introduction: A demographic transition and labor market paradigm shift

the year 2025 will mark an irreversible turning point in South Korea's demographic history and labor market structure. according to a detailed analysis by Statistics Korea and relevant government ministries, South Korea will officially enter the "Super-Aged Society" in 2025, when the proportion of people aged 65 and over will exceed 20% of the total population. this will happen in just over seven years from 2017, when the country entered the elderly society (14%+), a rapid pace that is unprecedented in world history. this demographic shift is more than just a statistical fluctuation; it poses complex and structural challenges to our society, including the imbalance of supply and demand in the labor market, the sustainability of public pension systems, and the redefinition of the intergenerational social contract.

in particular, the decline in the working-age population (15-64 years old) is expected to accelerate as the baby boomer generation, born between 1955 and 1963, completes its retirement, followed by the second baby boomer generation, mainly those born between 1968 and 1974, entering retirement age. in this situation, the current legal retirement age of 60 no longer signifies the end of physical aging or social roles, but rather the forced exit of skilled labor from the market, which is a factor that reduces the productivity of the country as a whole.

moreover, the "income vacuum" between retirement and pension receipt, created by the phased delay of the national pension age to 65 by 2033, has reached a point where it threatens individuals' right to survival. in response, the government, the ruling party, and the labor movement are strongly pushing for the legislation of an extended retirement age or continued employment system by 2025. however, this is expected to be fiercely contested, as it will increase the burden of labor costs on companies, potentially discourage youth recruitment, and challenge the wage system. this report aims to provide an in-depth analysis of the legislative trends in the ongoing debate on raising the retirement age, and to draw policy roadmaps and implications for Korean society based on comparative analysis of overseas cases such as Japan and Denmark, which experienced similar demographic crises before Korea.

1. demographic Crisis and Structural Changes in Labor Supply

1.1 Time Series Analysis and Prospects of Entering the Ultra-Old Age Society

the pace of aging in South Korea is outpacing policy responses. as of 2024, South Korea is on the verge of entering an ultra-elderly society, and by 2025, the number of people aged 65 and over will exceed 20% of the population. even more worrisome are the long-term population projections. according to research, if current trends continue, the proportion of South Koreans aged 65 and older is expected to peak in 2100, with a sharp increase in the proportion of ultra-elderly people aged 80 and older.

this means more than just more elderly people to support, it means a collapse in the core labor supply. by 2023, the share of 65-69 year olds in the 65+ population will reach 35.7%, and how effectively South Korea integrates these "Young-Olds" into the labor market will be a key determinant of the economy's potential growth rate over the next decade.

1.2 Aging imbalance and labor mismatch by region

the aging wave is not hitting the country uniformly, with significant regional disparities. according to the Ministry of the Interior and Safety's analysis of resident registration demographics, Jeollanam-do has already entered a serious stage beyond the super-elderly society, with 27.18% of the population aged over 65, followed by Gyeongbuk (26.00%), Gangwon (25.33%), and Jeonbuk (25.23%). on the other hand, Sejong Special Self-Governing City, the administrative center, has the lowest proportion of elderly people at 11.57%, maintaining a relatively young population structure.

region share of Elderly Population (%) region jeonnam 27.18 highest in the country, very old gyeongbuk 26.00 - gangwon 25.33 - jeonbuk 25.23 - busan 23.87 highest among large cities chungnam 22.23 - sejong 11.57% Sejong lowest in the country, relatively young

this regional disparity, coupled with the rural attrition crisis, is a major contributing factor to the labor shortage for rural SMEs. in rural areas, with the exception of the Seoul metropolitan area and Sejong, the influx of younger workers has stopped, and utilizing older workers has become a matter of survival rather than choice. Therefore, the debate on extending the retirement age suggests that a flexible and differentiated approach is needed that goes beyond simply raising the age threshold and considers the labor supply and demand situation in each region.

2. in-depth analysis of domestic legislative trends and political and social dynamics

2.1 Government and ruling party strategy: 'closing the gap' frame and flexible continued employment

the ruling People's Power has been leading the debate on raising the retirement age since the second half of 2024, with the establishment of the Special Committee on Closing the Gap. the ruling party's core rationale is to "close the income gap" and improve the dual structure of the labor market by raising the retirement age. specifically, the ruling party is considering raising the legal retirement age, currently 60, to 65 in stages by 2033. the intention is to synchronize the retirement age extension schedule with the national pension age of 65 in 2033 to enhance policy coherence.

according to Choi Kyung-tae, chairman of the task force, the ruling party aims to propose an amendment to the Act on Prohibition of Age Discrimination in Employment and Promotion of Employment of Senior Citizens (hereinafter referred to as the Senior Citizens Employment Act) in early 2025. however, the ruling party's approach is centered on "flexibility" that takes into account the ability of companies to pay, rather than a "uniform and mandatory increase in the retirement age." This means that the legal retirement age will remain 65, but companies will be able to choose between rehiring, extending the retirement age, and abolishing the retirement age, or inserting a provision in the amendment that mandates a wage system reform such as a wage peaking system. this is interpreted as a strategic decision to cushion the impact of a radical increase in the retirement age on business operations and minimize the side effects of a decline in youth recruitment.

2.2 Labor's Hardline Response: Immediate Mandatory Retirement Age of 65

on the other hand, labor organizations such as the Democratic Trade Union Confederation and the Korean Confederation of Trade Unions are strongly opposed to the government and ruling party's "phased" or "selective" approach and are demanding immediate and binding legislation. the labor movement is adamant that the 2025 regular session of the National Assembly must pass a bill to extend the retirement age to 65, which is linked to the age at which national pension benefits begin.

the core of labor's argument is "unconditional retirement age extension." they are concerned that the company-led "rehiring" system could end up being abused as a way to mass-produce irregular workers and cut wages. as in the case of Japan, where wages are drastically cut when rehired after retirement age, this does not solve the problem of elderly poverty and undermines workers' job security. Therefore, labor is demanding an extension of the retirement age while maintaining existing employment forms and working conditions as a "right," which is in direct conflict with management's demands for the introduction of a job-based salary system and wage flexibility. this difference of view between labor and management is expected to be the biggest obstacle in the future legislative process.

2.3 The Ministry of the Interior and Safety's Proactive Measures and 'Public Sector Leadership Theory'

while the legislative debate is likely to stall, the executive branch is paving the way for an extension of the retirement age through its own administrative measures. in the second half of 2024, the Ministry of the Interior and Safety (MOIS) will extend the retirement age from 60 to 65 for more than 2,300 of its civil service workers. although the move is limited to indefinite contract workers (civil servants) rather than the entire civil service, it is highly symbolic in that it formalizes the extension of the retirement age by a central ministry.

korea's policy diffusion path has traditionally followed the pattern of "public sector pilot → large companies spread → SMEs trickle down". the ministry's decision is interpreted as a strong signal to the private sector, foreshadowing a domino effect to local governments and public institutions. It is also seen as a practical step by the government to recognize the inevitability of raising the retirement age ahead of the country's entry into an ultra-elderly society in 2025.

3. key triggers of the retirement age extension debate: the income cliff and economic survival

3.1 System mismatch: the gap between legal retirement age and pension benefits

a fundamental reason why the issue of raising the retirement age has come to the center of social discourse is due to an institutional mismatch. the Employment Promotion Act for the Elderly, enacted in 1991, recommended that the retirement age be raised to 60, the age at which national pension benefits begin. however, the gap between the retirement age and the pension began to widen in 1998 when a schedule was put in place to delay the retirement age by one year every five years to stabilize pension finances.

as of 2023, the full pension age is 63. however, in 2033, when those born in 1969 turn 65, the eligibility age will be fully raised to 65. on the other hand, the legal retirement age has been fixed since the "mandatory retirement age of 60" in 2016. this means that workers who retire at 60 will have to cross an "income cliff" or "income crevasse" with no labor income and no pension income for up to five years before they can collect their pension. this, coupled with a lack of personal retirement planning, is a structural cause of the rapidly rising elderly poverty rate.

3.2 Analyzing the gap between the cost of living in retirement and reality

based on data from the National Pension Institute and Statistics Korea, the economic reality facing the elderly in South Korea is harsh. according to the 2023 actual situation analysis, the minimum living expenses for an individual senior citizen to live a basic life are estimated to be around KRW 1.24 million (single person) to KRW 1.98 million (couple) per month. furthermore, the 'adequate living expenses' including cultural activities are estimated to reach KRW 2.97 million per month for a couple.

category individual (Monthly) couple (Monthly) data Source minimum cost of living 124.30,000 KRW 198.70,000 KRW 7 moderate cost of living 177.30,000 KRW 297.0 8 average National Pension approximately KRW 62.0 million about KRW 1.24 million (for a married couple) 9 desired amount for basic pensioners - 214.30,000 won (couple) 10 realistic gap -115.3k won (adequate) -173.0K (Affordable) -

however, as of December 2023, the average monthly amount of the National Pension Old Age Pension is only KRW 620,000 per person. this is less than half of the minimum living expenses for a single person, and only 39.6% of the poverty line (KRW 156.5K in 2023). even if a couple receives a pension, the combined amount is just over 1.24 million won, which is less than the minimum cost of living for a couple. these statistics prove that raising the retirement age is not just a way to fulfill a "desire to work longer," but an "indispensable means of survival." professor Heo Jun-soo of Soongsil University pointed out that the elderly in Korea are woefully underprepared for retirement, and emphasized that the only solution is to extend their income-generating years by extending the retirement age in conjunction with pension reform.

4. issue Analysis: Intergenerational Conflict and Labor Market Paradoxes

4.1 Youth employment substitution effects: zero-sum game or win-win?

the most sensitive and explosive issue in the debate on raising the retirement age is the "crowding-out effect". the logic is that if companies are forced to retain older, higher-paid workers for longer due to the extension of the retirement age, they will have no choice but to reduce new hires within their limited labor cost budget (T/O).

in a 2013 study, the Korea Development Institute (KDI) analyzed that in the private sector, for every one older worker hired due to an increase in the retirement age, youth employment decreases by about 0.2.this suggests that there is some competition for jobs between the generations, if not complete substitution. based on these findings, business organizations such as the Korea Federation of Business Officials (KFOA) warn that raising the retirement age in the context of a seniority-based wage system will sharply reduce companies' ability to hire young people.the recent extension of the retirement age for civil servants by the Ministry of the Interior and Safety, which was criticized as "leaving no room for young people," reflects this concern.

however, there are also strong counterarguments. subsequent studies by the Korea Institute for Taxation and Finance and others have argued that increased employment of older adults does not directly translate into a decrease in youth employment, but rather that older and younger workers can be complementary by performing different jobs.in fact, the OECD has experienced the "Lump of Labor Fallacy" in the past, where attempts to address youth unemployment by encouraging older workers to retire early have failed because the jobs of the two groups do not overlap. in the long run, labor supply shortages due to population decline will intensify, so raising the retirement age should not be seen as a way to take jobs away from young people, but rather as an essential step in expanding the overall labor force.

4.2 The dilemma of reforming the wage system: dismantling seniority

there is no disagreement among experts that a 'wage system reform' is essential as a prerequisite for raising the retirement age to be feasible. under South Korea's dominant wage system, the hobong system, wages automatically increase with each additional year of service, making raising the retirement age a costly proposition for companies.

the ruling party and the business community are proposing an expansion of the "wage peak system" or a shift to a "job-based pay system" as a condition for extending the retirement age. in other words, after the age of 60, wages should be adjusted in proportion to productivity, or employment should be maintained at the expense of reducing job difficulty and responsibility. however, the labor movement is pushing back, saying that raising the retirement age in exchange for wage cuts is a "half-hearted extension." the fear is that deep cuts in wages, such as those in Japan, could lead to a decline in worker motivation and a failure to secure income in retirement.

5. in-depth case study: comparisons and implications of global models

the examples of countries that have experienced ultra-old age societies before Korea are an important compass for us. in particular, Japan's "continuous employment" model and Denmark's "abolition of the retirement age" model are the result of different social consensus and offer different implications.

5.1 The Japanese model: a compromise between 'job security' and 'wage cuts'

in response to the aging population, Japan amended the Employment Security Law for the Elderly to require companies to secure employment until the age of 65.japanese companies must choose between (1) extending the retirement age, (2) introducing a continuous employment system (for rehires), or (3) abolishing the retirement age.

[Key Feature 1: Generalization of Continuous Employment]

rather than extending the retirement age per se, more than 90% of Japanese companies have opted for a "continued employment system" that allows employees to be rehired on a temporary (contract) basis after retirement at age 60. this has become a major means for companies to gain flexibility.

[Key Feature 2: Structural decline in wages]

older workers who are rehired are paid an average of 69% to 75% less than they were before retirement age. many companies have taken the approach of reducing wages while keeping the content of work the same, raising serious concerns about de-motivating older workers. in particular, despite the fact that Japan's spring wage negotiations (spring strike) in 2024 resulted in a 5.2% wage increase, the highest in 33 years, older workers who have been rehired tend to be marginalized from the benefits of these wage increases.

[Key Feature 3: Government financial support and corporate practices]

the Japanese government operates the "Employment Continuation Benefit for Older Workers" program to prevent a sharp drop in income. if wages fall below 75% of what they were at age 60, the government will pay up to 15% of wages through the Employment Insurance Fund. meanwhile, some companies, such as air conditioner maker Daikin, have set a best practice of substantially extending the retirement age, rehiring more than 100 retirees every year to transfer their skills. recently, Japan has gone even further, imposing a "duty of care" on companies to ensure that workers have job opportunities until age 70.

5.2 The Danish model: 'non-discrimination' and 'social consensus'

the Danish approach is based on 'age discrimination' rather than 'employment protection'. denmark has enacted age discrimination legislation in line with EU directives and has abolished, in principle, mandatory retirement rules that automatically terminate employment upon reaching a certain age.

[Key Feature 1: Abolition of the 70-year-old rule]

in the past, Denmark had a practice of automatically terminating employment contracts at age 70 (the 70-year rule), which was banned in 2016 as discriminatory. now, companies cannot terminate an employee based on age alone without a reasonable and objective justification. exceptions to the age limit are only recognized in special cases, for example, for opera singers whose voice is crucial to their job performance.

[Key Feature 2: Pension-linked retirement age]

denmark has introduced a system that flexibly adjusts the official retirement age (pensionable age) in line with increasing life expectancy. the current retirement age of 67 will gradually increase to 68 in 2030 and 69 in 2035.

[Key Feature 3: Social conflict and backlash]

however, there is also a strong backlash against this "endless labor. blue-collar workers who are physically demanding (e.g., roofers, construction workers) are protesting strongly against a uniform retirement age, saying, "I can't work and pay taxes for the rest of my life and then die." this shows that raising the retirement age can mean very different things to different occupations and classes.

6. conclusions and policy recommendations: A roadmap for a sustainable employment ecosystem

the enactment of a higher retirement age (65) in 2025 is an inevitable option for Korea's super-aged society. the analyzed data and international examples provide us with the following strategic directions.

first, we need a 'phased mandate' that considers the time lag of the policy.

a roadmap should be established to gradually increase the legal retirement age, in line with the schedule of gradually lowering the national pension age until 2033. a sudden mandate could cause a hiring freeze, so a two-step strategy is in order, allowing for Japanese-style "continued employment" (for rehires) initially to give companies time to adjust, but moving to a full retirement age of 65 in the long term.

second, wage flexibility should be institutionalized as the "price of extended employment.

as the Japanese example shows, raising the retirement age without adjusting wages is not sustainable. legislation should support efforts to shift from a seniority-based wage system to a job-based wage system, and ensure flexibility to maintain employment through wage peaking if labor and management agree. however, to ensure that wage cuts are not excessive, a "wage preservation subsidy" similar to Japan's "employment continuation benefit" should be expanded with government funds to prevent income from plummeting.

third, we need to promote "intergenerational job separation" for mutual benefit of youth employment.

to ensure that raising the retirement age does not lead to cannibalization of youth jobs, it is necessary to separate jobs performed by older workers from those preferred by younger workers and develop jobs suitable for older workers. in addition, we should expand the "Generation Win-Win Employment Subsidy" system, which provides tax benefits and labor cost support to companies that hire young people while extending the retirement age.

fourth, it is necessary to review the 'differential retirement age' that takes into account the characteristics of each occupation.

the Danish case suggests that manual laborers and white-collar workers experience a different weight of the retirement age extension. rather than imposing a uniform retirement age for knowledge-based jobs that allow people to work into old age and for manual labor jobs with clear physical limitations, we should look to provide flexible retirement options based on health conditions and job characteristics.

in the end, raising the retirement age is not just about who works longer, it's about building a social consensus on how we work together. the year 2025 will be the first step in that consensus, and only when governments, businesses, labor, and the younger generations give up some of their vested interests and share the costs will we be able to build a bridge over the income cliff to a secure retirement.