Time to Gather Wisdom for the Overhaul of Social and Welfare Schemes

[Seoul Economic Daily · Op-Ed · February 24, 2019]

Yun Suk-myung, Research Fellow at the Korea Institute for Health and Social Affairs (KIHASA)

The background of the Supreme Court ruling that recognized the working life of manual laborers as extending to age 65 seems to have considered our reality of working the longest among the member countries of the Organisation for Economic Co-operation and Development (OECD). In that the upward adjustment of this limit is linked to raising the retirement age and the age threshold for older people, it appears highly likely to bring a fairly significant shock to our society in the future.

Apart from this, our labor market is exposed to an extreme dual structure. This is because there are significant differences in employment stability and wage levels by occupation type. According to the '2018 Fourth Quarter Household Income and Expenditure Survey (Income Section)' by Statistics Korea, income polarization is deepening, with the income of the bottom 20% low-income group decreasing while that of the top 20% high-income group increases. Due to the chronic dual structure of the labor market, if we do not prepare systematically, the Supreme Court ruling could potentially become a catalyst that further deepens income polarization.

That said, we cannot slow our efforts to adapt to rapidly changing environmental variables. This is because there is no reason why we cannot do what major advanced countries are already doing. This is also the background behind the attention given to a recent OECD report (Working Better with Age: Korea), which suggests that our reality of working until age 70 is not something to be ashamed of, but a precious asset to be protected. It is time to invest national capabilities into minimizing side effects while hastening the response.

Above all, discussions on overhauling the compensation system for occupational groups where raising the retirement age is possible should be expedited. Referring to cases such as Japan, which has already raised the retirement age to 65, it seems that discussions on raising the retirement age can be revitalized only if the wage compensation system is changed from a seniority-based system to one centered on job-based pay. Through these changes, we must hurry to establish a social system where gradual retirement can be activated. If a partial employment system that reduces the working hours of older workers after a certain age (for example, after 60) is activated, jobs for young people will also increase, and intergenerational conflict over high-quality jobs may be mitigated.

Efforts to overhaul social and welfare schemes are necessary, considering the concern that discussions on raising the retirement age might focus only on high-quality jobs and thus become a mechanism for worsening income distribution. First, the overhaul of the system for groups capable of preparing for old age through their own efforts must be expedited. Although the eligibility age for the National Pension is scheduled to be raised to 65 by 2033, the mandatory contribution age remains fixed at 59. Therefore, a review of the five-year gap in contributions is necessary. Unnecessary social debate can be minimized only if it is properly communicated that extending the mandatory contribution period is intended to provide more benefits, not to collect more contributions. In addition, consideration of the government's role in mitigating the increased burden on employers must be carried out in parallel.

Employment instability and low wages resulting from moving between low-quality jobs after losing a primary job are becoming major causes of the deterioration of income distribution. This is why we must hurry to establish customized social and welfare policies centered on these vulnerable groups, who are likely to be marginalized in future discussions on raising the retirement age. Even if there is a burden of financial investment, we should more actively consider plans to significantly expand the 'Durunuri Social Insurance System,' which supports social insurance contributions for working poor middle-aged and older people, and the 'Earned Income Tax Credit (EITC).' This is because designing a welfare system where the state and employers fill the gaps, provided that vulnerable middle-aged and older workers make their own efforts, seems to be a realistic alternative in terms of sustainability and benefit adequacy.

The Supreme Court ruling can be seen as having opened a Pandora's box that our society must resolve. It is tantamount to a declaration that we must candidly discuss issues that our society has found uncomfortable, such as raising the retirement age, raising the age threshold for older people, and the contribution period and eligibility age of pensions. This means it is time to gather wisdom to ensure that no great shock occurs during the process of overhauling social and welfare schemes. Rather than adding another vested interest to those employed in high-quality jobs, this should serve as the starting point for an overhaul of social and welfare schemes that enables proper policy support for vulnerable middle-aged and older workers. To this end, the political sphere must also unite and devote all its efforts to reaching a social consensus.

Source: Seoul Economic Daily (original article)