Two Options and One Choice: Diffusion of the Wage Peak System Across Workplaces in South Korea

Abstract

In South Korea’s super-aged society, an aging workforce and the shortage of a younger workforce is leading toward a labor shortage as population aging and low fertility rates accelerate. To ensure sufficient workforce capacity, a labor policy called the “wage peak system has spread across workplaces in South Korea. The wage peak system can be implemented in two ways, referred to herein as Type 1 and Type 2, and organizations can adopt either to conform to institutional pressures. This study examines the diffusion of the wage peak system across workplaces and the different motivations to adopt either type. The study used data from the Korean Workplace Panel Survey conducted between 2005 and 2019. The results showed that institutional contexts had a strong influence on the spread of the wage peak system in South Korea. This study has implications for the ways organizations choose to implement systems, depending on the institutional context and several other factors.