Korea’s labor market is facing a rapidly changing environment at home and abroad. Korea has already changed into an aging society and year-round restructuring is required to boost corporate competitiveness given fast breakthroughs in technologies, the introduction of the global economy, China’s emergence as an influential economic force, and the recent global depression. Consequently, under the current the salary step system on the basis of seniority, companies have the incentive to dismiss the middle-aged and the aged due to their high labor costs. In particular, layoff in the name of voluntary retirement through restructuring propelled by economic crisis has backfired on companies as exodus of highly experienced employees with ample know-how is caused and workers with lowered morale agonize over the instability of their employment. As a means to achieve a win-win outcome between labor and management alike, some companies are considering implementation of a wage peak system. It is obvious that a wage peak system helps labor flexicurity at corporate level as the system improves flexibility in management of employees by reducing labor costs from hiring the middle-aged and the aged, which leading to hiring new employees and at the same time middle-aged and aged employees’ job security is guaranteed. Despite different opportunities that spur the introduction of this system, many companies in Japan have push ahead with the system in the 2000s.
 

Starting with Korea Credit Guarantee Fund in 2003, Korean companies including banks, public enterprises, and large corporations are stepping up their efforts to introduce a salary peak system. The government is also providing financial support for the introduction of the system to extend employment of aged workers in preparation for an upcoming aged society. Examining Korean companies’ introduction of a wage peak system reveals that retirement age guaranteed systems are common where job security is guaranteed until retirement age but wages are reduced starting from a specific age. This means that a wage peak system is introduced for flexible wages as an alternative to voluntary resignation (quantitative flexibility) and rotation of multi-functional duties (functional flexibility). This is actually evidenced by empirical studies. In empirical results,  negative(-) relations are observed in a wage system between the layoff ratio of regular workers and index of functional flexibility. Meanwhile, the government is in support of a salary peak system to extend the employment term for aged workers even though such support is temporary. A closer look into the details of the support suggests that the government intends to adopt a retirement age guaranteed system or a system with extended employment in considering the introduction of a wage peak system, also in conjunction with an age (60 years old) eligible for receiving national pension. Therefore, companies and the government have considerably different intentions in implementing and providing support for a wage peak system. Furthermore, there is the danger that the governmental support for a salary peak system can even make the pay system based on seniority permanent. As long as the government provide support for a wage peak system, companies need not transform their pay system into the one based on performance putting up with conflicts between labor unions and have the incentive to maintain the current pay system based on seniority.

The government’s intention behind the introduction of a wage system is fairly good, but it is not fit for the reality of the labor market. Although Korean society is growing older, it hasn’t sunken in yet while Korea’s serious economic condition cannot afford to discuss the extension of elderly worker’s employment. If the government unreasonably intervenes in the market to carry out its original intention, the labor market is likely to be disrupted. Thus, the government should be more cautious.