Structural Reform Before Retirement Age Extension, Not Populist Appeals

The mandatory retirement age is not an issue that should be raised uniformly by law. Under current legislation, the statutory retirement age is already set at a minimum of 60. What matters next is not speed, but design. Rather than simply increasing the numerical retirement age, wage systems, job transitions, and continued employment arrangements must be designed together so that the burdens across generations and firms are shared in a balanced way.

The government and the ruling party are currently pushing a bill to gradually raise the statutory retirement age to 65 by 2033. The stated rationale is to bridge the gap between retirement and eligibility for the national pension—the so-called “income crevasse.” However, the more important question is not how much to extend retirement, but how to make the system sustainable.

If the retirement age is extended while productivity and wage structures remain unchanged, corporate labor costs will balloon, and job opportunities for young people will shrink accordingly. The Bank of Korea has estimated that for every additional older worker retained, youth hiring declines by roughly one person (0.4–1.5 workers). A survey by the Korea Employers Federation likewise found that more than 70 percent of young respondents believe extending the retirement age would narrow hiring opportunities.

The problem is that politicians are approaching this massive generational shift through the lens of electoral incentives. If the seniority-based wage system remains intact while only the legal retirement age is raised, firms will lose the capacity to hire new workers, leaving behind nothing but a generational “numbers game.” As the electoral influence of older cohorts grows, the voices of younger generations are further marginalized. This is precisely why a long-term, sustainable social consensus—rather than short-term populism—is needed.

The wage peak system helped slow cost increases, but its impact on job creation has been limited. To enhance the effectiveness of retirement-age policy, the wage peak system must be made substantive, accompanied by a transition to job- and performance-based pay, as well as robust redeployment and retraining systems.

Structural reform must come before simple extension. A job-centered wage system allows continuity of employment to be recognized based on skills and performance, while enabling firms to control labor costs and maintain the productivity of older workers.

What is now required is a flexible “continued employment system.” Firms and workers should be able to extend contracts autonomously, with tenure determined by performance and capability. The government, for its part, should strengthen retraining and reemployment support for older workers. When older workers transition into part-time or project-based roles and younger workers enter newly opened positions, employment extension can truly become a mechanism for intergenerational coexistence.

Work models that allow older workers to work fewer than five days a week, with greater flexibility, should also be considered. Extending the retirement age does not have to mean maintaining full-time regular employment. Firms should be allowed to adopt phased working hours and flexible schedules. Such approaches would help create pathways that accommodate work across different stages of the life cycle.

More important than simply extending the retirement age in statute is building institutional ladders that promote intergenerational mobility and retraining. The core issue is not “how long to work,” but “how to work.”

The transition to a super-aged society is unavoidable. But how the employment ecosystem is designed in response will determine the future balance of the labor market. In the legislative process, the National Assembly must prioritize on-the-ground suitability and feasibility over short-term political calculations.

Sang-yeop Kim
Research Fellow, The Center for Free Enterprise

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=1&idx=28254