Seoul must push for phased labor reform before extending the retirement age
South Korea’s population is aging at a pace its economy and laws have yet to match. The debate over raising the statutory retirement age to 65 has become a matter of national urgency. The country became a superaged society this year, and a widening “income void” now separates the retirement age of 60 from the national pension’s starting point of 65.
For millions of second-generation baby boomers born between 1964 and 1973, that gap has become a financial chasm.
The ruling bloc, led by the Democratic Party of Korea and backed by the two major labor federations, is attempting to push a bill through the National Assembly by year-end to fulfill President Lee Jae Myung’s campaign promise. Yet the task force has made little progress, as the dispute is not whether older workers need protection, but how to provide it without broader harm.
Raising the retirement age without changing the seniority-based wage system would saddle firms with sharply higher personnel costs. South Korea’s seniority pay typically peaks in the late 50s. A uniform five-year extension would raise payroll bills at a time when many companies, especially small and midsized ones, cannot bear the extra financial burden.
The immediate casualty would be youth employment. The Bank of Korea estimates that when one senior job is retained, between 0.4 and 1.5 youth jobs disappear. Even a one-year delay in retirement for some 50,000 regular employees could block the creation of a similar number of stable youth jobs. Youth employment has fallen for 35 consecutive months, and more than 440,000 young people now describe themselves as “not actively seeking work” because of poor job prospects.
There is also a corporate trade-off. Firms retaining high-cost older staff in roles that demand new skills may defer investment and innovation, undermining competitiveness. A labor market that clings to seniority pay and rigid rules risks losing its young talent and dulling its global edge.
The sensible remedy is not to resist longer working lives, but to redesign the career life cycle. Linking pay to role and performance rather than age would make sustained employment less costly and more productive. Employers must be given realistic options to match duties to capability and adjust compensation accordingly.
Japan provides a useful guide.
Tokyo spent 25 years experimenting, and its gradual approach introduced options for firms to abolish retirement, extend it or rehire employees on new contracts. This flexibility let companies retain skilled staff while moderating the total wages bill. Compensation often tapers after 55 years of age, and job roles are adjusted to fit capacity. Today, 84 percent of Japanese men aged 60 to 64 are employed, which illustrates the gains from gradual reform and social consensus.
South Korea’s present path looks more like a political speed contest than a deliberative program. Legislating a blanket increase without safety valves is feared to entrench inequality between generations and weaken national sustainability. Policy that alters the social contract of work requires careful sequencing and broad buy-in.
Three reforms should be central. First, implement phased increases to give firms time to adapt. Second, accelerate wage system reform toward job and performance criteria so that longer careers do not automatically mean higher costs. Third, expand flexible reemployment schemes after age 60 with new contracts that reflect duties and performance.
The objective is to allow people to work longer while keeping the economy dynamic. A measured, flexible approach can protect the livelihoods of the elderly and the prospects of the young.
The test of sound policy is not how fast a nation acts, but whether it preserves balance while adapting to demographic reality. Lawmakers should pause the rush and craft enforceable, phased measures that share the burden across society.
khnews@heraldcorp.com
