Identifying the winners under the Age Discrimination Prohibition Legislation in Korea: policy remedy for redistribution

Abstract

The Korean government announced the enforcement of the Age Discrimination Prohibition Legislation (ADPL) in March of 2008. In Korea, which follows a strict seniority-based employment structure, this legislation will bring forth social benefits to those that are eligible for extended retirement by increasing their income, but it may also create a loss in social benefit by increasing the burden of employers who have to pay their salaries. This study uses the contingent valuation method to estimate the socioeconomic benefits and losses due to the introduction of this legislation. According to the results, if the ADPL is implemented, the willingness to pay regarding the representative employer towards nonenforcement of the legislation is higher if the respondent has stronger opposition towards the legislation, a higher burden of labor costs, a higher number of workers eligible for extended retirement, and if the company has an age-limit system in place. As for the size of the socioeconomic benefit and the loss due to enforcement of the legislation, the benefit for workers eligible for extended retirement will be 5.77 trillion KW (Korean Won) annually, and the loss for employers will be approximately 4 trillion KW annually. The net benefit of the legislation will be 1.56 trillion KW annually. Therefore, since the legislation creates socioeconomic net benefit, a win–win situation can be created for both groups by restructuring the wage profile for senior workers. As a redistribution policy to warrant the win–win situation, extended retirements for senior workers can be exchanged with the lower increasing rate of wage or establishing a wage ceiling through a wage peak system, which is popularly adopted in Japan.