Value-added Effect of Labor Productivity in Extending the Mandatory Retirement Age: Evidence from Korea

  • Hae-Chun Rhee Sungkyunkwan University
  • Joonmo Cho Sungkyunkwan University
  • Kwangho Woo Korea Labor Institute
Keywords: extension of mandatory retirement age, economic ripple effect, age discrimination in employment, life cycle labor productivity function, wage peak system


In this study we use an inter-industry analysis to evaluate the economic ripple effect of the mandatory retirement age extension system. The data employed herein include the industry input-output table and labor data. The labor productivity table by age and industry was generated using the results of a survey. The survey was conducted among the manufacturing and service sectors. The average wage by industry and age (Ministry of Labor, Monthly Labor Statistics Survey) and the number of wage workers by industry and age (National Statistical Office) were also determined to be used in this study. The principal empirical findings of this work are that the extension of mandatory retirement exerts a value-added effect ranging from a minimum of 1.02 trillion Kwon (about 1 billion US dollars) to a maximum of 3.01 trillion Kwon (about 3 billion US dollars). If the mandatory retirement age is extended from the current 55 to 60, the industries that benefits from the largest value-added effects are the public administration and education service sectors. This means that more workers will continue to work after the age of 55 relative to other industries, or that the wage levels of workers over the age of 55 will be higher, or that the decline in the productivity of these workers will be lower. The economic ripple effect of the extension of mandatory retirement age is estimated to be quite immense. The extension of retirement age should begin in the service sector, in which the loss of productivity is anticipated to be relatively small. This study addresses a variety of policy remedies to soft-land the extended mandatory retirement age, and to enhance its social benefits.