In the Republic of Korea, middle-aged and older workers experience unusually high job insecurity due to limited labor demand for them. To address this issue, labor market policies and practices must be reformed to make it easier for firms to hire these workers as regular employees. Instead of imposing regulatory mandates, it is crucial to enhance the functioning of labor markets to reduce involuntary early retirements among older workers and prevent career disruptions for middle-aged women. These reforms will also facilitate the gradual extension of the mandatory retirement age, a necessary step in light of Korea’s rapidly aging population. - Compared to the U.S., where employment protection is minimal, Korea exhibits greater employment instability among older workers and middle-aged women. - On the surface, the cause of job insecurity among middle-aged and older workers appears to be the increasing share of nonregular employment. - However, the more fundamental cause lies in the insufficient demand for middle-aged and older workers in regular employment. - In Korea, wage increase based on seniority is steep, employment protection is strong, and retirement occurs comparatively early. - Given the current structure of the labor market, additionally increasing the retirement age threshold is not only unjustified but also unlikely to achieve the intended outcomes. - Today’s labor market framework hampers reentry into the job market, serving as one of the primary causes of prolonged career interruptions for women, thereby contributing to low birth rates. - Korea’s labor market urgently needs structural reforms that enhance stability through market forces rather than legal mandates to increase the proportion of individuals with ongoing employment until retirement. Implementing such changes could facilitate further extensions of the mandatory retirement age. - Specifically, key tasks involve lowering the reliance on seniority-based wages for regular employment, reducing uncertainty in the dismissal process, and enhancing protection and the employment safety net for non-regular workers.

South Korea stands out among OECD countries for its lowest proportion of jobs in large enterprises. Good jobs, often synonymous with employment opportunities in large enterprises, are in short supply. This shortage prompts various societal issues: the overheating of college admission competition, a decline in social mobility, decreased birth rates, stagnating employment rates for women, and increased concentration in the capital area. There is a pressing need to identify and address policy barriers to company scale-up. - Despite the stronger employment preference among young adults in large enterprises, the majority of available job opportunities are actually in smaller businesses. - Larger establishments tend to offer higher wages and better working conditions. - The marked wage gap between graduates of top and bottom universities intensifies competition for admission to top-ranking schools. - The scarcity of good jobs results in both low utilization of maternity protection programs and female underemployment. - Even at the city and province levels, larger establishments are observed to have higher labor productivity. - Identifying and addressing policy barriers that impede company scaleup through targeted policy improvements is a necessary course of action.

This study explores long-term consequences of unexpected job displacement among middle-aged male workers during the 1997 Asian Financial Crisis in Korea. Utilizing datasets from the Korean Labor and Income Panel Study (KLIPS) and Korean Longitudinal Study of Aging (KLoSA), the research examines this cohort's work trajectories, socioeconomic status, and health implications. The study further investigates the intergenerational impacts of job displacement, with a spotlight on education expenditure, education attainment, and labor market outcomes of the children of the affected workers. The findings reveal that these workers could not regain their pre-crisis employment levels, and their job quality declined due to repeated cycles of unemployment and reemployment. This trend shortened their active years in the workforce, leading to decreased pension contributions and reduced income levels in their later years. Moreover, job displacement adversely influenced their mental well-being, with a marked increase in depression rates within this group. Lastly, children of displaced fathers are observed to spend less on education. They display lower enrollment rates in higher educational institutions and often lean towards majors with more direct employment prospects. Economically, these children's annual earnings are roughly 9.4% beneath those of their peers whose fathers remained insulated from job displacement during the crisis.

Introduction The Roh government announced a statement at the end of 2003 that “Job Creation will hereafter be the most important task.” Afterwards, the Tripartite Committee agreed on the 'Social Contract for Job Creation' and the government announced an 'All-out Plan for Job Creation' in February 2004 and the Committee for Job Creation under the charge of the Prime Minister got underway in March 2004. At the present time, as of December 2004, confirmed plans for job creation are being executed while new plans are being readied for launch. However, one can ask why a policy of job creation is so important at this time, with an unemployment rate at about 3.4% in the last three years and a natural rate of unemployment also estimated at about 3.4%. The purpose of this paper is to make a summarized report of the importance of the current job creation policy and the outline of the government's job creation plans and their evaluation. Synopsis The importance of a job creation policy should be understood in regards to the employment rate and income distribution. First, the employment rate (the number of employed/the population between 15 and 64) in Korea was 63.7% in 1997 before the economic crisis, 59.2% in 1998 and 60.0% in 2003. This rate is low compared to that of 71.2% for the US 68.2% for Japan, and 72.2% for the U.K..   The major cause of decreasing employment following the economic crisis in Korea was analyzed and can be attributed to an increase in the non-economic activating population, since getting a job has been more difficult after the crisis. The unemployment rate in Korea therefore has a propensity of being gradually under-evaluated because of the increasing number of unemployed. Second, in relation to the aspect of deterioration of income distribution, the level of income inequality and the poverty ratio have rapidly increased following the economic crisis. Before the crisis, income inequality in Korea was estimated at about the middle compared to that of OECD countries. However, after the crisis, the estimated of level of income inequality was considerably higher. The absolute poverty rate had doubled to 11.5% in 2000 from 5.9% in 1996, and the relative poverty rate also doubled from 5.9 in 1996 to 11.5% in 2000. Therefore, the level of poverty in Korea is also considered high compared to levels in OECD countries. One of the main causes for the deterioration in the income distribution structure in Korea following the crisis was because of an increase in the unemployed. The reason why income inequality and the poverty rate have not decreased despite a reduction in unemployment is that the main parts of the increased unemployed were converted to a non-economic activating population instead of being employed.    Therefore, job creation is a very important issue at this time since it is a starting point to improve the income distribution structure and increase the employment rate. Conclusion The basic focus of the government's job creation policies should be to provide a better environment for firms to do business since the main source of job creation is from firms, and to both support and enhance such a strategy one that enables growth which will create employment, which will in turn, help in fuelling additional growth. However, strategies on how to better provide a better environment for firms to do business are not clearly suggested.   Furthermore, a plan is not merely to suggest a link by which an increase in employment will result in an increase in income and a reduction in poverty. This is because details are unclear on the extent of the problems being faced and the lack of a firm direction for improving the education and job training systems.. In addition, the plans require more consideration for the quality of employment in the service sector in which most job creation will occur.   Finally, the plan should focus on a long term and comprehensive vision to help job creation in the civil sector by the government, as pointed out by the OECD in its jobs strategy recommendations below:   ⓛ Set macroeconomic policy such that it will both encourage growth and, in conjunction with good structural policies, make it sustainable, i.e. non-inflationary. ② Enhance the creation and diffusion of technological know-how by improving frameworks for its development. ③ Increase flexibility of working -time(both short-term and lifetime) voluntarily sought by workers and employers. ④ Nurture an entrepreneurial climate by eliminating impediments to, and restrictions on, the creation and expansion of enterprises. ⑤ Making wage and labor costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill levels, in particular of younger workers. ⑥ Reform employment security that inhibit the expansion of employment in private sector. ⑦ Strengthen the emphasis on active labor market policies and reinforce their effectiveness. ⑧ Improve labor force skills and competences through wide-ranging changes in education and training systems.

KDI-BOK Joint Symposium 「Poverty and Labor in a Super-Aged Society: Exploring Policy Directions」 On May 15, 2025, KDI hosted a joint symposium with the Bank of Korea (BOK) under the theme ‘Poverty and Labor in a Super-Aged Society: Exploring Policy Directions’at the KDI Conference Hall in Sejong City. The symposium aimed to assess the current state of elderly poverty and the senior labor market amid Korea’s transition into a super-aged society and to explore effective policy responses.   In his opening remarks, Dongchul Cho, President of KDI, stated that “the rapid transition to a super-aged society poses fundamental challenges across all areas of society,” and expressed his hope that the symposium would serve as a milestone in setting policy directions for the future.  He emphasized that “  in addressing elderly poverty, it would be reasonable to shift the income criteria of the current Basic Pension scheme to a standard based on the national median income. For senior employment, policy efforts should first focus on mitigating the early retirement structure through reemployment programs after retirement. The statutory retirement age should be gradually extended in connection with reforms to the dual labor market.”  Chang-yong Rhee, Governor of the Bank of Korea, noted in his welcoming address that “although many elderly individuals are classified as poor based on disposable income, approximately 1.22 million people—or about 37% of the elderly poor as of 2021—could escape poverty if they could monetize their assets into pensions." He added, "Helping these individuals liquidate their assets to support themselves would be a desirable policy direction."   Session 1: Policy Directions for Reducing Elderly Poverty Seunghee Lee, a Fellow at KDI,pointed out that while Korea’s elderly poverty rate is declining in trend, it remains the highest among OECD countries. Even when evaluating assets as income, elderly poverty remains severe. He emphasized that the disparity in poverty rates across birth cohorts is significant, with higher poverty concentrated among those born before the 1950s. Thus, he proposed changing the Basic Pension eligibility criteria to a proportion of the median income to provide more targeted support for the most vulnerable elderly populations.   In Do Hwang, Head of the Financial & Monetary Economic Studies Team at the BOK,  reported that there is substantial potential demand among the elderly for reverse mortgages and private annuity mortgages. He argued that revitalizing the housing pension system could boost consumption and help alleviate elderly poverty, thereby benefiting the overall economy. However, he cautioned that the extent of these positive effects would depend on how much of the potential demand translates into actual participation. Therefore, he stressed the need to improve the system to facilitate actual enrollments and to ease regulations on private reverse mortgages so they can play a complementary role.     Session 2: Coping Strategies for Population Aging Joseph Han, a Fellow at KDI,explained that while population aging due to increased life expectancy in a super-aged society may offer new economic opportunities, the senior labor market remains tied to outdated workforce structures. He emphasized the need to enhance both wage flexibility and job security—for example, through reforming the seniority-based wage system and promoting job stability for long-term employees—as part of efforts to better utilize the aging workforce. Lee Jae-ho, Deputy Director of the Macroeconomic Analysis Team at the BOK’s Research Department,warned that the large-scale retirement of the baby boomer generation would rapidly increase the number of elderly self-employed individuals. He expressed concern that the elderly self-employed, who tend to have low profitability and high debt ratios, are economically vulnerable and may pose a macroeconomic burden. He explained that retirees often choose self-employment over wage work because they perceive it offers greater opportunities for continued employment. Therefore, he emphasized the need to strengthen reemployment programs, promote job matching between retirees and regional SMEs, and create an environment in which elderly individuals can work longer and more stably in wage jobs. ▶  Presentation Materials of the KDI-BOK Joint Symposium [Click here] ▶  Watch the Replay on YouTube      

KDI President Participates in the Global Labor Market Conference (GLMC) KDI President Dongchul Cho participated as a speaker at the Global Labor Market Conference (GLMC), held in Riyadh, Saudi Arabia, from January 29 to 30.  During the panel discussion titled "Productivity Improvement: Ignore at Your Peril," experts focused on the impact of productivity growth on economic development and various challenges within labor markets. The panelists pointed out that while increased productivity contributes to economic growth, it does not necessarily guarantee wage increases. They cited the U.S. as an example, where productivity has risen over the past 40 years, yet real wages for workers have remained stagnant. Additionally, they emphasized the need for policies to mitigate income losses when workers lose their jobs. KDI President Dongchul Cho highlighted the importance of equal employment opportunities for both men and women and expressed a positive outlook on the increasing participation of women in the Saudi Arabian workforce. Referring to South Korea, he noted that while women’s participation in the labor market is expanding, many still face the dilemma of choosing between career and childcare. He stressed the need for institutional support to alleviate the childcare burden at a societal level. The discussion also underscored the close relationship between productivity and labor conditions. Panelists suggested that investments in technology development and vocational training are necessary to improve both productivity and worker welfare. Moreover, they noted that U.S. economic growth has been significantly influenced by immigration and labor force expansion, with the recent influx of immigrants helping to address labor shortages. However, concerns were raised that potential shifts in immigration policies could slow down labor force growth, making productivity improvement a key issue in the future.   In the afternoon, a session titled "Country Case Study – South Korea" was held, where discussions centered on the challenges and potential improvements in South Korea’s labor market. Professor Young-Bum Park of Hansung University analyzed South Korea’s employment trends from 1995 to 2023. He explained that despite experiencing three major crises—the Asian financial crisis, the global financial crisis, and the COVID-19 pandemic—the overall employment situation remained stable. However, he pointed out that highly educated young workers continue to avoid employment in small and medium-sized enterprises (SMEs), leading many SMEs to hire foreign workers instead. He also noted that the wage gap between large corporations and SMEs in South Korea is wider than in Japan and that the seniority-based wage system leads companies to encourage early retirement. KDI President Cho remarked that South Korea’s labor market has an imbalance where older workers' wages exceed their productivity, while younger workers face the opposite situation. From a corporate perspective, laying off older employees may seem more appealing, but in reality, many retirees struggle with financial instability. He emphasized the need for policies that allow older workers to participate in the labor market in a stable manner, which would help prevent a loss of talent and improve labor market efficiency. Munirul Nabin, Senior Lecturer at Deakin University, highlighted the rigidity of South Korea’s labor market and its resulting dual structure. He noted that the gap between regular and non-regular workers is severe, with the conversion rate from non-regular to regular employment among young workers at only 4.8%, leading to significant job mismatches. In response, Workforce Policy Consultant David Barnes of DNBGlobal Consulting suggested that South Korea adopt a skills-first hiring approach, citing IBM’s example of prioritizing skills over academic degrees. He emphasized that in an era where retraining and adaptability are crucial, hiring practices must evolve accordingly. Meanwhile, economist Andy Xie argued that South Korea needs to reinvent its industrial paradigm, similar to China. He pointed out that China actively participates in globally emerging industries and drives innovation, whereas South Korea faces limitations due to its rigid labor market system and conglomerate-centered policies. Written by: Hae Won Jeon, Senior Research Associate, Research Outcome Dissemination Unit, 044-550-4036, natalie@kdi.re.kr