Chapter 2. The exceptional labour market situation of older workers in Korea
This chapter evaluates the leading trends around employment outcomes for older workers in Korea. It focuses on a positive message and a concerning one: while older workers in Korea participate in the labour market more actively than their peers in any other OECD country, they face consistently poor labour market outcomes in terms of job quality – including around the type of work they do, their job security and the remuneration they receive. The analysis lays out some of the main contributing factors.
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Strong participation for relatively little gain
The labour market situation of older workers in Korea may be summed up in two overarching and contradictory phenomena: older Koreans participate in the labour force more actively than their peers in virtually every other OECD country while the quality of the jobs they hold – in terms of their employment status, job security and remuneration – is incredibly poor. This apparent paradox at the heart of Korea’s labour market has no parallel in any other OECD country.
This exceptional situation results, in large part, from the lack of alternative options many among Korea’s elderly population encounter. In the lack of a strong social safety net, many find employment to be the only viable means to a livelihood and the only alternative to poverty. Meanwhile, weaknesses around the poor quality of jobs older workers in Korea encounter stem directly from the widespread practice of early retirement from the main job (for most, aged in their early-50s) and the commencement of a “second career” (see Chapter 4). Older workers with adequate savings often launch a second career that involves self-employment or business ownership. While many go down this route, few have the necessary business skills to achieve high productivity and business success. Older workers who frame their second career around a salaried position may be obliged to find work in an altogether alternative economic sector and usually face a low bargaining position. This, all too often, results precisely in poorer working conditions, lower job security and a step down in terms of pay.
With most Koreans effectively retiring only in their 70s, a second career can often extend for up to two decades or more. Renewed policy initiatives to ensure a better deal for older workers – and securing a stable livelihood with decent work conditions – are therefore a priority in Korea.
The OECD’s Older Workers Scoreboard gathers a number of indicators to track and elucidate key features of the labour market situation of older workers. Table 2.1 presents these indicators, comparing the findings for Korea with the OECD averages in 2006 and 2016. The main findings for Korea include:
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Demographic situation: Korea’s old-age dependency ratio is relatively low for now, compared to the OECD average (though it is due to rise rapidly over the coming decades, see Chapter 1). Most Korean workers, nevertheless, remain within the labour force until their early 70s – almost seven years longer than the OECD average for men and around 8½ years longer for women, as of 2016.
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Employment: Employment rates among those aged 50-74 are considerably higher in Korea (62.1% in 2016) than the OECD average (50.8%). The gap has also widened slightly over the past decade or so. While more women in Korea are employed in older age than in many other OECD countries, Korea nevertheless has a higher gender gap in employment.
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Job characteristics: Older workers in Korea work relatively longer hours than their peers in most other OECD countries, with part-time work accounting for only 11.7% of those aged 55-64 in 2016, compared with an OECD average of 21.1%. Older workers in Korea are also much more likely to be in temporary work (32.7% compared with 7.9% among salaried workers); to be self-employed (38.2% compared with 32.8% among all those employed); and to earn less than their younger counterparts.
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Dynamics: Retention of workers past the age of 60 was extremely low in Korea, with only 23.4% of those employed five years earlier keeping the same employer past age 60, compared with an OECD average of 50.3% in 2016. Hiring of older workers, meanwhile, was much higher in Korea than elsewhere, with 33.9% of workers aged 55-64 holding their jobs for less than one year, compared with an OECD average of 9.1% in 2016.
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Joblessness: Unemployment and long-term unemployment were extremely low in Korea, compared with most other OECD countries. The unemployment rate in Korea among labour force participants aged 55-64 was just 2.8% in 2016, compared with an OECD average of 4.6%. Meanwhile, the incidence of unemployment lasting longer than one year was just 1.0% among this group in Korea, compared with a significantly higher OECD average of 44.3%.
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Employability: Older workers in Korea have relatively low levels of educational attainment, on average, with only 19.7% of those aged 55-64 holding a tertiary-level qualification in 2016, compared with an OECD average of 26.2%. Older workers in Korea also participate less in training compared with both the OECD average and with their younger counterparts within the labour market.
The present chapter elaborates upon some of these leading trends. The following section focuses on Korea’s impressive labour force participation among the elderly population. The subsequent section contrasts the initially positive findings with more concerning evidence of ongoing weaknesses around job quality for older workers in Korea – particularly in terms of their status in employment, their job security and their remuneration. A short concluding section brings together the main findings.
Labour force participation and effective retirement
Korea employs more of its elderly population than virtually any other OECD country. In 2017, Korea witnessed employment rates of 72.6% among workers aged 55-59; 60.6% among those aged 60-64; 45.5% among those aged 65-69; and 33.1% among those aged 70-74 (Figure 2.1). These shares compared with respective OECD averages that are much lower at 69.6%, 50.3%, 26.0% and 15.2%. The employment rate in Korea among those aged 70-74 was higher than in any other OECD country.
Other OECD countries that achieve high employment rates among their older populations include Iceland, Israel, Japan, New Zealand and Switzerland. None of them, however, surpass Korea in the very oldest age-brackets. The stand-out trends in Korea hold true among women and men alike. Nevertheless, there is room for improvement in raising employment rates among certain demographics – especially women aged in their 50s.
Korea’s employment rate among young people aged 15-29 is slightly lower than the OECD average. This is primarily due to the fact that relatively more young Koreans take part in tertiary education than their peers in other OECD countries. Employment rates among men in Korea converge with the corresponding OECD average around age 30-34 and exceed it among older age brackets (Figure 2.2, Panel A). Among women, Korea’s “M-shaped” age-employment distribution shows somewhat depressed rates among the key age brackets associated with childbirth and child care. Nevertheless, the employment rates of Korean women exceed the OECD average around age 60 to become the very highest among those aged in their 70s (Figure 2.2, Panel B).
Note: OECD is the weighted average of the 35 OECD countries.
Source: OECD Dataset LFS by sex and age - Indicators, http://stats.oecd.org//Index.aspx?QueryId=54218.
Note: Shaded area highlights the minimum and maximum values of OECD countries (excluding Korea). OECD average refers to the weighted average for all 35 OECD countries.
Source: OECD Dataset LFS by sex and age - Indicators, http://stats.oecd.org//Index.aspx?QueryId=54218.
Several OECD countries have observed significant increases in employment rates among older age groups over the past two decades or so. In Korea’s case, too, employment rates in those groups have risen somewhat. Employment rates rose steadily among all older age groups from the mid-1980s up to the late-1990s. The Asian Economic Crisis of that time lowered the employment rates in virtually every age group significantly, though all have since regained their pre-crisis levels. In the case of women, today’s rates in virtually every age category even exceed the pre-crisis levels (Figure 2.3).
Source: OECD Dataset LFS by sex and age - Indicators, http://stats.oecd.org//Index.aspx?QueryId=54218.
Korea’s high employment rates among the elderly partly come about through its consistently low unemployment rates among all age groups. Unemployment rates in most OECD countries tend to increase sharply with age, producing a significant bulge in their age-unemployment distributions. In the Korean case, however, unemployment rates remained consistently lower than 3% for all mature age groups in 2017 (though they were somewhat high at around 8.6-10.6% among those aged 15-29).
Korea’s employment rate among the elderly has gradually increased since 1980 in line with the increase of the overall employment rate, driven by rapid economic growth. The employment rate for ages 55-64 increased 6.5% percentage points (from 61% to 67.5%) from 1980 to 2017 while the employment rate for ages 15-64 increased 7.5% points (from 59.2% to 66.6%) during the same period. On the contrary, the employment rate of older workers all across the OECD has increased substantially, from 51.5% in 1980 to 60.4% in 2017, much more so than the overall employment rate (which increased from 63.9% in 1980 to 67.8% in 2017). The larger increase in older worker employment in many countries is explained by improved incentives to work, increased pension ages and more generally a closing of early retirement pathways, sometimes including disability benefit.
High employment rates among older workers mean that average workers in Korea will effectively retire at an older age than their peers in other OECD countries. According to OECD estimates based on labour force survey data for the period 2011-16, men in Korea effectively withdraw from the labour market at an age of 72 years and women do so at 72.2 years. Both of these ages are higher than in any other OECD country – where the majority of workers effectively retire before they reach 65 years (Figure 2.4, Panel A).
Estimates based on time series data reveal that Korea’s average effective retirement age was only around 66-68 years during much of the 1970s and 1980s. It began to climb significantly only during the late-1980s and currently stands higher than it has ever been (Figure 2.4, Panel B). Korea’s time series defies the overall OECD trend, in which the effective retirement age steadily fell during the 1980s and 1990s but has slowly been rising – for men and women alike – since the early-2000s.
All of these trends signal a reassuring message for Korea: for a country undergoing such rapid trend of population ageing and population decline, high employment rates among older workers can nurture a more sustainable future. While many OECD countries experiencing similar demographic changes are struggling to activate their elderly populations, Korea is already there. To this end, part of the solution to Korea’s ageing labour market is already in hand. The real challenge now, in terms of going forward, will be to raise the quality of the work older Koreans can access – which currently suffers from significant deficits – and to improve their overall earnings potential.
Note: The average effective age of retirement is calculated as a weighted average of (net) withdrawals from the labour market at different ages over a 5-year period for workers initially aged 40 and over. In order to abstract from compositional effects in the age structure of the population, labour force withdrawals are estimated based on changes in labour force participation rates rather than labour force levels. These changes are calculated for each (synthetic) cohort divided into 5 year age groups. The estimates for women in Turkey are based on 3-yearly moving averages of participation rates for each 5-year age group. In panel B, the OECD is the unweighted average of all OECD countries except: Iceland (before 1980); Israel (before 1990); Latvia (before 1994) and the Czech Republic, Germany, the Slovak Republic and Slovenia (before 1996). This also holds true for the range.
Source: OECD Database on the Average Effective Age of Retirement, www.oecd.org/els/emp/average-effective-age-of-retirement.htm.
The quality of employment for older workers
For many elderly people in Korea, high employment rates reflect not so much a desire to work as a necessity to do so. Korea’s Additional Economically Active Population Survey for Older Workers from 2017 reveals that 58% of workers aged 55-79 work primarily to earn or supplement their living costs. Meanwhile, a lower share of only 35% say their primary reason for working is because they enjoy the work itself (Figure 2.5).
Source: Additional Economically Active Population Survey for Older Workers, 2017.
Ongoing gaps in Korea’s social safety net and relatively small family sizes leave many elderly individuals with no alternative livelihood but through work. Even those who gain employment, however, often find that work is not an effective antidote to poverty. Poor working conditions, precarious engagement and low pay feature much more prominently in the jobs of older workers than they do for other segments of the labour market.
Employment status of older workers
One measure of the quality of employment relates to workers’ status in employment and, in particular, the prevalence of “non-regular” forms of work. Under a common definition used in Korea, non-regular work encompasses three separate (sometimes overlapping) categories of salaried workers: non-permanent workers, who include those engaged on a temporary or fixed-term basis; part-time workers, who include those with 35 or fewer regular working hours per week; and non-typical workers, who include daily workers, contractors (either engaged for a specific task or paid on commission), temporary work agency workers, domestic workers and other such categories of workers with only loose or spurious ties to the job-giver.
Figure 2.6 shows the prevalence of all three types of non-regular work among salaried workers of different ages in Korea. Beyond age 30, the prevalence of all three types of non-regular work increases gradually with age.
Non-regular work in Korea is especially prevalent among salaried workers over age 60. In 2014, non-permanent work accounted for 42.8% in this age group (compared with 18.7% across all age-groups); part-time work accounted for 33.5% (compared with 10.8%); and non-typical work for 28.9% (compared with 11.2%). Compared to 2004, Korea has seen a significant drop in non-permanent work for workers in their 50s but not those over age 60. Relative to 2004, Korea has also seen comprehensive falls in non-typical work across all age groups, coupled with a significant rise in part-time work among those over age 60 (Figure 2.6).
Note: Non-permanent workers comprise of salaried workers with fixed-term employment contracts and other non-permanent contract-holders (such as seconded workers, those working thorough a probationary period at work and others). Part-time work is work comprising of fewer than 36 guaranteed work-hours per week. Non-typical work comprises of daily workers, contractors (both those engaged for a specific task and those paid on commission), temporary agency workers and domestic workers.
Source: Statistics Korea (2017) Economically Active Population Survey: Additional Survey by Employment Type, via Korean Statistical Information Service (KOSIS), http://kosis.kr/eng.
Figure 2.7 compares the share of non-permanent employees in total salaried employment for a range of OECD countries. Korean workers aged 55-64 have the highest incidence of non-permanent work of all OECD countries. While non-permanent workers accounted for 18.3% of all working-age salaried workers in Korea in 2017, they accounted for a significantly higher 30.3% among those aged 55-64 (and as much as 58.4% among those aged 65 and above). In most OECD countries, older workers are less likely than the average salaried worker to have a non-permanent position. The converse is true, however, in only three OECD countries: Japan, Korea and Turkey.
Note: OECD refers to the weighted average of the 31 OECD countries shown in the chart (excluding Israel, Mexico, New Zealand and the United States.
Source: OECD Dataset on Incidence of Permanent Employment, http://stats.oecd.org//Index.aspx?QueryId=9589.
Older workers in Korea are also over-represented in “non-salaried” forms of work. Under a common definition used in Korea, non-salaried work encompasses three separate categories of workers: own-account workers, who are self-employed but work alone; employers, who are self-employed but employ or engage one or more workers; and contributing family workers, who primarily assist a family member in an economic activity (either for pay or on an unpaid basis).
Figure 2.8 compares the share of non-salaried workers in total employment for a range of OECD countries. Korean workers aged 55-64 have among the highest shares of non-salaried workers of their peers in most other OECD countries.
Note: The OECD is a weighted average.
Source: OECD calculations based on the OECD Employment Database, www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm.
Job security for older workers
Korea’s common practice of retiring early from the main job is very clearly illustrated through its data on job tenure. Figure 2.9 shows the distribution of job tenure among workers of different ages for Korea and the OECD average in 2016. In Korea’s case, longer periods of tenure (of 5-10 years or more) become steadily more common among mid-career workers aged 30-50, before the trend reverses among older workers aged in their 50s and over as longer periods of tenure gradually decrease in frequency (Figure 2.9, Panel A). In most other OECD countries, longer job tenure is found more and more commonly among older cohorts of workers without any such reversal in middle age (Figure 2.9, Panel B). In Korea, only 16.3% of workers aged 60-64 years and 9.4% of those aged 65 and above held their jobs for a period of 10 years or longer in 2017. In the OECD as a whole, the equivalent shares were 49.8% and 58.2%, respectively.
Note: OECD refers to the weighted average of 32 OECD countries (excluding Israel, Japan and New Zealand).
Source: OECD Dataset Employment by job tenure intervals - frequency, http://stats.oecd.org//Index.aspx?QueryId=29561.
Figure 2.10 echoes this point by comparing the average durations of continuous employment among salaried workers aged 55-64 years in different OECD countries. Such workers face shorter job tenures in Korea than in any other OECD country for which comparable data are available.
Numerous additional factors affect workers’ job tenure in Korea, including gender and educational attainment. Korean men tend to retain their jobs for much longer periods than women do, on the whole; as do more highly educated workers compared with less qualified ones. Gender and education differences in job tenure are largest for older workers: the gender gap amounts to 5.8 years among those aged 50-54 and 5.6 years among those aged 55-59; and the gap between workers with completed tertiary-level education and those with incomplete secondary education amounts to 4.7 years among those aged 50-54, 4.3 years among those aged 55-59, and 5.2 years among those aged 60 and above. This suggests that many older workers in Korea face considerable obstacles around maintaining work that is stable and secure. Many are forced to change jobs a number of times throughout their second career.
Note: OECD refers to the weighted average of the 32 OECD countries shown in the chart (excluding Israel, Japan and New Zealand).
a. Data refer to 2016.
b. Job tenure 10 years and over refers to tenure three years and over.
Source: OECD dataset Employment by job tenure intervals - frequency, http://stats.oecd.org//Index.aspx?QueryId=29561.
Earnings and income of older workers
Given the disadvantages older workers in Korea commonly face around employment status and job stability, many acquiesce to lower earnings in their second career. The average earnings of a salaried worker in Korea in 2016 peaked around the age of 45-49 at KRW 4.0 million on average: KRW 3.1 million of it through regular working time; KRW 0.2 million through over time; and a further KRW 0.6 million in bonus payments (Figure 2.11, Panel A). Workers in the next older age group earned 96.5% of this amount, on average (KRW 3.8 million); those aged 55-59 earned 85.9% (KRW 3.4 million); and those aged 60 and above earned only 61.2% (KRW 2.4 million).
Earnings gaps between different groups within the labour market are exacerbated by age. Men in Korea earn roughly 60% more than women do from their salaried work, on aggregate – among workers aged 45-59, however, the gap amounts to a full 100% (Figure 2.11, Panel B). Graduates of tertiary education earn roughly twice as much as workers with incomplete secondary education on aggregate – among workers aged 60 and above, however, they earn fully three times as much (Figure 2.11, Panel C). Salaried workers employed in enterprises with 100 or more workers earn roughly 70% more than their counterparts in smaller enterprises with only 5-9 workers, on aggregate – among workers aged 40-49, however, the gap is roughly 90% (Figure 2.11, Panel D).
Note: Bonus earnings are calculated based on the previous year’s bonus, divided by 12.
Source: MOEL (2016) Survey on Labour Conditions by Employment Type, www.moel.go.kr/english/pas/pasMOEL.jsp#.
Households headed by older workers in Korea also tend to have lower incomes than those headed by their younger counterparts. Figure 2.12 illustrates the level and sources of income for two types of households in Korea – households relying mostly on income from salaried work and those relying predominantly on business income – according to the age of the head of the household.
Both types of households have to make ends meet with considerably lower levels of income when the household head is aged 60 or above: household income is about 40% lower for them than it is for households headed by a younger person, irrespective of the main source of household income. Households headed by older workers receive higher social transfers than other households but the extra transfer income cannot compensate the considerable drop in income from salaried work or self-employment.
Note: Data exclude single-person households and farms. Salary and wage earners’ households include household units where the head of the household is employed by a public or private body and receives wages in return for mental or physical labour.
Source: Statistics Korea (2017) Household Income and Expenditure Survey, via Korean Statistical Information Service (KOSIS), http://kosis.kr/eng.
Conclusion
While many OECD countries struggle to keep older workers in the labour market longer, Korea has already built up a strong work culture among them – even if some have no alternative livelihood but through work. The fact that so many Koreans remain within the labour force well into their 60s and even their 70s may be regarded as a powerful asset for Korea to deal with the demographic trends discussed in Chapter 1 and to make a sustainable transition towards an older society.
While many Koreans remain in work in later years, important obstacles remain around the type of work they have access to; the security this work can offer them; and, ultimately, the remuneration it can generate. On all of these important job-quality aspects, older workers in Korea suffer worse labour market outcomes. Much of this is linked to Korea’s prominent culture of early retirement from the main job, followed by a period of years or even decades in a so-called second career. This, in turn, is linked to deeply-rooted recruitment, appraisal and human resources practices among employers in Korea (both public and private) that tend to reward seniority above all other factors – even when it does not translate into higher productivity – and dismiss workers from their main job when they reach their 50s. The rigidities this brings about often result in struggles for older workers and in retirement.