SEOUL, Sept. 18 (Korea Bizwire) — South Korea on Wednesday floated the idea of dictating that companies continue to employ workers beyond the current retirement age of 60, a move that could have far-reaching implications on Asia’s fourth-largest economy.
The move came amid growing need for older people to stay in the labor market longer as the country’s working-age population — those aged between 15 and 64 — is projected to drop sharply in coming decades amid a rapidly aging population.
Statistics Korea forecast that the country’s population is likely to reach 39 million in 2067, sharply down from an estimated 51.7 million in 2019.
The agency said people aged 65 years or older could account for 46.5 percent of the country’s population, a sharp rise from 14.9 percent this year.
A rapid decline in working-age population could place a heavy burden on young people to support them and add a further drag on South Korea’s potential growth.
The government said that in 2020 it plans to discuss a new employment system that would require companies to keep hiring their employees until a certain age beyond the current retirement age of 60.
The system would allow companies to select such options as the rehiring of employees after their retirement and the extension or abolition of the retirement age, according to the government.
Still, the government did not provide any specific time frame on when it would introduce the system.
Also unclear is how long companies would be required to keep hiring their employees beyond the current retirement age of 60.
Speculations surfaced that the government could take into account the age of eligibility to receive state pensions when it decides the mandatory period for companies to keep employees beyond the current retirement age.
South Korea has decided to raise the eligible age to receive the pension to 65 in 2033 from 62 in 2019.
The scheme is supported by a court ruling.
In February, the Supreme Court recognized the age of 65 as the maximum age that people are physically fit to work, bolstering the case for extending the retirement age to 65 from the current 60.
The proposed new hiring system, if implemented, is likely to have far-reaching effects in a country where young people are struggling to find jobs amid a protracted economic slowdown, observers said.
The unemployment rate for young adults — those aged between 15 and 29 — stood at 7.2 percent in August, much higher than the headline jobless rate of 3 percent, according to Statistics Korea.
Sung Tae-yoon, an economics professor at Seoul’s Yonsei University, is critical of the new employment system as increased labor costs and decreased productivity weigh on companies, and young people are struggling to find jobs.
“The discussion should start only after wages are in line with productivity,” Sung said.
An official of a local brokerage also questioned the new system.
“The parents’ generation would take away jobs from the children’s generation, and youth unemployment could hit a record high unless companies expand their investments,” the official said.
He asked not to be identified as he was not authorized to speak on the record.
A major business association, which speaks for South Korean companies, said the new employment system would place a further burden on companies amid difficult economic conditions at home and abroad.
“The new system could further worsen the difficulties facing young job seekers, which in turn could cause generational friction over jobs,” an official of the business association said on condition of anonymity, citing policy.
He called for social dialogue for companies’ voluntary extension of the retirement age.
Hong Nam-ki, the minister of economy and finance, is also in favor of discussions on the retirement age in the medium to long term.