"Seniority-Based Pay in Korea Three Times OECD Average... Limits on Youth Employment"

Without Labor Reform, Youth Employment Will Not Improve
Wage Increase for Higher Numeracy: Korea 2.5%, Japan 10.3%
Seniority-Based Compensation Outweighs Rewards for Skills

The reason the Organisation for Economic Co-operation and Development (OECD) has repeatedly recommended that South Korea reform its seniority-based pay system is not merely a matter of wage structure, but because it is directly related to productivity, youth employment, and labor market polarization.

Recently, the OECD and the Korea Development Institute (KDI) have identified high seniority-based compensation and a weak job-based pay structure as major structural issues in South Korea's labor market. According to an analysis by the two institutions, the wages of South Korean workers increase by an average of 2.05% for each additional year of service—about three times the OECD average of 0.71%.

In contrast, compensation for the improvement of individual competencies remains relatively low. OECD analysis shows that when numeracy skills increase by one standard deviation, the wage increase rate in South Korea is just 2.46%, whereas the OECD average is 8.61%. In Germany, it is 14.14%, and in Japan, 10.34%.

KDI commented, "The domestic wage system provides greater rewards for years of service than for competencies, and there are also significant wage gaps depending on company size." The institute explained, "As a result, workers tend to focus on landing regular positions at large corporations early in their careers rather than developing job-related skills after employment, and young people also concentrate on competition for jobs at large firms rather than at small and medium-sized enterprises."

KDI pointed out that this structure also causes inefficiency in terms of labor productivity. The institute noted that the incentive to develop skills after employment is weak, leading to a rapid decline in workers' cognitive abilities and an excessive investment of social resources in academic credentials and qualifications. In fact, the numeracy and language skills of South Korean workers begin to decline from their 20s and 30s and decrease faster among middle-aged and older workers than in other major OECD countries. KDI emphasized the need to expand wage systems based on competencies and performance, such as job-based and performance-based pay, in order to encourage workers to develop their skills and raise labor productivity.

However, wage system reform is not an issue that can be resolved in the short term. Park Myungjun, Senior Research Fellow at the Korea Labor Institute, stated, "The shift to job-based or skill-based wage systems has been proposed in South Korea for a long time, but actual implementation is an entirely different matter." He suggested, "It is more realistic to first establish labor market practices that respect job roles and skills, and only then expand the discussion to the seniority-based pay systems at large corporations."

This content was produced with the assistance of AI translation services.