Voluntary retirement is also often implemented independently of downsizing. Many (large) companies systematically implement this plan to reduce the proportion of older workers without wanting to reduce the overall workforce. This happens for two main reasons. First, it is used to reduce the number of older workers paid beyond their production value due to a seniority-based wage scale. Second, it can create more room to promote younger, cheaper and more productive workers, which could lead to greater engagement on their part. However, judicial review of this requirement remains a key and highly controversial issue, and the findings are not consistent enough to provide clear guidance to employers. The key is to minimise uncertainty arising from the interpretation of legal requirements, especially for “urgent management reasons”. The clarification of this issue should provide employers with sufficiently precise guidance, which could, where appropriate, be provided by legislation or a tripartite agreement, or both. If the government is to use quality part-time jobs as a tool to prevent career breaks, a right to demand a reduction in working hours must be introduced, as set out in the roadmap. For older workers, part-time work can be helpful in facilitating partial retirement and preparing for retirement, including the possible start of a second career after retirement.
There are barriers that prevent older workers from voluntarily working part-time. With reduced wages, part-time jobs differ in many cases from the full-time jobs previously held by older workers. Thus, if older workers opt for part-time work, they are likely to be moved to a lower position. This may not be acceptable for older workers in Korean corporate culture, which is affected by a hierarchical order based on age and seniority. As mentioned in Chapter 5, the old-age pension system (defined benefit pension and old-age allowance) is another obstacle, as wage reductions after switching to part-time employment reduce the value of an old-age pension. In order to overcome these obstacles, part-time work in the main activity should be encouraged and entitlements to benefits should be adjusted accordingly, for example: by granting additional contributions on the basis of full-time employment. This often leads directly to poverty. People usually start receiving a pension at age 60, but the average retirement age in South Korea is 49. According to a 2019 survey, 76% of pre-retirees were involuntary, and 41% of pre-retirees said they were unprepared. Many people therefore face a decade without sufficient income, forcing them to use all their savings and assets before reaching old age.
In fact, South Korea`s elderly population has the highest poverty rate among member countries of the Organisation for Economic Co-operation and Development (OECD). Health reasons are also at the origin of early retirement. According to the Labour Force Survey, respondents left their main occupation in 2014 at an average age of 51; For 19% of them, this was due to health problems. This significant proportion is likely related to the fact that the Act respecting labour standards does not contain sick leave provisions that would give workers the right to request sick leave for health-related treatments. While workers in large companies or public organizations can take paid sick leave through labour regulations or collective agreements, many employees in SMEs do not have sick leave. Many workers in SMEs have no choice but to leave their company when faced with health problems. If sick leave could be guaranteed by law, many workers, especially older workers, who are more likely to fall ill, could return to their main job after the necessary treatment. In order to promote and maintain the employment of older persons, the Government has also provided subsidies to employers who (i) hire workers who have retired because of the mandatory retirement age, (ii) raise the retirement age above 60, or (iii) abolish the mandatory retirement age. In 2016, 2,496 enterprises received KRW 23.1 billion in subsidies. Employees who stay longer at a company typically have significantly higher salaries than employees who have recently joined the company. This is true for many OECD countries and can happen for a variety of reasons.
First, older workers may be more productive because they have longer work experience, which can lead to broader skills and greater complexity of tasks and tasks. Second, ownership effects may reflect a positive match between firms and employees, with higher wages due to employers selecting better employees to stay with their company, while workers would also be less likely to leave higher-paid firms. Third, companies can incentivize workers to stay in the company and make efforts in exchange for higher wages in the future. Contrary to the first two explanations, this incentive effect may encourage firms to encourage long-term workers to take early retirement or, if possible, to dismiss them if these workers do not have a proportionately higher level of productivity. As a result, concerns have been expressed about the potential negative effects on the employment of older workers when salary scales increase with seniority, regardless of their duties or performance. ← 5. Article 4-5 on exemption from the prohibition of discrimination of the Act stipulates that one of the following cases does not constitute discrimination on grounds of age: (a) when a certain age limit is inevitably necessary, taking into account the characteristics of the tasks; (b) where salaries and other funds, valuables and social benefits are appropriately differentiated according to seniority; and (c) if the retirement age is fixed on the basis of employment contracts, labour regulations, collective agreements, etc., in accordance with this or other laws. Future amendments will have to address these illegal practices of internal subcontracting.
The scope of legal in-house outsourcing needs to be reduced, as appears to be the case recently in court decisions, and further steps should be taken to improve TWA regulation. The experience of the Netherlands suggests that TWA employment can open up opportunities to improve the quality of non-standard forms of work, provided that legislation is carefully designed and underpinned by collective agreements (Bovenberg et al., 2008). Since the adoption of the so-called Flexibility and Security Act in 1998, TWA workers in the Netherlands have been entitled to a fixed-term or open-ended contract with the agency, training institutions (individual budget) and pension rights, depending on seniority. After 26 weeks of work for the same company, they are entitled to the same salary as employees of that company. The user company saves recruitment and dismissal costs, but pays more for a temporary agency worker than for its own employees, since the agency`s costs are added to the temporary worker`s wage costs. On the other hand, Dutch legislation facilitates the use of TWA workers for companies and at the same time abolishes the licensing system for TWAs with regard to their recruitment activities. Voluntary pension provision is particularly widespread in large companies and the public sector. In SMEs, individual termination agreements are more frequent, with or without redundancy pay.
Even if compensation is paid, the amount is usually small. The increased support for workers affected by redundancies in SMEs partly reflects recognition of the difficult business situation in which SMEs often find themselves and the greater chances of finding similar jobs in other SMEs.