Effects of wage-peak system on youth employment: Evidence from South Korea

Abstract

After the increase in the minimum retirement age, South Korea introduced a wage-peak system to mitigate increases in firm costs due to the wage of elderly workers. In this study, we examined how the later retirement age has affected employment opportunities for younger workers. We also investigated the difference in impact of later retirement on employment between firms within and outside of the system. Using the difference-in-differences empirical method, we found that this system has increased employment opportunities for younger workers. Moreover, as the proportion of elderly workers increases, the effect of the wage-peak system on the proportion of young workers is enhanced.