gettyimagesbank

"When you are in your 20s, you are young enough to handle social media for business. You know better than us." That's what Ahn, a 28-years-old at a state-owned company, was told when she was recently assigned to this new task.

However, her major and work experience had nothing to do with digital marketing. Yet, the company's hierarchical work culture and lack of frequent job-hopping in the industry made it difficult for her to say no.

She blamed Korea's seniority-based pay system. "I'm tired of seeing wages increase just based on age. Salaries should be determined by clear job roles, with higher pay for more work. It may not be perfect, but it would be far better than the current inefficiency."

Under the seniority-based pay system, wages increase automatically the longer employees stay with a company. It operates on the assumption that longer tenure translates to greater experience, loyalty and skills. However, there is little incentive for employees to develop their skills.

The system was established during Korea's period of rapid economic growth and labor market expansion in the 1960s and 70s, as deferred wage compensation effectively reduced unnecessary workforce turnover.

It also fit well with Korea's Confucian-influenced culture, which emphasizes respect for seniority.

As a result, Korea now has the highest wage compensation based on tenure among OECD countries, according to Lee Jung-min, a professor of economics at Seoul National University. Its impact on salaries is more than double that of Ireland, which ranked second.

Debates over this decades-old pay system have been reignited as Koreans in their 20s and 30s, known for valuing fairness and growth, enter their peak productivity period — the five-to-10-year mark in their careers.

"The pay system operates by redistributing a portion of younger workers' productivity to older employees," said Nam Jae-ryang, a senior researcher from the Korea Labor Institute. "However, the sharp rise in job turnover among young workers has made sustaining these agreements increasingly difficult. The system is no longer 'credible' to them."

The weakening job market and growing employment challenges have also intensified frustrations among them.

"There's a decline in the number of high-quality jobs that young people desperately seek. Even seniority-based pay and guaranteed retirement are now available at only a limited number of workplaces," Kim Seol, chair of the Youth Community Union, said during an open forum about the retirement age, Jan. 23.

As the government recently sought to address the aging population and pension depletion by raising the senior citizen and retirement ages, demands for wage reform gained further momentum.

Additional annual labor costs on employers will reach 30.2 trillion won ($20.9 billion) if the retirement age is raised from 60 to 65 under the seniority-based pay system, according to the Korea Economic Research Institute.

gettyimagesbank

"Upon reaching retirement age, employees earn nearly three times more than younger workers," said Rep. Kweon Seong-dong, floor leader of the ruling People Power Party. "Without restructuring the wage system, simply extending the retirement age would inevitably hurt youth employment."

Some companies are already trying to overturn the system.

In February, Kia partially introduced a performance-based system for entry-level and junior employees, allowing salary increases to vary by up to twice the base rate depending on performance.

Seoul National University is also preparing to introduce a performance-based system for tenured professors. It is currently drafting an implementation decree outlining evaluation criteria. After negotiations with the faculty union, the system will be officially adopted.

To fuel the change, the Ministry of Employment and Labor recently unveiled plans to first expand performance-based pay to over 200 public institutions by 2027. Private companies that adopt the system will be eligible for tax breaks and other incentives.

Experts believe there is still a long road ahead.

The seniority-based pay system is the most widely used wage structure across various job categories, so a radical push would be difficult. Another barrier is strong opposition from large corporate labor unions fearing potential wage reductions, they said.

But avoiding the issue due to fear of a backlash would come at significant financial costs.

"Korea's population is aging at an even faster pace than Japan's, which previously experienced the most rapid aging," Nam said. "This accelerated aging could pose a significant financial burden under Korea's seniority-based wage system."