in youth employment."
The extension of the retirement age has also negatively impacted the wages of both young and middle-aged workers. Wage changes from 2013 to 2019 indicate that the largest wage decreases were observed among middle-aged workers, who have a high substitution relationship with elderly workers, while young workers also experienced a slight decline. In contrast, the elderly workers who remained employed during the retirement age extension saw little adjustment in their wages.
The researchers argued that to promote continued employment for the elderly, the focus should be on expanding the reemployment system after retirement rather than on legal retirement age extension. They cited Japan, where a desirable example allows labor and management to autonomously select continued employment forms appropriate to corporate characteristics. According to the researchers, Japanese corporations typically conduct wage adjustments averaging about 40% during the recontracting process with elderly workers, with many examples of job adjustments.
The researchers stated, "If we strengthen and improve the reemployment system, which involves entering into new labor contracts with workers after terminating the labor relationship upon reaching retirement age, we can encourage continued employment for the elderly while also reforming the wage system and flexibly adjusting working conditions. A staged approach that promotes the autonomous spread of the reemployment system and gradually imposes reemployment obligations on corporations is needed."