Hyundai’s retirement-age deal risks squeezing youth jobs

Hyundai Motor management and its union agreed this week to extend the retirement age without further wage reductions. Under the agreement, any legislated extension of the retirement age will take effect immediately, while the existing wage-peak system will not be expanded.

Currently, Hyundai Motor freezes base pay for production workers at age 59 and cuts it by 10 percent at 60. If the retirement age were raised to 65 as labor groups demand, employees could continue receiving seniority-based pay increases through age 63, with adjustments applying only during their final two years.

This is precisely the kind of across-the-board retirement-age extension employers fear most: one introduced without reforming the wage system. Under Korea’s seniority-based pay structure, labor costs could rise beyond what many companies can afford.

Hyundai Motor is a flagship workplace of the Korean Metal Workers’ Union and a bellwether for labor-management relations in manufacturing. Its model could therefore spread across industries. Both management and labor have made a self-serving choice that falls short of the responsibility their influence demands. Korea has already seen how SK hynix’s “N-percent performance bonus” formula can reverberate throughout society.

Above all, Korea must avoid repeating past mistakes. According to the Bank of Korea, after the mandatory retirement age of 60 was introduced, every additional worker aged 55 to 59 was associated with a decline of roughly 0.4 to 1.5 workers aged 23 to 27.

The benefits of extending retirement have also been concentrated among regular employees at large unionized companies. That has deepened Korea’s dual labor-market structure while reducing companies’ capacity to recruit new employees and worsening the employment difficulties facing young people.

In reality, fewer than 20 percent of wage earners remain with their employers until mandatory retirement, while only 23 percent of workplaces operate a mandatory retirement system. Such disparities inevitably aggravate polarization and deepen young people’s sense of relative deprivation.

The proper sequence is to first establish an institutional foundation for replacing Korea’s seniority-based wage system with one centered on job value and performance, then discuss extending the retirement age. That would give companies greater room to hire young workers.

Korea should also seek a middle ground by expanding postretirement re-employment, as Japan has done. Such an approach could give older people opportunities to continue working without imposing excessive costs on companies while minimizing generational conflict.

Extending working lives is necessary in an aging society. But protecting older workers should not come at the expense of closing the door on younger generations.