Raising the retirement age can harm youth employment

The Korean government announced a plan to raise the retirement age to 65 by 2018, at the 3rd public hearing on the Plan for Aging Society and Population on Monday. This is aimed at eliminating the gap between current retirement age and the eligible age for receiving national pension.

As the average life span of Koreans has been going up, older individuals find it difficult to live under the savings they made while working 25 years (from 30 to 53-55), for an additional 25 years after retirement (from 55 to 80). Adding to the issue is the labor shortage issue caused by continued decrease in the size of working population (ages 15 to 64), which is expected to peak in 2016 at 37.04 million and start to decline from 2017. Against this background, letting older workers stay longer in the labor market seems to be good for both the economy and individuals.

However, it is questionable that whether raising the retirement age is the right way. From next year, businesses with 300 employees or more will be mandated to apply the retirement age of 60, and all businesses should adopt that standard by 2017. With this adjustment in the retirement age, corporations are already showing reluctance towards hiring new employees, worsening Korea`s already severe youth unemployment. Simply pushing back retirement without fundamentally reforming Korea`s labor market which lacks flexibility and is characterized by strong labor unions, can completely block young people from entering the job market.

Meanwhile, the government also said that they will review the idea of pushing up the age qualification for senior citizens to 70. This is likely to contribute to lowering the share of the elderly from 19.9 percent to 12.7 percent in 2025. Currently, most of the welfare benefits for senior citizens set the eligible age at 65, including the basic pension scheme, the long-term care insurance, and free subway ride. Delaying these benefits can undermine the livelihoods of the poor elderly.

Some might argue that the retirement age should be also pushed back to 70 to match the senior citizen qualification. Many advanced nations are abolishing the official retirement age as it is regarded as a form of discrimination, or guarantee employment until the age eligible for receiving national pensions. In order to keep older workers in the labor market, other reforms such as expanding meritocracy and establishing a duty-based HR system should follow as well. This will help boost youth employment, leading to increased tax revenue, more child birth, and ultimately more money to benefit the elderly.