Policies to improve the position of older workers in the labour market

The government’s efforts to counteract discrimination against old-age workers have considerably intensified since the mid-2000s. The “Basic Plan to Promote Employment of the Aged” aimed at increasing the employment rate of the 55-64 age group from 59% in 2005 to at least 63%, the 2004 level in Japan. In 2008, the government enacted a law to prevent unjustified discrimination against older persons in recruitment or employment (effective from 2009) and age discrimination with regard to working conditions, such as wages and welfare (from 2010).

Recent policy measures also include offering different subsidies to encourage firms to hire and retain workers after retirement age and/or above the age of 50. However, real estate service firms account for about two-thirds of the recipient companies and the concentration of the subsidies in this one sector raises doubts about the effectiveness of this scheme in boosting the overall employment of older workers (Jones and Tsutsumi, 2009). Since 2006, the government also provides a subsidy to promote the introduction of the peak-wage system, which allows for the wages of older workers, who remain on their career jobs, to decline after reaching an agreed-upon age, in exchange for guaranteed employment up to a specified higher age. The subsidy is offered to older workers who agree to join the system by the EI system.³⁷ However, the take-up of this subsidy has been relatively limited, so far.

Further “Measures to Promote the Creation of New Opportunities and Win-Win Jobs for the Baby Boom Generation” were issued by the government in July 2012, following a 2011 survey of Korean Baby Boomers - persons born between 1955 and 1963, who are nearing retirement age - that was conducted by the Ministry of Health and Welfare (MOHW). This survey revealed that 54% of this cohort had not made any preparations for retirement. The government has identified 35 key tasks in five areas. These include the provision of job placement services, assistance to start a business, support services for customised retirement planning and encouraging seniors to take part in retirement planning education programmes. Workers aged 50 and over also will be given the right to request “shortened work hours.” This should help them to stay in their current jobs longer and better plan for life after retirement. A new employment subsidy will allow companies to hire socially vulnerable workers to fill new positions created by shortened work hours.

The new measures are a welcome step towards reducing the negative impact of labour market duality on older workers. They can be expected to provide baby boomers with increased opportunities to extend their period of “continuous employment” with their career firm, rather than being forced to move into self-employment or non-regular work for the final stage of their working lives. However, these measures alone may not be sufficient to induce sufficient changes in the firmly entrenched practices of large employers. This consideration suggests that the introduction of wage subsidies to reduce the cost of employing older workers relative to younger ones, should be combined with additional measures to promote greater wage flexibility, so that older workers remain affordable (Lee and Lee, 2011). Requiring companies to set mandatory retirement at an age closer to the pension eligibility age - or forbidding the use of mandatory retirement altogether - could also provide an important impetus for changing the seniority-based wage system. Firms agree to steep seniority-based wage profiles on the condition that they can force older workers to leave. Without mandatory retirement, firms would insist on wage systems that more closely reflect productivity. Accelerating the transition to company pensions, as an alternative to the retirement allowance system, could also reduce firms’ incentives to retire older workers and enhance labour mobility.

Factors contributing to the weak employability of older workers in many OECD countries also include the obsolescence of skills and a lack of suitable employment services. In Korea, the low educational attainment level of older people may be a factor leading to reduced employability, explaining why many older persons work in non-regular jobs with low pay. However, training has to be carefully targeted to be effective (Lee, 2008). By the end of the 2010s, government expenditures on lifelong learning, including vocational training, amounted to only 0.1% of GDP and the participation rate of adults in lifelong education was about 30%. The rate rises with the level of education, making it important to target less-educated persons (Lee, 2008). The amount of firm-specific and ICT training provided at an enterprise level is negatively correlated to its hiring of older workers. This suggests that a lack of ICT skills is an impediment to hiring older workers. The inclusion of older workers in training or lifelong learning schemes could contribute to improving their employment prospects.