South Korea's Employment Laws Slowly Adapt to Aging Population After 40 years working as an elementary school
Question:
South Korea's Employment Laws Slowly Adapt to Aging Population
After 40 years working as an elementary school principal, Chae Jae-min now drives a delivery truck. At 64, he has few other choices.
The average retirement age for public servants like Chae is around 60, irrespective of whether they want or need to keep working. With a wife and three sons?one who is sick and another unemployed?his pension barely provides for his family. So Chae continues to work and expects to do so well beyond the age of 70, or until his body no longer can.
In South Korea, some 62% of those aged 55-79 seek new jobs after their main career has ended. Meanwhile, the population is rapidly aging because of the falling birthrate and extended life spans. Over 12% of the population is now 65 or older, with the number expected to jump to almost 40% by 2050.
In recognition of its changing demographics, South Korea in 2013 set the mandatory retirement age at 60, which will become effective in early 2016. It will be a big change: Private companies often force employees to retire at around 55.
In a far more radical plan, hundreds of publicly funded institutions by 2016 will have to introduce a wage peak system to balance the extended retirement age with the need to hire more young people. Private sector companies are also encouraged to follow suit.
In South Korea, pay and position usually rise with seniority and age. Based on Confucian tradition, which still dictates many facets of society, hierarchy defines the business structure. Seniority levels "are a key aspect of office culture," said Kim Ji-won, who is in her 30s and has worked for tech companies at home and abroad. "If someone higher up is working late, you feel judged going home before them. So you stay at your desk, even if you have nothing to do."
This model limits companies' ability to hire and promote newer staff, which affects productivity. So for all the Confucian lip service paid to respecting your elders, South Korean companies would much rather push out middle-aged workers in favor of hiring younger staff. A survey by the Samsung Economic Research Institute has found that the average whitecollar worker is forced into early retirement soon before his or her 54th birthday, even though South Korean companies currently set their retirement age at an average of 57.7 years.
Another factor working against older employees is that the 50-something baby-boomer generation?one of the country's largest age groups?has only slowly adapted to the technologies that are now central to working life. This age cohort, which grew up during the manufacturing boom that swept away the poverty that followed the Korean War, tends to be less au fait with the use of the Internet and social media in business.
In April 2014, KT Corp., one of the country's largest mobile carriers, offloaded 8,320 employees, or 25% of its workforce, through a voluntary retirement program. Nearly 70% of the retirees were in their 50s and 31% in their 40s. Only 1,055 of the retirees filled in a related questionnaire, but most who did indicated they had retired because they felt some degree of pressure or were concerned they would be penalized if they did not.
Hwang Soo-kyeong of the Korea Development Institute is one of many economists who argue that forcing out the older generation wastes their knowledge, talent and experience, and results in a greatly diluted labor pool. Also, many people like Chae, the former principal, need the money.
When it comes to pensions, South Korea is one of the least generous members of the Organization for Economic Cooperation and Development. In addition, the OECD in 2012 found that South Korea was near the top of a global ranking of average effective retirement age?the age at which people stop working completely?at 71.1 years. It was second only to Mexico's 72.3. South Korea's elderly poverty rate stands at 48%, and its elderly suicide rate is also the highest among OECD countries.
The wage peak system, which the country experimented with a number of years ago, is intended to make it more economical for companies to retain older workers.
Borrowed from Japan, the scheme will have the government giving companies up to 10.8 million won ($9,968) a year, for up to five years, for each worker above the age of 55. In exchange, these workers accept an annual cut in their salary until they retire at 60. The salary cuts can start at 10% the first year and increase annually, capping out at 20%.
Samsung Electronics has readily embraced both the later mandatory retirement age as well as the revised wage peak system. Nam Ki-yung, a Samsung Electronics representative, said the company is trying to retain older employees and decided to adopt the programs ahead of the government's 2016 deadline. Among the country's largest companies, LG Electronics and KB Kookmin Bank are also early adopters.
The system is not without controversy, and it is also at odds with President Park Geun-hye's 2014 guidelines on replacing the traditional seniority-based pay system with a performancebased one. The wage peak system focuses on providing job security and on increasing wages earned over a lifetime, while a performance-based one does not.
Some 100 companies tried the wage peak route in the early 2000s. Among them was the state-run Korea Appraisal Board, which reviews the domestic real estate market. Over the scheme's three-year run, the Board was the first in the country to drop it, citing workplace disruption of the traditional order based around seniority. Younger employees began to make more money than their elders, and even outrank them, breaking the link between age and seniority. In addition, with not enough jobs for those seeking promotions, the company began creating menial positions, which brought down morale.
"We stopped the wage peak system because it had a lot of negative side effects," said Park
Hyun-gook, head of communications at the Korea Appraisal Board. "At this point, our performance-based system has served our company best and we'll continue on without adopting the wage peak system."
According to Hwang of the Korea Development Institute, the country "needs to change to a performance-based scheme." She added that the wage peak system is still necessary as a
transitional solution. "Reducing basic wages and improving employment levels are a major key in solving some of the problems," she said.
This is especially important due to the low employment rates for people in their 20s and 30s. In 2013, youth unemployment hit a 30-year high, according to Statistics Korea. Meanwhile, young people are putting off marriage and childbirth until they achieve financial stability. This is contributing to the South Korean birthrate declining at a faster pace than that of any other OECD country.
Experts suggest that on top of the minimum retirement age and the wage peak scheme, South Korea could also bring in more foreign laborers to shoulder the burden of its maturing society?a solution the Japanese government is also considering. However, a more immediate fix would be to increase the number of women permanently participating in the economy, especially because for the first time since 1970 there are as many females as males in South Korea.
Currently, the economic participation rate for South Korean women aged 30-39 is 33%? one of the lowest among advanced economies. This is attributed to preconceptions about gender norms as well as to the lack of job promotion opportunities and protections for women, all of which deter mothers from continuing their careers.
Hwang warns that without further reforms, the country's future growth is threatened. "A seniority-based wage system is unique to South Korea and Japan," she said, "but the system is not working to match the state of the economy."
QUESTION:
1. What is the summary of the case.
Problem .
Business Law and the Legal Environment
ISBN: 978-1111530600
6th Edition
Authors: Jeffrey F. Beatty, Susan S. Samuelson, Dean A. Bredeson