Seoul: Reemploying workers after retirement is more effective than simply extending the retirement age in keeping senior citizens productive and active in the labor market, a central bank report said Tuesday.
According to Yonhap News Agency, the report by the Bank of Korea (BOK) indicates that South Korea's labor force is projected to shrink by 1.41 million workers over the next decade due to demographic changes. This is expected to reduce the country's gross domestic product (GDP) by an average of 0.33 percent per year.
Under these circumstances, it is an urgent task to create a labor market where senior citizens work longer and more productively. However, the extension of the statutory retirement age without wage adjustment could cause side effects, the BOK stated.
"If the retirement age is extended without reforming the seniority-based wage system and other market rigidities, we would continue to experience side effects like a decline in youth employment, more early retirements, and the dual structure in the labor market," said Oh Sam-il, chief of the BOK's employment research team.
"As of last year, 8.24 percent of companies adopted post-retirement reemployment systems. If the wage system is flexible, companies are willing to retain skilled workers through rehiring," he added.
If the proportion of employees working until the age of 65 increases to over 50 percent over the next 10 years, the country's economic growth rate is projected to increase by 0.9 to 1.4 percentage points, or 0.1 percentage point annually, the BOK reported.
In 2016, South Korea extended the legal retirement age of its workers to 60. Previously, the retirement age of 60 was a recommendation and not mandatory. All government offices and most private-sector businesses retired their workers between the ages of 56 and 58.
Following this measure, the employment rate of wage workers aged 55-59 increased by 1.8 percentage points, or around 80,000 workers, from 2016 through 2024.
However, the employment rate among wage workers aged 23 to 27 declined by 6.9 percent, or about 110,000 people, during the same period.
"The sudden extension of the retirement age without changes to the wage system appeared to have prompted companies to reduce new hiring to cut labor costs," the report noted. "Companies have also tried to offset burdens through early retirement and other personnel policies."
The BOK recommends a phased approach for implementing rehiring systems, where the government encourages companies to voluntarily adopt the system by offering incentives before gradually making it obligatory.