Elderly People in Japan - Aging and Retirement of The Labor Force

Aging and Retirement of The Labor Force

As Japan's population aged, so did its workforce. In 1990 about 20% of the work force was made up of workers aged fifty-five and over. The Ministry of Labor predicted that by 2000 about 24% of the working population (almost one in four workers) would be in this age-group. This demographic shift brings about both macroeconomic and microeconomic problems. At the national level, Japan is having trouble financing the pension system, and the future of the pension system was a major topic in the 2005 House of Representatives election. At the corporate level, problems include growing personnel costs and the shortage of senior positions.

In most Japanese companies, salaries rise with worker age. Because younger workers are paid less, they are more attractive to employers, and the difficulty in finding employment increases with age. This pattern is evidenced by the unemployment rates for different age-groups and by the number of applicants per job vacancy for each age-group in openings handled by public employment offices. As the Japanese population ages, such trends may grow.

Most Japanese companies require that employees retire upon reaching a specified age. During most of the postwar period, that age was fifty-five. Because government social security payments normally begin at age sixty, workers are forced to find reemployment to fill the five-year gap. However, in 1986 the Japanese Diet passed a law to provide various incentives for firms to raise their retirement age to sixty. Many Japanese companies raised the retirement age they had set, partly in response to this legislation. And despite mandatory retirement policies, many Japanese companies allow their employees to continue working beyond the age of sixty, although generally at reduced wages. People over sixty continue to work for varied reasons: to supplement inadequate pension incomes, to give meaning to their lives, or to keep in touch with society.

As Japan's population ages, the financial health of the public pension plan deteriorates. To avoid massive increases in premiums, the government reformed the system in 1986 by cutting benefit levels and raising the plan's specified age at which benefits began from sixty to sixty-five. Under the revised system, contributions paid in equal share by employer and employee were expected to be equivalent to about 30% of wages, as opposed to 40% of wages under the old system. However, problems then arose in securing employment opportunities for the sixty-to-sixty-five agegroup.

In 1990 some 90% of companies paid retirement benefits to their employees in the form of lump-sum payments and pensions. Some companies based the payment amount on the employee's base pay, while others used formulas independent of base pay. Because the system was designed to reward long service, payment rose progressively with the number of years worked.