Ageing and Employment Policies: Japan (Ageing and Employment Policies)

Japan In the face of rapid population ageing and the trend towards early retirement, there is a need to promote better employment opportunities for older people. Much has been said about the need for reform of old-age pensions and early retirement schemes but this may not be sufficient to raise employment rates for older people significantly or to reduce the future risk of labour shortages. Both governments and firms will need to take active measures to adapt wage-setting practices to ageing workforces, to address the extent to which other welfare schemes act as pathways to early retirement, to tackle age discrimination and to improve the job skills and working conditions of older workers. In addition, older workers will need to change their own attitudes towards working longer and acquiring new skills. Little is known about what countries have been doing or should be doing in these areas.

This report is based on the proceedings of a seminar and is published in English only. However, a French translation of the Executive Summary and Recommendations has been included in this volume. In the same series: Belgique Finland Luxembourg Spain Suisse Sweden

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ISBN 92-64-02109-4 81 2004 05 1 P

Ageing and Employment Policies

Japan

Japan

This report on Japan is part of a series of around 20 OECD country reports that are intended to fill this gap. Each report contains a survey of the main barriers to employment for older workers, an assessment of the adequacy and effectiveness of existing measures to overcome these barriers and a set of policy recommendations for further action by the public authorities and social partners.

Ageing and Employment Policies

Ageing and Employment Policies

« Vieillissement et politiques de l’emploi

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Ageing and Employent Policies (Vieillissement et politiques de l’emploi)

Japan

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).

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FOREWORD

Older people offer tremendous potential value to businesses, the economy and society. Unfortunately, they often represent an untapped and discriminatedagainst resource, as many public policy measures and private workplace practices pose serious barriers to work, both paid and unpaid. Many of these policies and practices are relics from a bygone era. There is a need to look beyond traditional stereotypes about ageing in order to benefit from the growing numbers of older citizens, many of whom would, in fact, choose to work for longer given appropriate policies and workplace practices. The OECD has reported extensively on public pension and early retirement systems and the need for reforms of these systems to cope with population ageing. However, these reforms will not be enough to encourage later retirement and to reduce the risk of future labour shortages. Measures are also required to adapt wage-setting practices to greying workforces, to tackle age discrimination and negative attitudes to working at an older age, to improve job skills of older people and their working conditions, and to better “activate” older job seekers. Relatively little is known about what countries have been, or should be doing, in these areas. Therefore, in spring 2001, the OECD Employment, Labour and Social Affairs Committee (ELSAC) decided to carry out a thematic review of policies to improve labour market prospects for older workers covering both supply-side and demand-side aspects. For the purpose of this thematic review, it was decided to define older workers as all workers aged 50 and over. The age of 50 is not meant to be a watershed in and of itself in terms of defining who is old and who is not. Perceptions about being old are inherently subjective and only loosely connected with chronological age. However, in many countries, the age of 50 marks the beginning of a decline in labour force participation rates by age. Moreover, to facilitate international comparisons, it is preferable to refer to the same age group for all countries. Thus, all references to “older workers” in this report should be taken as shorthand for workers aged 50 and over (or in some cases, because of data constraints, workers aged 50 to 64), and should not be seen as implying that all workers in this group are “old” per se.

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This report on Japan is one in a series of around 20 OECD country reports that will be published as part of the older worker thematic review, which has been developed by Raymond Torres. It has been prepared by Mark Keese (team leader) and Kimiyo Yagi, together with a contribution to Chapter 3 by Atsuhiro Yamada, Keio University. Technical and statistical assistance was provided by Alexandra Geroyannis, Anne-Marie Gray, Sylvie Jeannot, Clarisse Legendre, Steven Tobin and Judy Zinnemann. A draft of the report was discussed at a seminar in Tokyo on 24 February 2003 on “Ageing and Employment: Challenges and Policies in Japan”, which was organised by the Japanese Ministry of Health, Labour and Welfare. Discussants at the seminar included representatives of the national authorities and the social partners, as well as several academics. The final report, which incorporates the comments received at the seminar, is published in this volume on the responsibility of the Secretary-General of the OECD.

*** This report is based on the proceedings of a seminar and is published in English only. However, a French translation of the Executive Summary and Recommendations has been included in this volume (p. 25). ***

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TABLE OF CONTENTS

EXECUTIVE SUMMARY .............................................................................. 11 The challenge ahead: preparing Japan for an ageing and declining population ..................................................................................... 11 The fragile labour market situation of older people ....................................... 11 Recent reforms.............................................................................................. 12 Areas for further reform................................................................................ 14 RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS ..................................... 25 INTRODUCTION............................................................................................ 41 Chapter 1. THE CHALLENGE AHEAD ......................................................... 43 1. 2. 3.

The demographic challenge ................................................................ 43 Potential economic and social impacts................................................ 47 Key issue: employment prospects for older workers ........................... 51

Chapter 2. THE CURRENT LABOUR MARKET SITUATION ..................... 53 1. 2.

Recent economic developments and labour force participation........... 53 The employment situation of older people.......................................... 57 A. Lifetime employment and job security under strain....................... 61 3. Unemployment among older people ................................................... 69 4. Inactivity among older people and potential labour supply ................. 71 Chapter 3. STRIKING THE RIGHT BALANCE: INCOME SUPPORT FOR OLDER PEOPLE AND WORK INCENTIVES ...................................... 73 1.

An overview of Japan’s pension system ............................................. 73 The three-tier scheme.................................................................... 73 Pensionable age ............................................................................ 74 Beneficiaries ................................................................................. 75 Financial sustainability ................................................................. 75 2. The impact of the pension system on retirement decisions.................. 77 A. Effective and official age of retirement ......................................... 79 B. Replacement rates and participation rates...................................... 80 A. B. C. D.

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C. D. E. 3. A. B. C. D. E. 4. A. B. C. D.

Combining work with an old-age pension ..................................... 82 Suspended EP benefit and labour supply....................................... 83 Suspended EP benefit and labour demand ..................................... 86 The impact of other welfare benefits on work incentives ................... 87 Early retirement schemes .............................................................. 87 Unemployment benefits ................................................................ 88 Employment Continuation Benefit for the Aged (ECB) ................ 89 The combined effect of pensions and ECB on total income........... 91 Disability pension ......................................................................... 94 Other areas of concern........................................................................ 94 Allocation of net social transfers ................................................... 94 Level of the NP and public assistance ........................................... 95 Pension rights of women ............................................................... 96 Improving the portability and security of corporate pensions ........ 97

Chapter 4. ENCOURAGING EMPLOYERS TO RETAIN OLDER WORKERS LONGER ....................................................................... 99 1. A. B. C. D. 2. A. B. C. D. E. 3. A. B. C. D. E. F. G.

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Employment practices of firms........................................................... 99 Mandatory retirement.................................................................... 99 “Continued employment” until age 65 ........................................ 101 The smaller, the more older-worker friendly ............................... 101 Lifetime employment is becoming less prominent ...................... 102 Possible factors behind low retention rates ....................................... 103 Seniority wages........................................................................... 103 Wage declines at older ages ........................................................ 107 Other changes in employment arrangements after mandatory retirement.................................................................................... 108 Employment protection – obstacle or security? ........................... 109 The presence of age discrimination ............................................. 111 Measures to enhance employment prospects for older workers......... 111 Establishing more clearly how policy objectives will be achieved and the likely costs and benefits ................................... 112 Restricting further the use of mandatory retirement .................. 113 Reforming employment protection rules ..................................... 114 Reforming the seniority wage system.......................................... 116 Tackling age discrimination ........................................................ 117 Other measures to support retention and hiring of older workers .......................................................................... 120 Disseminating best practice......................................................... 120

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Chapter 5. BETTER ACCESS TO BETTER JOBS ....................................... 123 1. A. B. C. D. 2. A. 3. A. B. C. D. E.

Employability and training ............................................................... 123 Improving skills .......................................................................... 123 Traditional firm-based training system........................................ 125 Policy initiatives for “self-training”............................................. 125 Incidence of training ................................................................... 126 Employment services ....................................................................... 131 Strengthening the Public Employment Service............................ 131 Flexible and diverse work arrangements........................................... 132 Encouraging diverse participation in society ............................... 132 Promoting self-employed ............................................................ 133 Providing better arrangements for non-regular workers............... 134 Reducing work hours .................................................................. 136 Improving the employment prospects of female older workers .............................................................................. 138

BIBLIOGRAPHY .......................................................................................... 140

List of Boxes Box 1.1. Box 4.1. Box 4.2. Box 4.3. Box 5.1.

Box 5.2.

Population projections............................................................... 45 Some examples of employment practices for continued employment ............................................................................ 108 Policy measures to assist employers ........................................ 118 Wage subsidy schemes for older workers in selected OECD countries ...................................................................... 121 The International Adult Literacy Survey (IALS) and the Japanese Survey on Education and Training in the Private Sector (JSET) .............................................................. 128 Special offices to support older job seekers or older workers .......................................................................... 132

List of Figures Figure 1.1. Figure 1.2. Figure 1.3. Figure 1.4. Figure 1.5. Figure 1.6.

Life expectancy at birth and fertility rates in Japan, 1970-2050 ................................................................................. 44 Demographic dependency ratios, 2000-2050............................. 46 Labour force growth, 1950-2050 ............................................... 48 Labour force growth in OECD countries, 1980-2050 ................ 50 Average effective retirement age in Japan, 1950-2002 .............. 52 Japan's ageing labour force over the next 50 years .................... 52

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Figure 2.1. Figure 2.2. Figure 2.3. Figure 2.4. Figure 2.5. Figure 2.6. Figure 2.7. Figure 2.8. Figure 2.9. Figure 2.10. Figure 2.11. Figure 3.1. Figure 3.2. Figure 3.3. Figure 3.4. Figure 3.5. Figure 3.6. Figure 3.7. Figure 3.8. Figure 3.9. Figure 3.10. Figure 4.1. Figure 4.2. Figure 4.3.

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Participation rates by age and gender in Japan, 1970-2002........ 54 Participation rates by age and gender in OECD countries, 2002 .......................................................................................... 56 Participation rates for older people (50-64) in Japan by level of educational attainment, 2001 ................................... 57 Employment share of older workers, 2001, and overall job growth by industry, 1990-2000............................................ 60 Employment share of older workers, 2001, and overall job growth by occupation, 1990-2000 ....................................... 61 Job tenure by age, gender and firm size in Japan, 2002 ............. 62 Job tenure by age and gender in selected OECD countries, 2000 .......................................................................................... 63 Retention rates by age and gender in selected OECD countries, 1995-2000................................................................. 65 Retention rates by age and gender in Japan, 1980-2000............. 66 Hiring and separation rates for older workers versus all workers, 1991-2001.............................................................. 67 Unemployment rates by age and gender in Japan, 1970-2002 ................................................................................. 69 A summary of Japan’s pension system ...................................... 74 Public old-age pension expenditures in OECD countries, 2000-2050 ................................................................................. 76 Retirement rate by age in Japan and the United States, 2000-2001 ................................................................................. 78 Effective and official age of retirement in OECD countries, 1997-2002 ................................................................................. 79 Replacement rates and participation rates for older men in OECD countries, 2000 .......................................................... 81 Combining work and pensions in Japan, 1992-2000.................. 83 Employees entitled to EP in Japan by age and gender, FY2000 ..................................................................................... 84 Wage distribution of employees entitled to EP and proportion whose pension was fully suspended, FY2000............................ 85 Change in employment rates for older people (50-64) versus change in youth unemployment rates (15-24), 1992-2002 ......... 88 Total income of a worker from earnings, pension benefits and the Earnings Continuation Benefit (ECB) ........................... 92 Firms employing all applicants up to age 65............................ 102 Age-earnings profiles in selected countries ............................. 105 Age-earnings profiles by level of education in selected countries .................................................................... 106

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Figure 5.1. Figure 5.2.

The rise in education level of older workers ............................ 124 Incidence of job-related training for employees by age in OECD countries .................................................................. 129

List of Tables Table 1.1. Table 2.1.

Labour force growth under various scenarios ............................ 50 Japanese older workers by selected job characteristics, 2002 .......................................................................................... 58 Table 2.2. Japanese older workers by selected workplace characteristics, 2002 .......................................................................................... 59 Table 2.3. Job separations in Japan by reason, 2001................................... 68 Table 2.4. Unemployment in Japan by reason, 2002 .................................. 70 Table 2.5. Incidence of long-term unemployment in Japan by age and gender, 2002 ....................................................................... 71 Table 2.6. Inactivity and the desire for work in Japan, 2002....................... 72 Table 3.1. Beneficiaries of old-age pensions by type of pension, 2000 .......................................................................................... 75 Table 3.2. Expenditure on Employment Continuation Benefit and number of beneficiaries, 1996-2001.................................... 90 Table 3.3. Wage and net income of male workers aged 60-64.................... 93 Table 3.4. Average pension and income of older couples for different combinations of work history, 1997 .......................................... 96 Table 4.1. Firms with a mandatory retirement system .............................. 100 Table 4.2. The strictness of employment protection for regular employment in OECD countries in late 1990s ......................... 110 Table 4.3. Unemployed in Japan by age and reason for not finding a job, 2001 .............................................................................. 111 Table 5.1. Recipients of public assistance for training by age group, FY2001 ................................................................................................ 126 Table 5.2. Participation in job-related training by employees................... 129 Table 5.3. Incidence and intensity of Off-JT ............................................ 130 Table 5.4. Weekly hours of work for older workers aged 50 or over in selected OECD countries, 2001........................................... 137 Table 5.5. Weekly hours of work in Japan by age and gender, 2001 ........ 138

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EXECUTIVE SUMMARY

The challenge ahead: preparing Japan for an ageing and declining population Japan already has one of the oldest populations among OECD countries, and further rapid ageing of its population is projected over the coming years. By 2050, more than one in three Japanese are likely to be over the age of 65 compared with around one in six in 2000. Not surprisingly, the average age of the workforce will also increase significantly. For instance, the proportion of the labour force aged 50 and over is likely to rise from 36% in 2000 to 43% in 2030. Japan’s working-age population (aged 20-64) has already begun to contract and its total population is likely to reach a peak within the next few years followed by a substantial decline over the next half century. Inevitably, Japan’s labour force will also undergo a steep decline over the next 50 years. This, in turn, will lower economic growth at the same time as public expenditures on pensions and health are likely to be rising as a share of GDP. Moreover, declines in labour supply could lead to severe labour shortages. However, the scale and timing of these developments will depend crucially on future trends in the mobilisation of Japan’s potential labour supply. Maintaining high participation rates among the growing ranks of older people and improving job quality will be of particular importance. Therefore, appropriate reforms are required now to meet these challenges. The fragile labour market situation of older people Participation and employment rates for older people in Japan are high by international standards. The average retirement age at which older workers effectively stop working is estimated to be just under 70 for men (down slightly from around 71 in the early 1990s) and 66 for women – much older ages than in most other OECD countries. Nevertheless, older people in Japan are increasingly facing a number of difficulties in the labour market, particularly as a result of stagnant economic growth over the past decade. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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First, job insecurity is on the rise, especially for workers aged 60 and over. This corresponds to the age of mandatory retirement that is set in the vast majority of firms. Separation rates have risen significantly over the 1990s for workers aged 60-64 in contrast to little change for prime-age workers. While many older workers are subsequently re-employed following mandatory retirement – often within the same firm or with a subsidiary or supplier firm – their new jobs often involve a substantial cut in wages and irregular or nonstandard forms of employment. For instance, one in five employees (in the nonagricultural sector) aged 60-64 works as a daily or temporary worker compared with only one in ten employees in the prime-age group. Second, unemployment has risen substantially for the older labour force. In 2002, the unemployment rate for men aged 60-64 was 9.7%, or nearly twice as high as the national rate of 5.4%. The incidence of long-term unemployment has also risen for the older unemployed. In 2002, over 36% of unemployed persons aged 50 and over had been unemployed for more than a year compared with 30% for all unemployed persons. Third, working conditions are not well adapted to the needs of older workers. Despite some signs of a significant decrease over the past decade, annual and weekly hours of work in Japan are still high by international standards. Long working hours, as well as shift work, may be particularly onerous for older workers. One dramatic indication of inadequate working conditions has been the rise in suicides linked to work pressures and stress, although other factors such as the depressed economic climate have also played a role. Recent reforms Japan deserves praise for giving priority at a very early stage to developing a range of labour market policy measures to cope with its ageing population. In particular, the Law for the Stabilisation of Employment of Older Workers (originally introduced under another name in 1971) provides a comprehensive framework to promote better employment opportunities for older workers. It also sets out the respective responsibilities of the government and social partners. Successive reforms of this law have resulted in a rise in the minimum legal age of mandatory retirement that can be set by firms from 55 to 60. Guidelines have also been adopted to extend employment to the age of 65. A number of the reforms to improve the financial sustainability of the National Pension System, which were decided in 1994 and 2000, will have a positive impact on incentives to remain in work longer. A progressive increase will take place in the minimum age of entitlement for the old-age employees’ 12

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pension (which, for employees aged 60-64, is called the “specially-provided old-age employees’ pension”). The earliest age at which the flat-rate portion can be received is being raised progressively from 60 to 65 over the period 2001-2013 for men and 2006-2018 for women. In the 2000 reform, it was decided that the minimum age for receiving the earnings-related portion would also be raised from 60 to 65, but over the period 2013-2025 for men and 2018-2030 for women. This rise in the minimum age for entitlement to the public pension is expected to have a large positive impact, albeit in the long term, on work incentives for persons aged 60-64. Importantly, the government has sought to improve training opportunities and thus reduce the risk that skills are eroded with age. In particular, the government has been actively promoting “self-training” and, to this end, has introduced the Education and Training Benefit. The purpose of this benefit is to directly assist individuals to take designated courses by covering part of their training fees. However, both the ceiling for the amount of benefits that can be received and the subsidy rate were cut back due to budgetary constraints in May 2003. The government has been also promoting “life-long training”, including assistance with career development and counselling and the introduction of a system of competence assessment. To tackle age discrimination, a new provision in the Employment Measures Law became effective in October 2001 which urged employers to make efforts to give equal opportunities regardless of age when recruiting or hiring. In addition, based on the new provision, the Guidelines for Employers to Offer Equal Opportunities to Job Seekers Regardless of Age were introduced. These guidelines specify the exceptional cases in which firms can set age limits when making job offers. This is the first explicit legislative attempt that has been taken by Japan to tackle age discrimination. Japan also deserves praise for not having introduced any early retirement programmes unlike many OECD countries either during previous economic downturns or in response to the current period of economic stagnation and rising unemployment. It also faces a much lower risk than in some other OECD countries of either its unemployment or disability benefit systems becoming a pathway into early retirement. Under the unemployment benefit scheme, the maximum duration of benefits is strictly limited and has been shortened for the older unemployed (especially in the case of voluntary job quits) as a result of recent reforms. Inflows into the disability benefits system are quite low, even for the older age groups, no doubt because of strict eligibility rules based on a medical definition of disability and because benefits are not overly generous.

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Areas for further reform While Japan has made considerable efforts to improve labour market prospects for older workers, there is still scope for further action in the areas of income-support arrangements, firm employment and pay practices and the employability and working conditions of older workers. Reforming pensions and income-support arrangements The old-age pension system Work incentives may have been weakened for some older people as a result of the earnings test for working pensioners age 65-69 that was introduced as part of the 2000 pension reform (formerly only pensioners aged 60-64 were subject to an earnings test). While, the Japanese earnings test has been carefully designed to avoid causing significant disincentives to work, it may not prove to be fully successful in this regard. First, it may encourage older workers to switch from full-time to part-time work, since part-timers who work less than three-quarters of regular working hours or days are not subject to the earnings test. This trend has already been apparent for persons aged 60-64 whose pensions were subject to an earnings test prior to the 2000 reform. According to a special tabulation of the 2000 Survey on Employment Conditions of Older Persons, around 20% of this group declared that they chose not to work or reduced their work hours to avoid a suspension of their pension. Second, through the operation of the earnings test, pension benefits may end up providing an implicit wage subsidy to employers. In fact, it would appear that more than 40% of firms that hire working pensioners aged 60-64 are making some special arrangements about wages and working hours in order to reduce the possible loss of pension benefits for these workers. Of course, the purpose of the earnings test is to limit pension payments in the case of older people who can and do continue to work, and thereby limit the overall increase in pension expenditure as the population ages. However, this objective should be carefully balanced against the need to fully mobilise the labour supply of older workers in order to boost economic growth and to cope with future labour shortages. The treatment of dependent spouses under Japan’s pension system may also be distorting the labour supply choices of women. Dependent wives (and dependent husbands) including those working part-time are covered by the oldage employees’ pension without paying their own premiums. This arrangement 14

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is unfair for working wives who pay their own premiums. More importantly, given that Japan is facing a declining labour force, it also undermines work incentives for women, especially to take up or remain in full-time jobs. Moreover, Japan’s pension system fails to adequately protect all older women without a working career (i.e. without any insured period for the employees’ pension) from falling into poverty since divorced older women are not entitled to the survivor’s pension but only to their own old-age basic pension. Employment Continuation Benefit The Employment Continuation Benefit for the Aged was introduced in 1995 under the employment insurance system in order to increase the incentives for older persons to continue working rather than take up unemployment benefits. This in-work benefit compensates workers aged 60-64 who experience a wage reduction of more than 25% after mandatory retirement. The government regards this benefit to be a very important tool for increasing the work incentives of older persons. However, as earnings increase, the phase out of this benefit implies marginal effective tax rates on income of 65%, if the new wage falls in the range of 61-75% of the former wage at the age of 60. This may encourage some older workers to take up or remain in lower-paid jobs and thus may be distorting labour supply decisions. In addition, the benefit may work as a kind of wage subsidy to employers. In theory, it allows employers to reduce the wage level of their older workers by up to the maximum amount of the benefit without lowering the overall income from work of older workers. Thus, this benefit faces the same problem as other wage subsidies, such as stigmatisation (by suggesting that all older workers require protection), substitution effects (i.e. older persons may be hired at the cost of other age groups) and large deadweight loss (i.e. most of the subsidised workers would have been hired anyway). On top of that, the benefit is not targeted at the most disadvantaged groups among older persons, such as the unskilled long-term unemployed. Instead, those older workers who have benefited the most from lifetime employment practices and the seniority wage system may gain the most from the benefit. The benefit undoubtedly enhances the ability of firms to hire or rehire older workers at lower wages that may be more in line with the actual productivity of these workers. Nevertheless, in the longer run, a first-best solution may be a change in Japan’s seniority wage system (see below). More generally, in view of the situation facing the older unemployed, it is important to consider whether the Employment Continuation Benefit is well targeted at the most disadvantaged groups.

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Recommendations for reform Further reform in the area of income-support arrangement may be necessary as follows: •

Reconsider specific provisions of the pension system. Reform of the Japanese old-age pension system may be required to remove disincentives for older people to remain longer in full-time work, to extend pension coverage to part-time workers and to make the system more transparent. The earnings test for working pensioners aged 60-69 is especially problematic. For example, providing an option of a deferred pension for older workers of pensionable age may be a way to improve work incentives.

•

Review pension rights for women. A more individualised system of pension rights would neutralise work disincentives for women and could eventually help narrow the gender gap in employment rates for older people. Pension rights could be granted to women for longer periods of absence from the workforce because of childbirth or caring for young children or elderly relatives. In the short-term, the protection of pension rights for divorcees should be strengthened.

•

Review the system of the Employment Continuation Benefit. The recent reform which tightened entitlement to the benefit and lowered the subsidy rate should help alleviate its potential to distort the labour supply decisions of older workers. Nevertheless, the operation of this benefit should be carefully reviewed and evaluated, especially in the context of the operation of the earnings test for working pensioners aged 60-64.

Changing employer attitudes and improving job retention The reforms to Japan’s pension and income-support system mentioned above should help improve incentives for older people to remain in work longer. However, these supply-side measures will not be enough, action is also needed on the demand-side. The practice of mandatory retirement Currently, firms are entitled to set a mandatory age of retirement as long as it is not below the age of 60, even though the minimum age of retirement under the old-age employees’ pension scheme is being progressively raised from 60 to 65. And, in fact, most firms in Japan have a mandatory age of retirement and it is set at the legal minimum of 60 years of age.

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It has been suggested that the practice of mandatory retirement should be banned since it gives rise to large job turnover for older workers and may not only result in unemployment but in a loss of (firm-specific) human capital. However, mandatory retirement is tightly linked in with Japan’s seniority wage system and strict employment protection rules and if it were to be abolished, firms would potentially suffer from a double burden: high firing costs and high wage costs. The role of seniority wages The wage system in Japan can still be characterised as being predominantly based on seniority, although there is some evidence that firms have added recently other factors such as performance evaluation. The ageearnings profiles show that wages for men rise quite steeply up to the age of 50-54, but start to decline thereafter, with a sharp drop occurring between the age groups 55-59 and 60-64. This suggests that many of the new jobs that Japanese men find after mandatory retirement entail a large wage cut. In response to the government policy direction to secure employment up to age 65, firms are introducing a system of “employment extension” which allows workers to remain in the firm or a subsidiary or supplier firm after mandatory retirement. However, while there appears to be flexibility in wages for workers around 60 years of age, firms have been reluctant to reform their wage systems more extensively at younger ages. The role of employment protection Japanese firms are in principle guaranteed dismissal rights under the Civil Code, and the Labour Standards Law only requires advance notice or dismissal pay. However, dismissal rights have become severely restricted by case law. Thus, in practice, employment protection of regular workers is high by international standards. Any loosening of employment protection would have two opposite effects: it would lower job security for employed older workers, but at the same time it should increase the chance of re-employment for the older unemployed. Of course, any rise in the hiring rate for older workers would most likely be very limited unless action is also taken to tackle age discrimination, reduce high seniority wages, improve the skills of older workers and strengthen labour demand more generally. Reducing the employment protection of regular workers could also lead to a better balance in the treatment between regular workers and non-regular workers. It would facilitate the conversion of regular contracts into non-regular ones. Such a shift would be beneficial to older workers especially after age 60, who tend to prefer flexible or shorter hours of work.

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A reconsideration of employment protection rules could also have an impact on employees’ attitude towards the wage system and thus could, somewhat paradoxically, improve employment prospects for older workers. If workers face a higher risk of being forced to leave the firm before recouping their deferred wages, then a seniority system becomes less attractive. Tackling age discrimination Tackling age discrimination is complex in a country like Japan where considerations of age are so deeply embedded in its standard employment practices and culture. Some measures have been taken, as already mentioned, such as the government’s Guidelines to discourage firms from setting age limits in job offers. However, the Guidelines allow for a wide range of exemptions. The result is that most firms in practice are permitted to set age limits for job offers. For example, firms with a mandatory retirement system may legitimately set an age limit for recruitment on the ground that substantial training is required in the post. Or firms with a seniority wage system are often exempted, if they cannot hire an older person at a lower wage because of their rules of employment. Better targeting of wage subsidies Japan has wage subsidies for hiring older workers. Subsidies that are targeted broadly by age may have a stigmatising effect and not be very effective because of substitution effects and deadweight loss. Generally, wage subsidies are likely to be more effective when they are more strictly targeted. Systematic and rigorous evaluations of the effectiveness of these subsidies should be carried out and the eligibility rules and generosity of these subsidies should be made flexible in response to changing labour market conditions. Recommendations for reform There is no single measure that would dramatically increase retention or hiring rates for older workers, especially in view of the current morose economic climate in Japan. Moreover, many of the barriers to firm’s retaining or hiring older workers are deeply embedded in employer practices concerning human resource management and wage determination. In particular, the following conditions would appear to be necessary as part of any package of measures to reform Japan’s seniority wage system, employment protection rules and mandatory retirement practices and to tackle age discrimination: i) competence and performance, instead of age, should become the main factors for personnel decisions and determining wages, based on a well-developed system of job specification and fair personnel evaluation; ii) due standards for 18

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dismissals should become more transparent and less onerous; and iii) there should be more flexible employment arrangements for older workers. Under these conditions, the following measures should be envisaged: •

Further restrict the use of mandatory retirement. One approach would be to progressively raise the minimum age for mandatory retirement – in line with the increase in the minimum age for receiving the old-age pension. Another one would be to abolish the mandatory retirement system. The latter would be a more difficult choice in the current situation with strong employment protection and seniority wages. Any moves in this direction would require adequate consultation among social partners and advance notice – so that other employment and pay practices could be adjusted accordingly.

•

Encourage reform of the seniority wage system. The government should support the efforts of the social partners to reform wage-setting practices based on seniority by developing guidelines for enhancing the role of competence and performance in pay determination. It could also set an example by applying these guidelines in the civil service. By restricting the use of mandatory retirement, as suggested above, this would further encourage the social partners to change the wage system.

•

Review employment protection legislation. Legislation could be introduced to clarify and simplify the obligations of employers and the rights of their employees concerning lay-offs and dismissals. In June 2003, the Labour Standard Law was revised to put into statutory form the basic idea of court rulings. However it is not clear this represents much progress in terms of clarity of dismissal requirements. It is important that any such moves in this area should be done in conjunction with strengthening measures to tackle age discrimination in both hiring and firing, improving the employability of older workers (see below) and establishing a better social security net in general.

•

Rationalise further the system of wage subsidies for older workers. Japan’s system of wage subsidies should be carefully evaluated to determine their effectiveness and whether they could be better targeted to help the more disadvantaged groups among older people.

•

Strengthen measures to combat age discrimination. The government’s attempts to combat age discrimination should be pursued. This would give a clear signal to employers and to society as a whole that age discrimination should not be tolerated. At a minimum, the current list of exemptions from using age limits in recruiting should be reviewed and reduced.

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Improving the employability of older workers Overall participation rates of Japanese older workers in training activities appear to be relatively high by international standards and not much lower than for younger workers. However, women engage in much less training than men and this gap is larger than in other OECD countries. In terms of training intensity, measured by either hours of training or employer training costs, Japan also compares somewhat less favourably than some other OECD countries. Finally, participation of older workers in the Education and Training Benefit is rather low. The reason could be the general unwillingness of older persons to undergo training, or the fact that the content or curriculum of designated courses may not be very attractive to them. If the latter is the case, the course designation criteria should be reviewed with a view to encouraging greater takeup of training opportunities by older people. Thus, there would appear to be scope to deepen and broaden the delivery of training opportunities. Given the relatively high unemployment rate among older workers, it is essential that they have access to good employment services. There has been an impressive expansion of the Public Employment Service (PES) for older persons in a short space of time. This has included the setting up of special offices to deal with older jobseekers or older workers still in employment. These services have special officers, who provide placement services and career guidance specifically to older workers, and who give guidance to employers concerning continued employment. This direction of improving the services and resources of the PES should be pursued. More diversified or flexible work forms will be necessary to meet an increasingly wide range of work preferences. At the same time, however, the polarisation in the status of regular and non-regular workers should be mitigated. Regular workers enjoy high job security and good social security coverage and earnings prospects but are restricted in their work choices (e.g. hours and place of work, job tasks, etc.). Irregular workers face low job security, low wages and less access to social security, while in certain cases they have more freedom of work choice. The shares of older part-timers are already high (about 30% and 50%, respectively for men and women aged 60 or over) and has been increasing. Arranging better working conditions for nonregular workers would be of particular importance to older persons. For example, some older men who are currently not working might take up jobs if more part-time job opportunities were available and if better working conditions were arranged for these jobs. Furthermore, long working hours could be an obstacle to older workers continuing to work full-time.

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Finally, some older women face special problems requiring specific measures to help them either retain or find jobs. Moreover, older women, in particular single older women, tend to face a higher risk of poverty. There is no policy specifically intended for older working women. In addition, some measures such as the Employment Continuation Benefit seem to be more targeted at older men rather than older women, since fewer women workers experience mandatory retirement or face as large a wage cut as their male counterparts. Recommendations for reform A number of measures may be required to improve the employability and working conditions of older workers. These include: •

Strengthen and expand training opportunities for mid-career and older workers. For adult and older workers, this may imply boosting the number of well-designed modular courses of vocational training which build upon the existing qualifications of these workers, as has occurred in Australia over the past 15-20 years. This may encourage greater take-up and may generate higher returns to training than in the case of longer courses. The designated courses of the Education and Training benefit should be reconsidered to improve take up among older people.

•

Continue to improve the quality of the PES. The quality of placement services and career consultation services needs to be strengthened further. The recent expansion of the PES should be pursued further but subject to an assessment of its efficiency. The possibilities for some sub-contracting out to private and non-profit employment agencies of placement services for older jobseekers with special needs should be considered, building on the experience of the Silver Human Resource Centres.

•

Enhance financial incentives for the re-employment of older job seekers. Other OECD countries have introduced in-work benefits and earnings disregards for unemployed people. The benefits entail less danger of deadweight loss than other programme given the low re-employment probability of unemployed older workers at present.

•

Provide better arrangements for non-regular forms of work. Non-regular workers should be given better access to the social security system and their wages should be brought in line with those of regular workers.

•

Lower working hours and improve working conditions. The government should also continue to push for lower working hours, perhaps by setting

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targets for reductions in work hours for older workers in particular, as well as encouraging best practice with respect to improving working conditions more generally for older workers. Other areas for reform Establish more clearly how policy objectives will be achieved and the likely costs and benefits The government has been promoting the goals of “Employment until 65” and “Age-free employment”. To date, most of its efforts appear to have been concentrated on achieving “Employment until 65” through a comprehensive package of measures targeted at older persons, including wage subsidies. While these measures are certainly steps in the right direction in terms of improving retention rates for workers aged 60-64 – who currently face considerable job insecurity – they could lead to some deterioration in labour market outcomes for workers aged 65 and over relative to workers in their early 60s. For instance, when measures were taken to raise the standard age of mandatory retirement to 60, the employment situation of the age group 60-64 worsened significantly over the 1990s compared to that of the age group 55-59. At the same time, the government has declared “Age-free employment” as its ultimate goal. However, it is not apparent that a clear message is being provided about the extensive change that will be required in human resource management practices to achieve this goal and the difficult policy choices that may be involved. For example, it may be necessary to expand the role of the external labour market to improve hiring opportunities for older worker but this may only be possible at the cost of some weakening of job security for regular employees. Therefore, the policy measures required to achieve age-free employment and their likely impact on labour market outcomes for older workers should be more fully articulated. Systematic evaluation of policy measures and programmes is vital Japanese policy-makers are to be praised for the rapidity with which they have formulated and delivered new policy measures to tackle the emerging labour market problems confronting older people. The implementation of these measures needs, however, to be combined with a rigorous and systematic programme of evaluation in order to learn what works and what does not and to incorporate these lessons into policy design and implementation. It is also important that adequate statistics are available to determine the most important issues for policy and in order to evaluate policy outcomes. 22

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Japanese labour market statistics are generally of high quality. Nevertheless, there are a number of areas where improvements could be made to better capture the labour market situation of older workers and to improve data access, including introducing a longitudinal survey to track work and retirement decisions and a special survey of working conditions. Strengthen family-friendly employment policies In terms of mobilising labour supply more generally, there is scope to raise labour force participation rates for prime-age women which may, in turn, lead to higher participation rates for these women at older ages than experienced by the current cohorts of older women. Labour force participation rates for both prime-age and older women are significantly lower than for men. The gap is much larger than in many other OECD countries. While pension reform can play a part, there is also a need to implement family-friendly employment policies to strengthen the ability and willingness of Japanese women to build up longer working careers. Continue to pursue structural reform Finally, measures that lower barriers to job creation and stimulate employment growth more generally are likely to be of special benefit to older workers. Therefore, it is important that Japan continues to push forward with wide-ranging structural reforms. In the context of high and rising youth unemployment, these reforms may also help to allay concerns that measures which encourage older people to remain in work longer may be at the expense of worse labour market outcomes for youth. Across OECD countries as a whole, there is in fact a positive correlation between employment outcomes of older and younger people. Indeed, countries which experienced the smallest decline in employment rates for older people also tended to experience the smallest decline in youth employment rates and the smallest rise in youth unemployment. Nevertheless, by generating more jobs at all ages through structural reform, this may help ensure that there is continued widespread support in Japan for the necessary measures to be taken to encourage older people to remain active. Ensuring that Japan maintains its high participation rates for older people will also ensure that it is better placed to cope with the challenges it faces because of rapid population ageing.

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RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS

Le défi de l’avenir : préparer le Japon au vieillissement et à la diminution de sa population Le Japon fait déjà partie des pays de l’OCDE où la population est la plus âgée et l’on prévoit une nouvelle accélération du vieillissement démographique dans les prochaines années. D’ici à 2050, il est probable que plus d’un Japonais sur trois sera âgé de plus de 65 ans, contre un sur six en 2000. Comme il faut s’y attendre, l’âge moyen de la population active va aussi fortement augmenter. Ainsi, la proportion d’actifs âgés de 50 ans et plus devrait passer de 36 % en 2000 à 43 % en 2030. La population d’âge actif du Japon (ayant entre 20 et 64 ans) a déjà commencé à se contracter et il est probable que la population totale du pays passera par un sommet dans les quelques années à venir pour ensuite fortement diminuer au cours des 50 prochaines années. Inévitablement, la population active du Japon accusera elle aussi une forte diminution sur la même période. Ce facteur freinera à son tour la croissance économique tandis que dans le même temps les dépenses publiques consacrées aux pensions et à la santé représenteront vraisemblablement une part croissante du PIB. En outre, la contraction de l’offre de travail pourrait entraîner de graves pénuries de main-d’œuvre. Toutefois, l’ampleur de ces évolutions et le moment où elles surviendront dépondront avant tout de la manière dont le Japon mobilisera à l’avenir ses ressources potentielles de main-d’œuvre. Le maintien de taux d’activité élevés pour la masse croissante des travailleurs âgés et l’amélioration de la qualité des emplois qu’ils occupent revêtiront une importance particulière. Des réformes appropriées sont donc requises dès à présent pour relever ces défis. La fragilité de la situation des travailleurs âgés sur le marché du travail Les taux d’activité et d’emploi des travailleurs âgés au Japon sont élevés par rapport à ceux d’autres pays. On estime que l’âge moyen de départ à la retraite, c’est-à-dire celui auquel les travailleurs âgés cessent effectivement leur activité, est d’un peu moins de 70 ans pour les hommes (chiffre en légère baisse AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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par rapport à celui du début des années 1990 qui était d’environ 71 ans) et de 66 ans pour les femmes – soit des âges beaucoup plus avancés que dans la plupart des autres pays de l’OCDE. Les travailleurs âgés japonais se heurtent néanmoins de plus en plus à un certain nombre de difficultés sur le marché du travail, en raison notamment de la stagnation de l’activité économique pendant la dernière décennie. En premier lieu, la précarité de l’emploi va en s’accentuant, surtout pour les travailleurs âgés de 60 ans et plus. Cet âge est l’âge de la retraite obligatoire fixé par la grande majorité des entreprises. Les taux de cessation d’emploi ont sensiblement augmenté au cours des années 1990 pour les travailleurs âgés de 60 à 64 ans alors que pour les travailleurs d’âge très actif, ils ont peu changé. De nombreux travailleurs âgés sont réembauchés après leur départ à la retraite – dans bien des cas dans la même entreprise, une de ses filiales ou un de ses fournisseurs – mais souvent le salaire qu’ils perçoivent dans leur nouvel emploi est considérablement réduit et ils occupent des emplois irréguliers ou atypiques. Par exemple, un salarié sur cinq (dans le secteur non agricole) âgé de 60 à 64 ans est employé comme journalier ou travailleur temporaire contre seulement un sur dix dans le groupe des travailleurs d’âge très actif. En second lieu, le chômage a fortement progressé pour le groupe des travailleurs âgés. En 2002, le taux de chômage des hommes âgés de 60 à 64 ans était de 9.7 %, soit pratiquement le double du taux national qui s’établissait à 5.4 %. L’incidence du chômage de longue durée a aussi augmenté pour les chômeurs âgés. En 2002, plus de 36 % des chômeurs âgés de 50 ans et plus étaient sans emploi depuis plus d’un an contre un peu plus de 30 % pour l’ensemble des chômeurs. En troisième lieu, les conditions de travail ne sont pas bien adaptées aux besoins des travailleurs âgés. Bien que certains signes montrent qu’elle a beaucoup diminué au cours de la dernière décennie, la durée annuelle et hebdomadaire du travail au Japon reste élevée comparativement à d’autres pays. Une longue durée de travail et le travail posté peuvent être particulièrement astreignants pour les travailleurs âgés. L’augmentation du nombre de suicides liés aux tensions et au stress de la vie professionnelle témoigne de façon dramatique de l’inadéquation des conditions de travail, bien que d’autres facteurs, tels que la mauvaise conjoncture économique, aient également joué un rôle. Les réformes récentes Le Japon a le mérite d’avoir donné très tôt la priorité à l’adoption de mesures visant le marché du travail pour faire face au vieillissement de sa 26

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population. En particulier, la Loi pour la stabilisation de l’emploi des travailleurs âgés (adoptée initialement sous un autre intitulé en 1971) constitue un cadre général visant à améliorer les opportunités d’emploi des seniors. Elle fixe également les responsabilités respectives des pouvoirs publics et des partenaires sociaux. Des réformes successives de cette loi ont abouti à un relèvement de 55 ans à 60 ans de l’âge légal minimum de la retraite obligatoire qui peut être fixé par les entreprises. Des directives ont également été adoptées en vue de prolonger l’emploi jusqu’à l’âge de 65 ans. Un certain nombre de réformes du système national de pensions, qui ont été décidées en 1994 et 2000, dans le but principalement d’améliorer sa viabilité financière auront un impact positif sur les incitations à rester plus longtemps dans la vie active. L’âge minimum d’ouverture des droits à la pension de vieillesse des salariés sera progressivement relevé (dans le cas des salariés âgés de 60 à 64 ans, celle-ci est qualifiée de « pension spéciale de vieillesse des salariés »). L’âge minimum auquel le titulaire peut demander la pension de base sera progressivement relevé de 60 à 65 ans entre 2001 et 2013 pour les hommes et entre 2006 et 2018 pour les femmes. Dans le cadre de la réforme de 2000, il a été décidé que l’âge minimum de versement de la partie de la pension calculée sur les gains serait également relevé de 60 à 65 ans, mais entre 2013 et 2025 pour les hommes et entre 2018 et 2030 pour les femmes. Ce relèvement de l’âge minimum d’ouverture des droits à la retraite publique devrait avoir un impact très positif, mais à long terme, sur les incitations à travailler des personnes âgées de 60 à 64 ans. Fait important, le gouvernement s’est efforcé d’améliorer les possibilités de formation et de réduire ainsi pour les travailleurs âgés le risque de voir leurs compétences se dévaloriser avec l’âge. En particulier, le gouvernement s’est employé à promouvoir « l’autoformation » et a introduit, à cette fin, l’allocation à l’éducation et à la formation. Cette prestation est destinée à aider directement les individus à suivre certaines formations en couvrant une partie de leur coût. Toutefois, tant le plafond des prestations pouvant être perçues que le taux de prise en charge ont été réduits en raison de difficultés budgétaires en mai 2003. Le gouvernement s’est également attaché à promouvoir la « formation tout au long de la vie », notamment en fournissant une aide et des conseils pour la gestion de carrière et en introduisant un système d’évaluation des compétences. Afin de lutter contre la discrimination liée à l’âge, une nouvelle disposition a été ajoutée à la loi définissant les mesures en faveur de l’emploi ; celle-ci est entrée en vigueur en octobre 2001 et elle invite instamment les employeurs à faire tout ce qui leur est possible pour offrir des chances égales aux travailleurs au moment de leur recrutement ou de leur embauche, quel que soit leur âge. En outre, en s’appuyant sur cette nouvelle disposition, les Directives incitant les AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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employeurs à offrir des chances égales aux demandeurs d’emploi quel que soit leur âge ont été introduites. Ces directives précisent les cas exceptionnels dans lesquels les entreprises peuvent fixer des limites d’âge dans les offres d’emploi. C’est la première fois que le Japon tente explicitement de s’attaquer au problème de la discrimination liée à l’âge par la voie législative. Le Japon a également le mérite de ne pas avoir introduit de systèmes de préretraite, contrairement à de nombreux pays de l’OCDE, soit pendant les récessions économiques précédentes, soit face à la stagnation actuelle de l’activité économique et à la hausse du chômage. Il est également beaucoup moins exposé que certains autres pays de l’OCDE au risque de voir soit son système d’indemnisation du chômage, soit son système de pensions d’invalidité devenir des voies d’accès à la retraite anticipée. Dans le cadre du système d’indemnisation du chômage, la durée maximale de versement des prestations est strictement limitée et elle a été réduite pour les chômeurs âgés (en particulier dans les cas de cessation volontaire d’activité) à la suite des réformes récentes. Le nombre de personnes admises à bénéficier d’une pension d’invalidité est très faible, même pour les groupes âgés, ce qui s’explique sans aucun doute par la rigueur des critères d’admissibilité basés sur une définition médicale de l’invalidité et par le fait que le montant de la prestation n’est pas très généreux. Domaines où une réforme plus poussée est nécessaire Bien que le Japon ait fait des efforts considérables pour améliorer les perspectives des travailleurs âgés sur le marché du travail, d’autres initiatives sont encore possibles dans les domaines de la garantie du revenu, de l’emploi et des pratiques salariales, ainsi que de l’employabilité et des conditions de travail des travailleurs âgés. La réforme des pensions et des dispositifs de garantie du revenu Le système de pensions de vieillesse Il se peut que les incitations à travailler aient été réduites pour certains travailleurs âgés par l’introduction, dans le cadre de la réforme des pensions de 2000, du plafond de gains autorisé pour les titulaires de pensions âgés de 65 à 69 ans exerçant une activité professionnelle (auparavant, seuls les titulaires de pensions âgés de 60 à 64 ans faisaient l’objet d’un plafond de gains autorisé). Bien que le plafond de gains autorisé introduit par le Japon ait été soigneusement conçu pour ne pas constituer une contre incitation majeure au travail, il risque de ne pas être pleinement efficace à cet égard.

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En premier lieu, il se peut qu’il encourage les travailleurs âgés à passer du travail à plein temps au travail à temps partiel, car les travailleurs à temps partiel dont le nombre d’heures de travail représente moins des trois quarts de la durée normale du travail ne sont pas soumis au plafond de gains autorisé. Cette tendance a déjà pu être observée pour les personnes âgées de 60 à 64 ans dont les pensions étaient assujetties à un plafond de gains autorisé avant la réforme de 2000. D’après un tableau spécial figurant dans L’enquête de 2000 sur les conditions d’emploi des travailleurs âgés, près de 20 % des personnes appartenant à ce groupe ont déclaré qu’elles avaient décidé de ne pas travailler ou avaient réduit leur durée de travail pour éviter que leur pension soit suspendue. En second lieu, en raison de l’application du plafond de gains autorisé, les prestations de retraite peuvent constituer au bout du compte une subvention salariale implicite pour les employeurs. Il semblerait, en fait, que plus de 40 % des entreprises qui recrutent des titulaires de pensions âgés de 60 à 64 ans modulent leurs salaires et leur temps de travail de manière à réduire la perte éventuelle de prestations de retraite pour ces travailleurs. Naturellement, la finalité du plafond de gains autorisé est de limiter le montant des pensions versées aux personnes âgées qui peuvent travailler et continuent à le faire et de freiner ainsi l’augmentation globale des dépenses consacrées aux retraites du fait du vieillissement de la population. Toutefois, il convient de mettre soigneusement en balance cet objectif et la nécessité de mobiliser toutes les ressources de main-d’œuvre offertes par les travailleurs âgés pour stimuler la croissance économique et faire face aux pénuries de maind’œuvre à l’avenir. Il se peut aussi que le traitement réservé aux conjoints à charge dans le cadre du système de pensions japonais fausse les choix des femmes en matière d’activité professionnelle. Les épouses à charge (et aussi les époux à charge), y compris celles qui travaillent à temps partiel, ont droit à la pension de vieillesse des salariés sans verser de cotisations. Ce dispositif n’est pas équitable pour les femmes mariées pourvues d’un emploi, qui versent elles leurs propres cotisations. Surtout, étant donné que le Japon va être confronté à une diminution de sa population active, il sape également l’efficacité des incitations à travailler offertes aux femmes, en particulier pour qu’elles prennent ou conservent un emploi à plein temps. En outre, le système de pension japonais n’offre pas à l’ensemble des femmes âgées qui n’ont pas eu d’activité salariée (autrement dit qui n’ont aucune période de cotisation donnant droit à la pension des salariés) une protection adéquate contre la pauvreté, étant donné que les femmes âgées divorcées ne peuvent toucher de pension de réversion et ont droit uniquement à leur propre pension de vieillesse de base.

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L’allocation pour la poursuite de l’activité L’allocation pour la poursuite de l’activité des travailleurs âgés a été introduite en 1995 dans le cadre de l’assurance-chômage en vue de mieux inciter les seniors à continuer à travailler plutôt que de s’inscrire au chômage. Cette prestation liée à l’exercice d’une activité est une compensation financière pour les travailleurs âgés de 60 à 64 ans dont le salaire a été réduit de plus de 25 % après la retraite obligatoire. Le gouvernement la considère comme un instrument très important pour offrir aux personnes plus âgées davantage d’incitations à travailler. Toutefois, dès lors que les gains augmentent, cette prestation est progressivement supprimée, ce qui signifie que des taux d’imposition marginaux effectifs de 65 % sont appliqués au revenu, si le nouveau salaire atteint entre 61 et 75 % du précédent salaire à l’âge de 60 ans. Ce facteur peut encourager certains travailleurs âgés à prendre ou conserver des emplois moins rémunérés et fausser ainsi les décisions professionnelles. En outre, cette prestation peut constituer une sorte de subvention salariale pour les employeurs. En théorie, elle permet à ces derniers de réduire le montant du salaire qu’ils versent à leurs travailleurs âgés d’un montant pouvant atteindre le maximum de la prestation sans diminuer le revenu total que les travailleurs âgés tirent de leur activité. Cette prestation pose donc les mêmes problèmes que les autres subventions salariales, comme un sentiment de stigmatisation des bénéficiaires (elle laisse supposer que tous les travailleurs plus âgés ont besoin d’une protection), des effets de substitution (il se peut que l’on recrute des travailleurs âgés au détriment d’autres groupes d’âge) et un important effet d’aubaine (la plupart des travailleurs bénéficiant de la prestation auraient trouvé un emploi quoi qu’il en soit). Par surcroît, cette prestation n’est pas ciblée sur les groupes les plus défavorisés parmi les travailleurs âgés, comme les chômeurs de longue durée peu qualifiés. Il se peut au contraire que ce soit les travailleurs plus âgés qui ont le plus bénéficié des pratiques d’emploi à vie et du système de rémunération à l’ancienneté à qui cette prestation sera la plus profitable. Cette prestation accroît incontestablement la capacité des entreprises à embaucher ou réembaucher des travailleurs âgés en leur versant des salaires inférieurs peut-être plus conformes à leur productivité réelle. Néanmoins, à plus long terme, la meilleure solution à envisager est peut-être une réforme du système de rémunération à l’ancienneté du Japon (voir plus loin). Plus généralement, compte tenu de la situation à laquelle les chômeurs âgés sont confrontés, il importe de se demander si l’allocation pour la poursuite de l’activité est bien ciblée sur les groupes les plus défavorisés.

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Recommandations en vue d’une réforme Une réforme plus poussée du mécanisme de garantie de revenu pourrait être nécessaire et il faudrait s’attacher à cette fin à : •

Réexaminer des dispositions spécifiques du système de pensions. Il faudra peut-être réformer le système japonais de pensions de vieillesse pour faire disparaître les facteurs qui dissuadent les travailleurs âgés de travailler plus longtemps à plein temps, pour étendre la couverture du système de pensions aux travailleurs à temps partiel et pour rendre le système plus transparent. Le plafond de gains autorisé appliqué aux titulaires d’une pension âgés de 60 à 69 ans et exerçant une activité est particulièrement problématique. On pourrait par exemple améliorer les incitations au travail en offrant aux seniors qui ont l’âge de recevoir une pension la possibilité d’une retraite différée.

•

Revoir les droits à pension des femmes. Un système de droits à pension plus individualisé neutraliserait les facteurs qui dissuadent les femmes de travailler et pourrait à terme contribuer à réduire les différences dans les taux d’emploi des hommes et des femmes âgés. Des droits à pension pourraient être accordés aux femmes pour des périodes de cessation d’activité plus longues qui ont été motivées par une maternité, l’éducation de jeunes enfants ou la prise en charge de parents âgés. A court terme, la protection des droits à pension des personnes divorcées devrait être renforcée.

•

Revoir les modalités de fonctionnement de l’allocation pour la poursuite de l’activité. La réforme récente qui a durci les conditions d’accès à cette prestation et réduit le taux de l’aide devrait contribuer à diminuer ses effets défavorables potentiels sur les décisions des travailleurs âgés de travailler. Il conviendrait néanmoins d’examiner et d’évaluer soigneusement son application, compte tenu notamment du plafond de gains autorisé appliqué aux titulaires d’une pension âgés de 60 à 64 ans et exerçant une activité.

Changer les attitudes des employeurs et améliorer le maintien dans l’emploi Les réformes du système de pensions et de garantie du revenu du Japon évoquées plus haut devraient contribuer à améliorer les incitations poussant les travailleurs âgés à rester plus longtemps dans la vie active. Toutefois, ces mesures visant l’offre ne seront pas suffisantes, et il faudra également agir sur la demande.

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La pratique de la retraite obligatoire Actuellement, les entreprises sont autorisées à fixer l’âge auquel leurs salariés doivent prendre leur retraite, à la condition que celui-ci ne soit pas inférieur à 60 ans, et cela même si l’âge minimum de départ à la retraite dans le cadre du système de pensions de vieillesse des salariés est progressivement relevé de 60 à 65 ans. D’ailleurs, l’âge de la retraite obligatoire fixé par la plupart des entreprises japonaises correspond à l’âge minimum légal de 60 ans. Il a été suggéré que la pratique de la retraite obligatoire devait être supprimée, car elle donne lieu à une importante rotation des effectifs de travailleurs âgés et elle peut être une cause non seulement de chômage, mais aussi de disparition du capital humain (celui propre à l’entreprise). Toutefois, cette pratique est étroitement liée au système de rémunération à l’ancienneté du Japon et aux règles strictes de protection de l’emploi et, si elle était abolie, les entreprises seraient potentiellement doublement pénalisées sur le plan financier : elles auraient à supporter des coûts de licenciement élevés et des coûts salariaux élevés. Le rôle des rémunérations à l’ancienneté Le système de rémunération du Japon repose toujours essentiellement sur l’ancienneté, bien que certaines indications donnent à penser que les entreprises prennent en compte depuis peu d’autres facteurs, comme l’évaluation des performances. Les courbes des rémunérations en fonction de l’âge montrent que les salaires des hommes augmentent très fortement jusqu’à l’âge de 50-54 ans, mais commencent à baisser par la suite, avec un effondrement entre les salaires du groupe des 55-59 ans et du groupe des 60-64 ans. On peut en déduire que bon nombre des nouveaux emplois que les hommes japonais occupent après la retraite obligatoire sont nettement moins rémunérés. En réponse à la directive du gouvernement visant à garantir l’emploi jusqu’à l’âge de 65 ans, les entreprises introduisent actuellement un système de « maintien dans l’emploi » qui permet aux travailleurs de continuer à travailler dans l’entreprise ou dans une de ses filiales ou un de ses fournisseurs après l’âge légal de la retraite. Toutefois, bien que les entreprises semblent faire preuve de flexibilité pour les salaires des travailleurs ayant la soixantaine, elles sont réticentes à étendre la réforme de leur système de rémunération aux groupes plus jeunes. Le rôle de la protection de l’emploi En principe, le Code civil garantit aux entreprises japonaises le droit de licencier et les seules obligations imposées par la loi sur les normes du travail sont de donner un préavis ou de verser une indemnité de licenciement. 32

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Toutefois, le droit de licenciement a été considérablement restreint au fil des ans par la jurisprudence. Par conséquent, dans la pratique, la protection de l’emploi des travailleurs permanents est très grande comparativement à d’autres pays. Tout affaiblissement de la protection de l’emploi aurait deux effets opposés : il réduirait la sécurité des travailleurs âgés pourvus d’un emploi, mais dans le même temps il augmenterait les chances des chômeurs âgés d’être réembauchés. Naturellement, toute augmentation du taux d’embauche des travailleurs serait très probablement limitée, à moins que des mesures ne soient prises pour résoudre le problème de la discrimination selon l’âge, réduire les salaires élevés calculés en fonction de l’ancienneté, améliorer les compétences des travailleurs âgés et plus généralement stimuler la demande de main-d’œuvre. Le fait de réduire la protection de l’emploi des travailleurs permanents pourrait aussi se traduire par un meilleur équilibre dans le traitement des travailleurs permanents et des travailleurs temporaires. Cela faciliterait la transformation des contrats permanents en contrats temporaires, ce qui serait avantageux pour les travailleurs plus âgés qui préfèrent généralement, surtout après l’âge de 60 ans, avoir des horaires de travail flexibles ou une plus courte durée de travail. Une révision des dispositions relatives à la protection de l’emploi pourrait également avoir une incidence sur l’attitude des salariés à l’égard du système de rémunération et elle pourrait ainsi, paradoxalement, améliorer les perspectives d’emploi des travailleurs âgés. Si les travailleurs risquent davantage d’être obligés de quitter l’entreprise avant de récupérer les salaires dont le versement a été différé, le système de rémunération à l’ancienneté perd de son attrait. S’attaquer à la discrimination selon l’âge Résoudre le problème de la discrimination selon l’âge est une tâche complexe dans un pays comme le Japon, où la question de l’âge est si profondément ancrée dans les pratiques courantes en ce qui concerne l’emploi et la culture. Certaines mesures ont été prises, comme il a déjà été indiqué, par exemple avec l’adoption des Directives gouvernementales visant à dissuader les entreprises de fixer des limites d’âge dans les offres d’emploi. Toutefois, ces directives autorisent de multiples dérogations. Il en résulte que, dans la pratique, les entreprises sont autorisées à fixer des limites d’âge pour les offres d’emploi. Par exemple, les entreprises où la retraite est obligatoire à un certain âge sont autorisées par la loi à fixer une limite d’âge pour le recrutement, si elles font valoir que le poste nécessite une longue formation. Ou bien les entreprises où il existe un système de rémunération à l’ancienneté bénéficient souvent de dérogations, si elles ne peuvent recruter une personne plus âgée à un salaire inférieur en raison de leur propre règlement.

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Mieux cibler les subventions salariales Le Japon accorde des subventions salariales pour le recrutement des travailleurs âgés. Les subventions largement ciblées par groupe d’âge peuvent induire un sentiment de stigmatisation et ne pas être très efficaces en raison d’effets de substitution et d’aubaine. En règle générale, les subventions salariales gagnent en efficacité lorsqu’elles sont plus étroitement ciblées. Il conviendrait de procéder à des évaluations systématiques et rigoureuses de l’efficacité de ces subventions et d’assouplir les critères d’admissibilité, ainsi que les montants accordés en tenant compte de l’évolution de la situation du marché du travail. Recommandations en vue d’une réforme Aucune mesure ne peut à elle seule entraîner une augmentation spectaculaire des taux de maintien dans l’emploi ou d’embauche des travailleurs âgés, surtout dans la conjoncture économique actuelle qui est morose au Japon. De plus, bon nombre des obstacles au maintien dans l’emploi et à l’embauche de travailleurs âgés dans l’entreprise sont intimement liés aux pratiques des employeurs en matière de gestion des ressources humaines et de détermination des salaires. En particulier, il semblerait que les conditions énumérées ci-après devraient être réunies dans tout ensemble de mesures visant à réformer le système de rémunération à l’ancienneté du Japon, les règles de protection de l’emploi et les pratiques de retraite obligatoire ainsi qu’à résoudre le problème de la discrimination selon l’âge : i) la compétence et les performances, et non l’âge, devraient être les principaux facteurs pris en compte pour prendre des décisions sur les ressources humaines et déterminer les salaires, sur la base d’un système rigoureux de spécification des emplois et une évaluation équitable du personnel ; ii) les procédures de licenciement devraient être plus transparentes et moins astreignantes ; et iii) les modalités d’emploi des travailleurs âgés devraient être plus souples. Dans ces conditions, les mesures suivantes seraient à envisager : •

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Limiter encore le recours à la retraite obligatoire. Une solution consisterait à relever progressivement l’âge minimum de la retraite obligatoire – tout en relevant parallèlement l’âge minimum d’ouverture des droits à la pension de vieillesse. Une autre consisterait à abolir le système de retraite obligatoire. Ce dernier choix serait plus difficile à mettre en oeuvre compte tenu de la protection élevée de l’emploi et du système de rémunération à l’ancienneté qui prévalent actuellement. Toute initiative dans cette direction exigerait des consultations appropriées entre les partenaires sociaux et un préavis – de manière à AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

pouvoir ajuster en conséquence les autres pratiques en matière d’emploi et de rémunération. •

Encourager la réforme du système de rémunération à l’ancienneté. Le gouvernement devrait appuyer les efforts faits par les partenaires sociaux pour réformer les pratiques de détermination des salaires en fonction de l’ancienneté en élaborant des directives qui mettraient l’accent sur l’importance à donner aux compétences et aux performances pour fixer les salaires. Il pourrait aussi donner l’exemple en appliquant ces directives dans la fonction publique. Si le recours à la retraite obligatoire était limité, comme il est suggéré ci-dessus, les partenaires sociaux seraient davantage incités à modifier le système de rémunération.

•

Revoir la législation pour la protection de l’emploi. Une législation pourrait être introduite afin de clarifier et simplifier les obligations des employeurs et les droits de leurs salariés en matière de mises à pied et de licenciements. En juin 2003, la loi sur les normes du travail a été révisée afin que la législation reflète les jugements des tribunaux. Il n’est pas certain cependant que l’on soit parvenu à beaucoup plus de clarté dans les règles de licenciement. Il importe que ce genre d’initiative dans ce domaine aille de pair avec un renforcement des mesures destinées à lutter contre la discrimination selon l’âge, tant dans le recrutement que dans le licenciement, l’amélioration de l’employabilité des travailleurs âgés (voir plus loin) et la mise en place d’un meilleur filet de sécurité sociale en général.

•

Continuer à rationaliser le système de subventions salariales pour les travailleurs âgés. Le système japonais de subventions salariales devrait être évalué avec soin afin de déterminer s’il est efficace et s’il serait possible de mieux cibler les subventions pour aider les groupes les plus défavorisés parmi les travailleurs âgés.

•

Renforcer les mesures de lutte contre la discrimination selon l’âge. Les initiatives lancées par le gouvernement pour lutter contre la discrimination selon l’âge devraient être poursuivies. Cela permettrait d’envoyer un message clair aux employeurs et à la société dans son ensemble pour leur faire comprendre que la discrimination selon l’âge ne doit pas être tolérée. A tout le moins, la liste actuelle de dérogations à la fixation de limites d’âge dans le recrutement devrait être révisée et réduite.

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Améliorer l’employabilité des travailleurs âgés Globalement les taux de participation des travailleurs âgés japonais aux activités de formation semblent être relativement élevés comparativement à d’autres pays et ils ne sont guère inférieurs à ceux des travailleurs plus jeunes. Cependant, les femmes suivent beaucoup moins d’activités de formation que les hommes et l’écart dans ce domaine est plus important que dans d’autres pays de l’OCDE. En termes d’intensité de la formation, mesurée soit par le nombre d’heures de formation, soit par les coûts de la formation pour l’employeur, la situation est également un peu moins satisfaisante au Japon que dans d’autres pays de l’OCDE. Enfin, le nombre de travailleurs âgés qui sollicitent l’Allocation à l’éducation et à la formation est assez faible. La raison pourrait en être la réticence en général des travailleurs âgés à suivre une formation, ou bien le faible attrait que le contenu ou le programme des stages en question présente pour eux. Si c’est le cas, les critères de choix des cours de formation devraient être revus en vue d’encourager une plus grande participation des travailleurs âgés aux activités de formation. Il semble donc exister des possibilités d’enrichir et d’élargir l’offre de formation. Compte tenu du taux de chômage relativement élevé des travailleurs âgés, il est essentiel qu’ils aient accès à des services de l’emploi satisfaisants. Les prestations du Service public de l’emploi (SPE) destinées aux travailleurs âgés ont été remarquablement développées en un court laps de temps. Ainsi, des bureaux spéciaux ont été créés pour répondre aux besoins des demandeurs d’emploi âgés ou des travailleurs âgés exerçant encore une activité. Des responsables dans ces services sont spécialement chargés d’offrir des services de placement et d’orientation professionnelle aux travailleurs âgés et de conseiller les employeurs pour le maintien dans l’emploi. Il faut poursuivre cette politique d’amélioration des services et des ressources du SPE. Des formes de travail plus diversifiées ou flexibles seront nécessaires pour répondre à des préférences de plus en plus variées en matière d’emploi. Parallèlement, toutefois, il faudrait moins se polariser sur le statut des travailleurs permanents et temporaires. Les travailleurs permanents bénéficient d’une grande sécurité de l’emploi et d’une bonne couverture de sécurité sociale, ainsi que de perspectives de gains satisfaisantes, mais leurs choix au travail sont limités (par exemple en termes de durée et de lieu de travail, de tâches à accomplir, etc.). Les travailleurs irréguliers ont une faible sécurité de l’emploi, des salaires bas et moins d’accès à la sécurité sociale, alors que dans certains cas ils ont plus de liberté de choix dans leur travail. Les pourcentages de travailleurs âgés à temps partiel sont déjà élevés (environ 30 % et 50 %, respectivement, pour les hommes et les femmes âgés de 60 ans ou plus) et ils 36

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sont en progression. L’amélioration des conditions de travail des travailleurs temporaires pourrait être particulièrement importante pour les travailleurs âgés. Par exemple, des hommes âgés qui actuellement ne travaillent pas pourraient prendre un emploi s’il existait davantage de possibilités de travail à temps partiel et si l’on s’efforçait d’améliorer les conditions de travail dans ces emplois. En outre, une longue durée de travail pourrait être un obstacle qui empêche les travailleurs âgés de continuer à travailler à plein temps. Enfin, certaines des femmes âgées sont confrontées à des problèmes particuliers appelant des mesures spécifiques qui les aident soit à conserver leur emploi, soit à en trouver un. De plus, les femmes de ce groupe, en particulier les célibataires, sont généralement plus exposées au risque de tomber dans la pauvreté. Il n’y a pas de politique spécifique en faveur des femmes plus âgées qui travaillent. Par ailleurs, certaines mesures, comme l’allocation pour la poursuite de l’activité, semblent davantage ciblées sur les hommes âgés que sur les femmes âgées, étant donné que le problème de la retraite obligatoire ou des fortes réductions de salaires touchent un plus petit nombre de femmes qui travaillent que d’hommes. Recommandations en vue d’une réforme Un certain nombre de mesures pourraient s’avérer nécessaires pour améliorer l’employabilité et les conditions de travail des travailleurs âgés, entre autres les suivantes : •

Offrir des possibilités de formation plus complètes et plus nombreuses aux travailleurs en milieu de carrière et aux travailleurs âgés. Il faudra peut-être offrir aux adultes et aux travailleurs âgés beaucoup plus de modules de formation professionnelle bien conçus, qui tirent parti des qualifications que possèdent déjà ces travailleurs, à l’image de ce qui a été fait en Australie ces 15 à 20 dernières années. Cela pourrait attirer un plus grand nombre de candidats et donner de meilleurs résultats que des programmes de formation de plus longue durée. Les programmes auxquels l’Allocation à l’éducation et à la formation donne accès devraient être revus de telle manière qu’un plus grand nombre de travailleurs âgés les suivent.

•

Continuer à améliorer la qualité du SPE. La qualité des services de placement et des services de conseil en gestion de carrière doit encore être améliorée. Il faut continuer à développer le SPE qui a été récemment étoffé, à condition d’évaluer son efficacité. Il conviendrait d’étudier la possibilité de sous-traiter certaines activités à des agences de l’emploi ou services de placement privés et sans but lucratif pour les

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demandeurs d’emploi âgés ayant des besoins particuliers, en s’inspirant de l’expérience des Silver Human Resources Centres. •

Offrir des incitations financières plus avantageuses pour le réemploi des demandeurs d’emploi âgés. D’autres pays de l’OCDE ont introduit des prestations liées à l’exercice d’une activité et des exemptions de gains pour les chômeurs. Avec ces prestations, le risque d’un effet d’aubaine est moins grand qu’il ne l’est avec un autre type de programme car actuellement les chances de réemploi des travailleurs âgés au chômage sont faibles.

•

Améliorer les modalités d’emploi pour le travail temporaire. Il conviendrait de donner aux travailleurs temporaires un meilleur accès au système de sécurité sociale et leurs salaires devraient être alignés sur ceux des travailleurs permanents.

•

Diminuer la durée du travail et améliorer les conditions de travail. Le gouvernement devrait également inciter les employeurs à réduire la durée du travail, éventuellement en fixant des objectifs pour la réduction du temps de travail notamment des travailleurs âgés, ainsi qu’en encourageant de meilleures pratiques pour améliorer plus généralement les conditions de travail des travailleurs âgés.

Autres domaines de réforme Indiquer plus clairement comment les objectifs seront atteints et quels sont les coûts et avantages probables Les objectifs que le gouvernement préconise actuellement sont « l’emploi jusqu’à 65 ans » et « l’emploi à tout âge ». Il semble pour le moment avoir fait porter l’essentiel de ses efforts sur la réalisation de « l’emploi jusqu’à 65 ans », en adoptant un ensemble élargi de mesures ciblées sur les travailleurs âgés, comportant notamment des subventions salariales. Bien que ces mesures aillent assurément dans la bonne direction en termes d’amélioration du maintien dans l’emploi des travailleurs âgés de 60 à 64 ans – qui connaissent actuellement une grande précarité dans l’emploi – elles pourraient entraîner une certaine dégradation de la situation sur le marché du travail des travailleurs âgés de 65 ans et plus par rapport à celle des travailleurs qui ont la soixantaine. Ainsi, lorsque des mesures ont été adoptées pour relever l’âge de la retraite obligatoire à 60 ans, la situation sur le marché du travail du groupe des 60 à 64 ans s’est considérablement détériorée pendant les années 1990 par rapport à celle du groupe des 55 à 59 ans.

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Simultanément, le gouvernement a déclaré que son objectif ultime était « l’emploi à tout âge ». Toutefois, il ne semble pas que l’on fasse passer un message clair quant aux profonds changements à apporter dans les pratiques de gestion des ressources humaines pour atteindre cet objectif et aux difficiles choix politiques que cela implique. Ainsi, il faudra peut-être donner plus de poids au marché du travail externe pour améliorer les possibilités de recrutement des travailleurs plus âgés, mais on ne pourra peut-être le faire qu’au prix d’une moindre sécurité de l’emploi des salariés permanents. Par conséquent, les mesures requises pour atteindre l’objectif de l’emploi à tout âge et leurs conséquences probables sur la situation des travailleurs âgés sur le marché du travail devraient être énoncées plus clairement. Une évaluation systématique des mesures et des programmes est capitale Il faut féliciter les décideurs japonais pour la rapidité avec laquelle ils ont formulé et appliqué de nouvelles mesures destinées à résoudre les problèmes nouveaux auxquels les seniors se heurtent sur le marché du travail. La mise en œuvre de ces mesures doit, cependant, aller de pair avec un programme rigoureux et systématique d’évaluation permettant d’observer ce qui marche et ce qui ne marche pas et de tenir compte de ces enseignements dans la conception et la mise en œuvre des mesures. Il est important également de disposer de statistiques appropriées pour déterminer quelles sont les questions les plus importantes pour les pouvoirs publics et évaluer les résultats des politiques. Au Japon, les statistiques relatives au marché du travail sont généralement de grande qualité. Il existe néanmoins un certain nombre de domaines où des améliorations pourraient être apportées pour mieux appréhender la situation des travailleurs âgés sur le marché du travail et améliorer l’accès aux données. Il pourrait être opportun notamment de réaliser une étude longitudinale permettant de retracer les décisions prises en matière d’emploi et de retraite ainsi qu’une enquête spéciale sur les conditions de travail. Adopter des politiques de l’emploi plus favorables aux familles En termes de mobilisation de l’offre de main-d’œuvre plus généralement, il existe une marge de manœuvre pour augmenter les taux d’activité des femmes d’âge très actif. Ce facteur peut à son tour induire une augmentation des taux d’activité de ces femmes plus tard dans leur vie professionnelle, pour arriver à des taux qui seront plus élevés que ceux des cohortes actuelles de femmes âgées. Les taux d’activité, tant des femmes d’âge très actif que des femmes plus âgées, sont nettement inférieurs à ceux des hommes. L’écart est beaucoup plus important qu’il ne l’est dans de nombreux autres pays de l’OCDE. Bien que la AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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réforme du système de pensions puisse contribuer à cet objectif, il faut également mettre en œuvre des politiques de l’emploi favorables aux familles afin que les Japonaises soient mieux à même et plus désireuses d’établir de plus longues carrières professionnelles. Poursuivre les réformes structurelles Enfin, les mesures qui réduisent les obstacles à la création d’emplois et stimulent la croissance de l’emploi plus généralement sont susceptibles d’être particulièrement profitables aux travailleurs âgés. Par conséquent, il est important que le Japon continue à mener des réformes structurelles de grande envergure. Compte tenu de l’aggravation du chômage déjà élevé des jeunes, ces réformes pourraient aussi contribuer à apaiser les inquiétudes de ceux qui craignent que le prix à payer pour les mesures qui encouragent les travailleurs âgés à rester plus longtemps dans l’emploi soit une aggravation de la situation des jeunes sur le marché du travail. Dans l’ensemble des pays de l’OCDE, on observe de fait une corrélation positive entre la situation de l’emploi des travailleurs âgés et celle des jeunes. En effet, les pays où la diminution des taux d’emploi des travailleurs âgés a été la plus faible ont également enregistré en général la plus faible diminution des taux d’emploi des jeunes et la plus faible hausse du chômage des jeunes. Néanmoins, si un plus grand nombre d’emplois sont créés pour toutes les classes d’âge grâce aux réformes structurelles, les mesures nécessaires pour encourager les travailleurs âgés à rester dans la vie active continueront peut-être à bénéficier d’un large soutien au Japon. Si le Japon parvient à maintenir des taux d’activité élevés pour les travailleurs âgés, il sera également mieux placé pour relever les défis auxquels il est confronté en raison du vieillissement rapide de sa population.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

INTRODUCTION

Japan has one of the oldest populations of all OECD countries. The number of older people is rising rapidly and, by 2050, more than one in three Japanese are likely to be over the age of 65. Japan’s working age population (aged 20-64) has already begun to contract and its total population is likely to reach a peak within the next few years followed by a substantial decline over the next half century. Inevitably, Japan’s labour force will also undergo a steep decline. This, in turn, will lower economic growth at the same time as public expenditures on pensions and health are likely to be rising. A contracting labour force could also result in severe labour shortages in certain occupations. However, the scale and timing of these developments will depend crucially on future trends in the mobilisation of Japan’s potential labour supply. Maintaining high participation rates among the growing ranks of older people and improving job quality will be of particular importance. However, older workers in Japan are already experiencing a number of difficulties in the labour market. Over the long-term this could have a negative impact on their decisions to remain in the labour force and could lead to earlier retirement. Therefore, it is important that appropriate measures are taken now to encourage older workers to remain active in the labour market and to improve their skills and employability. The main purpose of this report is to reflect on the different avenues for reform that will need to be pursued in order to meet this objective. In Chapter 1, the demographic challenges facing Japan are laid out and the importance of improving employment prospects of older workers as the key to meeting these challenges is highlighted. The current labour market situation of older workers in Japan is examined in more detail in Chapter 2 and some of the key problems that they are facing are identified. Potential supply-side barriers to employment of older workers are discussed in Chapter 3, including the impact of Japan’s old-age pension system and other social security arrangements on the work and retirement decisions of older people. A number of possible reforms to strengthen work incentives are outlined. But removing supply-side barriers to employment is not enough; action on the demand side is also needed. Thus, in Chapter 4, an assessment is made of the main factors influencing employer AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

41

attitudes towards older workers and the different options for improving the retention and hiring of older workers. This is complimented in Chapter 5 by an analysis of the different ways to improve the “employability” of older workers through providing more training opportunities and strengthening the role and effectiveness of other labour market programmes, including the public employment service.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Chapter 1 THE CHALLENGE AHEAD

1.

The demographic challenge

According to recent projections, Japan’s population is likely to stop growing before the end of the current decade and is expected to decline substantially over the next half century (see Box 1.1 for more details concerning these projections). Between 2000 and 2050, the population is projected to fall by around 26 million, i.e. back to the levels last recorded in the 1970s or earlier.1 The key factors behind this transition include declining fertility rates and rising life expectancy. Net migration flows have had little impact on demographic trends in Japan.2 The total fertility rate has fallen from just over 2.13 in the early 1970s (i.e. just above the replacement rate) to 1.36 in 2000 (Figure 1.1). Other OECD countries, especially in Europe, have followed a similar pattern. In contrast, fertility rates have been rising gradually in the US since 1976. The low total fertility rate in Japan is projected to continue over the coming decades. The decline in fertility was accompanied by a sharp decline in mortality rates. Consequently, life expectancy at birth has risen rapidly in Japan and in 2000 was 77.6 years for men and 84.6 years for women. These are among the highest in the world. By 2050, it is projected that life expectancy at birth will 1.

In fact, long-range projections by the National Institute of Population and Social Security Research (Population Projection for Japan 2002) suggest that Japan’s population may continue to decline through to 2100, by which time its population would be at the same level as it was in 1930.

2.

Among OECD countries, Japan has one of the lowest shares of foreigners in the total population and labour force. In 1998, the population share of foreigners in Japan was only 1.2%, while that of Switzerland was 19% (OECD, 2001a, Chapter 5).

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rise further to around 81 years for men and to just over 89 years for women. Life expectancy at age 65 has also increased considerably for men and women in Japan and is higher than in almost all other OECD countries. Currently, for workers retiring at age 65 in Japan, they can expect to receive the old-age pension for around 17½ years in the case of men and for around 22½ years in the case of women. Figure 1.1. Life expectancy at birth and fertility rates in Japan, 1970-2050 Actual

Female life expectancy at birth

85

Life expectancy

2.5

Projected

80

2.2

1.9 Male life expectancy at birth

75

1.6

70

1.3

Total fertility rate

45

40

35

30

25

20

15

10

05

00

95

90

85

80

50 20

20

20

20

20

20

20

20

20

20

20

19

19

19

19

19

75

1

70

65

19

Fertility rate

90

Source: National Institute of Population and Social Security Research, Population Projection for Japan: 2001-2050 (medium variant for projections).

Together, these patterns in fertility rates and life expectancy shape the way that Japan’s population will age. A broad indicator of the rising economic burden that an older society may place on the working-age population is given by the old-age dependency ratio, i.e. the ratio of the population aged 65 and over to the population aged 20 to 64.3 At around 28% in 2000, Japan currently has the fifth highest old-age dependency ratio among OECD countries (Figure 1.2). However, Japan’s population is projected to age more rapidly than in most other OECD countries. Consequently, its old-age dependency ratio is projected to be the highest at more than 50% in 2025 and over 70% in 2050.

3.

44

The old-age and total dependency ratios are conventionally defined with respect to the population aged 15 to 64. However, in most OECD countries, teenagers aged 15 to 19 are more often than not still in school and so it was decided to exclude this group from the definition of the working-age population. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Box 1.1. Population projections The population projections used in this report are based on the medium variant of the population projections produced by the National Institute of Population and Social Security Research (2002). The Institute has also produced low and medium variants of 1 its projections based on different assumptions about future fertility rates. In all three variants, Japan’s population is projected to peak before 2010 and to decline subsequently at a relatively rapid rate of between -0.4 and -0.8% per year over the following 40 years. Over the period 2000-2050, this would represent a decline in the total population of between 19 to 35 million. Clearly, the projected decline in Japan’s population may be smaller or bigger than shown in these variants if alternative assumptions were made concerning mortality rates and net migration, as well as fertility rates. For example, the decline in population would be lower if mortality rates decline by more than projected or if net immigration is higher than projected. Nevertheless, these projections suggest that Japan is facing a substantial decline in its population that is likely to begin within the next few years. Consequently, Japan’s labour force is also likely to contract substantially over the course of the next half-century. Population projections: low, medium and high variantsa Millions 130 125 120 115

Historical Low Medium High

110 105 100 95 90 85

19 50 19 55 19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

80

a) The three variants differ in their assumptions about future fertility rates. Source: National Institute of Population and Social Security Research, Population Projection for Japan: 2001-2050. 1.

In 2050, the total fertility rate is projected to be 1.10, 1.39 and 1.63, respectively, according to the low, medium and high variants. This compares with its level in 2000 of 1.36. All of the variants use the same assumptions about mortality rates such that life expectancy at birth rises from 77.6 for males and 84.6 years for females in 2000 to 81.0 and 89.2 years, respectively, in 2050. The same assumption is also made in each variant that Japan’s low rate of net migration, historically, will continue into the future.

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Figure 1.2. Demographic dependency ratios, 2000-2050 Percentages 120

80 a

B. Total dependency ratiob

A. Old age dependency ratio

Japan 110

70 Korea

Czech Rep. Japan

100

60

Korea Germany

Japan 50

Mexico 90

OECD Sweden Sweden Germany

40

30

20

Sweden Japan Germany

US OECD Korea

US Sweden Japan

80

US

Turkey

OECD US

OECD Germany

70

Sweden US OECD

60

Japan Germany Korea

US OECD Germany Sweden

Turkey

Korea Turkey

Turkey 10

0 1975

Korea Mexico

2000

50

2025

2050

40 1975

2000

2025

2050

a) Ratio of the population aged 65 and over to the population aged 20-64. b) Ratio of the sum of the population aged less than 20 and the population aged more than 65 to the population aged 20-64. Source: National projections; EUROSTAT Population Projections (1999 revision); and UN, World Population Prospects 1950-2050 (The 2000 Revision).

These changes in the old-age dependency ratio tell only part of the story about the additional economic burden that may result from population ageing. There will also be fewer children to support. The total dependency ratio takes this factor into account since it is defined as the ratio of the combined population aged less than 20 and 65 and over to the population aged 20 to 64. For Japan, it is projected to rise significantly over the next 25 years from being one of the lowest among OECD countries to being one of the highest. Thus, the rise in Japan’s older population will be greater than the fall in its younger population. In fact, this pattern is projected to continue through to 2050 by which time there will be slightly more than one person of “non-working” age for every person of “working-age” in Japan compared with a ratio of around two to three currently. 46

AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

2.

Potential economic and social impacts

The demographic transition to an aged society will have serious economic and social repercussions. It will create, among other things, a severe strain on public finances. Total public expenditures associated with ageing are expected to rise by 3% of GDP over the next five decades.4 The main component of this increase will be the rise in expenditure on health care and long-term care but expenditures on old-age pensions will also increase. The increase in public expenditures as the population ages, and the associated hikes in taxes and social security contributions that will be required to finance them, could give rise to a number of intergenerational inequities and tensions. Much of this extra burden of taxation will fall on the working-age population while at the same time their political power in terms of voting numbers may be in decline relative to the growing number of older people. This could make the necessary adjustments to cope with an ageing society more difficult in the future. The demographic changes now underway will also have a negative impact on labour force growth. The future size of the labour force will depend not only on demographic changes but also how participation rates change over time. Participation rates are not easy to predict with much accuracy. Therefore, a number of scenarios have been developed which make different assumptions about how participation rates could change over the next half century (Figure 1.3): •

4.

First, in the “constant” or baseline scenario, participation rates by age and gender are assumed to remain constant at their 2000 levels. Accordingly, Japan’s labour force is projected to start contracting within the next decade and will decline to around 45.2 million in 2050 from its level of 67.7 million in 2000.

These OECD projections were made on the basis of similar macroeconomic and demographic assumptions in each OECD country, allowing for meaningful international comparison. For details regarding these projections, see OECD (2001b). However, they may be on the conservative side since other national projections of public expenditures suggest that expenditures on public pensions alone may rise from 12% of national income in 2002 to 15% by 2025.

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a

Figure 1.3. Labour force growth, 1950-2050 Millions, projections after 2000 Historical

Constant

Decline

Maximum

75 70 65 60 55 50 45 40

50

45

20

40

20

35

20

30

20

25

20

20

20

15

20

10

20

05

20

00

20

95

20

90

19

85

19

80

19

75

19

70

19

65

19

60

19

55

19

19

19

50

35

a) The “constant” projections assume that participation rates by five-year age groups and gender remain constant at their 2000 levels. The “declining” projections also assume constant participation rates up to and including the age group 45-49 but for the older age groups they are projected to decline such that by 2030 they are at the same level as the OECD average of these rates in 2000. The “maximum” projections assume that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD member countries in 2000 and remain constant thereafter. Source: OECD estimates based on: labour force surveys for Japan and other OECD countries; and National Institute of Population and Social Security Research, Population Projection for Japan: 2001-2050 (medium variant).

•

48

In the second or “declining” scenario, participation rates for the older population are assumed to converge over the period 2000-2030 to the lower OECD average levels of 2000 and remain constant thereafter. This allows for the possibility that more workers in the future will choose to retire at an earlier age than currently. In this case, the labour force also starts contracting within the next decade but the decline is steeper than in the “constant” scenario. Consequently, the labour force is projected to be only 38.5 million in 2050.

AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

•

Finally, in the “maximum” scenario, participation rates by age and gender are assumed to converge over the period 2000-2030 to the corresponding maximum rate observed across OECD countries in 2000 and remain constant thereafter. 5 In the case of Japan, this results in a particularly steep increase in participation rates for youth and for women up to the age of 60. Under this scenario, the labour force peaks at a level of around 69 million in 2010 before declining to around 53 million in 2050.

These scenarios show a wide range in the size of the labour force over the next half-century but they all point to a contraction in the labour force within the next decade. However, they also suggest that there is considerable scope for changes in policy and institutional settings that affect participation rates to influence the extent of the eventual decline in the labour force. In particular, they point to the importance of ensuring that a high proportion of older people continue to work. For instance, under the baseline scenario, labour force growth over the next two decades is projected to decline by 0.5% per annum following growth of 0.9% per annum in the previous two decades (Table 1.1 and Figure 1.4). Alternatively, under the “declining” scenario, a decline in participation rates for the older population would result in the labour force shrinking at an even faster rate of -0.95% per annum over the next two decades. Under the maximum scenario, labour force growth over the next two decades would actually be marginally positive. In all of these scenarios, the labour force declines at a faster rate after 2020, but again the magnitude of this drop will be larger if participation rates for the older population fall and it will be smaller if there is a general rise in participation rates. Using the same assumptions about participation rates remaining constant at their 2000 levels, these changes in labour force growth can be compared across OECD countries (Figure 1.4). Over the next two decades, labour force growth will be much slower in Japan than on average in the EU or in the OECD area as a whole. Over the period 2020-2050, this gap may even widen further since the rate of decline in Japan’s labour force could be particularly steep. In contrast, the United States is projected to experience a positive and uniform growth in its labour force over the whole of the next half-century.

5.

Excluding Iceland, Luxembourg and Mexico.

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Table 1.1.

Labour force growth under various scenariosa Average annual percentage change

Constant participation rates -0.51 -1.00 -0.80

2000-2020 2020-2050 2000-2050

Maximum participation rates 0.04 -0.83 -0.49

Declining participation rates -0.95 -1.24 -1.12

a) The “constant” projections assume that participation rates by five-year age groups and gender remain constant at their 2000 levels. The “declining” projections also assume constant participation rates up to and including the age group 45-49 but for the older age groups they are projected to decline such that by 2030 they are at the same level as the OECD average of these rates in 2000. The “maximum” projections assume that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD member countries in 2000 and remain constant thereafter. Source: OECD estimates based on: labour force surveys for Japan and other OECD countries; and National Institute of Population and Social Security Research, Population Projection for Japan: 2001-2050 (medium variant). a

Figure 1.4. Labour force growth in OECD countries, 1980-2050 Average annual growth 1980-2000 -1.6

-1.2

2000-2020 -0.8

-0.4

0.0

2020-2050 0.4

0.8

1.2

1.6

0.9 -0.5

Japan -1.0

1.1 OECD

0.4 0.0 0.6

EU

-0.1 -0.5 0.5

France

-0.1 -0.3 0.5 0.2

United Kingdom -0.2

1.4 United States

0.6 0.5

a) The projections of labour force growth over the period 2000-2050 assume that participation rates by five-year age groups and gender remain constant at their 2000 levels. Source: OECD estimates based on: labour force surveys for Japan and other OECD countries; and national and international population projections.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

One of the economic consequences of such a steep contraction in Japan’s labour force is likely to be much slower growth in output. Under the baseline scenario, real GDP growth could decline by about 1.1 percentage points per annum over the next 50 years, relative to the growth rates experienced over the period 1980-2000. 6 The decline under the “declining” and “maximum” scenarios would be around 1.3 and 0.9 percentage points, respectively. However, the impact of slower or negative labour force growth on economic growth could be offset by either a rise in total factor productivity growth or faster growth in capital inputs. Nevertheless, a shrinking labour force could lead to severe labour shortages in certain occupations, especially in those areas such as nursing and long-term care where labour demand will expand as a consequence of rapid growth in the elderly population. 3.

Key issue: employment prospects for older workers

Promoting high rates of labour force participation rates among older people will play a key role in responding to the economic challenges raised by population ageing. The mobilisation of older workers will depend on how long they remain in the labour force before retiring. Figure 1.5 suggests that there has been a long-term decline in Japan in the average effective age of retirement, although it did rise slightly between the late 1980s and early 1990s.7 Population ageing will also be reflected in an older workforce (Figure 1.6). Currently, older workers (i.e. aged 50 and over) account for around 36% of Japan’s labour force. However, assuming participation rates by gender and five-year age groups do not change, 43% of the labour force will be aged 50 and over in 2030. Moreover, the proportion of much older workers (aged 65 and over) is likely to rise from just over 7% of the total labour force in 2000 to over 13% in 2050.

6.

In accounting for output growth, the contribution from labour growth is often given a weight of around 0.65. The slowdown in labour growth of 1.71 percentage points – the difference in the average annual growth rate over the period 1980-2000 (0.91%) and the projected growth rate over the period 2000-2050 (-0.80%) – means that annual average potential growth would decline by around 1.1% (0.65x1.71).

7.

The effective age of retirement refers to the average age at which people aged 40 and over withdrew from the labour force over any given five-year period. It is estimated using information on participation rates and effectively assumes that no exits from the labour markets occur because of death and that the population structure by age remains constant over time.

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Figure 1.5. Average effective retirement age in Japan, 1950-2002a 75 74 73

Men

72 71 70 69 68

Women

67 66 65 64 63

19 6

19 6

065 26 19 7 64 -6 19 9 66 -7 19 1 68 -7 19 3 70 -7 19 5 72 -7 19 7 74 -7 19 9 76 -8 19 1 78 -8 19 3 80 -8 19 5 82 -8 19 7 84 -8 19 9 86 -9 19 1 88 -9 19 3 90 -9 19 5 92 -9 19 7 94 -9 19 9 96 -0 1

62

a) Estimated average age at which individuals older than 40 left the labour force during any given five-year period. The estimates are derived using pseudo cohorts by five-year age groups for persons initially aged 40 and over. They are calculated by weighting the average age of each cohort over a given five-year period by its share of the total decline in participation rates for all cohorts between the beginning and end of the period. Source: OECD estimates based on Labour Force Survey.

Figure 1.6. Japan's ageing labour force over the next 50 years Percentage of the total labour force 15-24 100

25-49

50-64

7.3

9.1

10.8

28.8

28.0

27.6

10.2

65+ 12.7

13.3

90 80

32.7

30.6

29.1

48.2

48.1

48.9

70 60 50 40

52.7

53.7

52.6

11.2

9.2

9.0

8.9

8.6

8.7

2000

2010

2020

2030

2040

2050

30 20 10 0

Source: OECD projections based on Labour Force Survey and National Institute of Population and Social Security Research, Population Projection for Japan: 2001-2050 (medium variant), and assuming constant participation rates by sex and five-year age groups at their 2000 levels.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Chapter 2 THE CURRENT LABOUR MARKET SITUATION

As pointed out in the previous chapter, maintaining high labour force participation rates among older people will be of crucial importance if Japan is to cope with the future challenges of a declining and rapidly ageing population. However, older people in Japan are already facing a number of difficulties in the labour market and this situation could worsen in the future if economic growth remains stagnant while the number of people in the older age groups continues to rise. This could, in turn, have a negative impact on their desire to remain in the labour force. The purpose of this chapter, therefore, is to identify those areas where action may be required to improve the labour market situation of older people. The first section of the chapter examines whether the impact of stagnant economic growth over the past decade has had a negative effect on labour force participation rates of older people in Japan. It also looks at whether there is much scope to increase these participation rates, given that they are already very high by international standards. The second section describes the employment situation of older Japanese workers in terms of where they work and in what type of jobs. It also looks at whether the Japanese practice of “lifetime” employment has been undermined leading to a rise in job insecurity. The third and final sections of the chapter examine unemployment and inactivity among older people. 1.

Recent economic developments and labour force participation

Following the collapse of Japan’s “bubble economy” in the early 1990s, economic growth has been anaemic. GDP rose by only 1.1% per annum over the decade to 2002, at constant prices, compared with a rate of 3.9% during the previous decade. In response, employment fell by 0.2% per annum over the decade to 2002 following growth of 1.3% over the previous decade. Consequently, unemployment has risen from just over 2% of the labour force in 1990 to 5.4% in 2002.

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Despite the generally morose state of the Japanese economy, labour force participation rates for 50-year olds and over have held up surprisingly well and even increased significantly for women (Figure 2.1). For men aged 55-59, there was a slight increase over the 1990s in comparison with almost unchanged participation rates for prime-age men (25-49) and men in their early 50s. For women both in their early and late 50s, participation rates over the past 10-15 years have risen in line or even slightly faster than the long-term trend rise in participation rates for prime-age women. Figure 2.1. Participation rates by age and gender in Japan, 1970-2002 Percentages 15-24

25-49

50-54

55-59

100

100

95

95

90 85

60-64

65+

90

Men

85

80

80

75

75

70

70

65

65

60

60

55

55

50

50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0 1970 1974 1978 1982 1986 1990 1994 1998 2002

Women

0 1970 1974 1978 1982 1986 1990 1994 1998 2002

Source: Labour Force Survey.

For those aged 60 and over, the situation has been very different. For men aged 60-64, participation rates initially rose during the 1990s but have been declining since around 1994. For men aged 65 and over, a similar pattern can be observed, except that their participation rate has fallen to an historic low. For both groups, participation rates in recent years appear to have resumed their long-term trend decline, although the decline has been much steeper for men aged 65 and over than for men aged 60-64. In the case of women aged 60 and over, participation rates have either been stable or have only declined slightly but this needs to be seen against a pattern of strongly rising participation for younger women. It should also be noted that despite some increase over time, 54

AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

participation rates for women in each age group remain well below the corresponding rates for men, except in the age group 15-24. Thus, there would appear to be an increasing degree of polarisation among older Japanese people in participation rates between those in their 50s and those aged 60 and over. Two questions arise. First, to what extent are these differences between age groups and between men and women likely to persist in the future? Second, what scope is there for either raising these participation rates or at least preventing them from declining further, especially in the older age groups? These questions are tackled in more detail in the subsequent chapters, which look at the factors influencing older people’s work and retirement decisions. However, another approach is to check whether participation rates for older people are significantly higher in Japan than elsewhere, which may suggest that there is more of a risk of them declining than of them rising in the future. The comparisons in Figure 2.2 indicate that Japan does indeed have exceptionally high participation rates for older men in comparison with other OECD countries. In 2002, only Iceland had a higher rate for men aged 50-64 and only Mexico, Korea and Iceland had higher rates for men aged 65-74. Thus, the main challenge for Japan will be to avoid any long-term slide or convergence in the participation of older men to the OECD average. For older women, the picture is somewhat different. In 2002, Japan ranked only 11th out of all OECD countries in terms of participation rates for women aged 50-64, although it was third highest for women aged 65-74. Thus, in the case of older women, there would appear to be more scope for some future increase in participation rates. Clearly, these will require measures directed at older women but it will also require measures to raise the participation rate of prime-age women (25-49) – which is currently the 7th lowest out of all OECD countries. An increased participation of women in the labour force when they are younger is likely to be reflected in a higher participation of these women when they become older. In addition, participation rates for both less educated older men and women in Japan are lower than for their better educated counterparts (Figure 2.3). Therefore, policy measures to raise the participation rates of older people, or to maintain these rates at a high level, may need to focus on the less educated. This difference by educational attainment may also imply that participation rates for older people could rise in the future since older people in the future will be better educated than currently. For instance, assuming AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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unchanged participation rates by age and educational attainment, the expected increase in education attainment of the population over the next 25 years would raise the participation rate of older people (aged 50-64) by 1 percentage point from around 72% in 2000 to 73% in 2025. Figure 2.2. Participation rates by age and gender in OECD countries, 2002 Percentages Men aged 50-64

Men aged 25-49

0

20

40

60

80 100

0

20

TUR

40

60

80 100

60

80 100

0

0

20

40

60

80 100

20

40

60

80 100

Women aged 65-74

ISL SWE NOR FIN DNK NZL USA CHE GBR CAN JPN PRT FRA KOR AUS CZE DEU NLD IRL POL SVK OST HUN MEX GRC ESP BEL LUX ITA TUR

ISL SWE FIN DNK SVK NOR CHE CAN OST CZE PRT FRA POL DEU NLD GBR USA BEL NZL AUS HUN IRL LUX JPN ESP GRC ITA KOR MEX

20

40

MEX KOR ISL JPN TUR PRT USA NZL IRL CHE NOR SWE AUS CAN DNK POL GBR GRC NLD CZE ITA FIN DEU OST ESP HUN LUX SVK FRA BEL

Women aged 50-64

Women aged 25-49

0

Men aged 65-74

ISL JPN MEX CHE NZL SWE NOR KOR USA DNK IRL CAN PRT GBR CZE ESP AUS NLD GRC FIN DEU FRA SVK ITA OST LUX TUR POL BEL HUN

ISL MEX JPN CHE LUX CZE GRC FRA OST NLD SVK DEU PRT BEL ESP DNK IRL GBR CAN KOR ITA FIN USA NZL NOR AUS TUR POL SWE HUN

KOR ISL JPN PRT MEX USA TUR NOR CHE NZL POL GBR CAN AUS SWE DNK IRL CZE GRC NLD DEU OST FIN ITA ESP HUN FRA BEL LUX SVK

0

20

40

60

80 100

Source: European Labour Force Survey and national labour force surveys.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Figure 2.3. Participation rates for older people (50-64) in Japan by level of educational attainment, 2001 Percentages Primary

Secondary

Tertiary

100 95 90 85 80 75 70 65 60 55 50 45 40 Total

Men

Women

Source: OECD estimates based on the Labour Force Survey and Special Survey of the Labour Force Survey.

2.

The employment situation of older people

Future participation rates for older people will also be influenced by the type of jobs they can get and their workplace environment. In terms of their current job characteristics, older workers in Japan are more likely than younger workers to be either self-employed, family workers or directors (Table 2.1). On the one hand, over two-thirds of all self-employed are over the age of 50 compared with just over a third for all persons in employment. For family workers this proportion is three-fifths and for directors it is almost two-thirds. Compared with all employees, older workers also make up a higher proportion of daily workers. On the other hand, just over a quarter of all ordinary employees are older workers. Altogether, only around 60% of all older workers are regular employees. By occupation, older workers are more likely than younger workers to be managers and officials, agricultural workers, transport and communications workers in the case of men, and craft and trades workers and ordinary labourers in the case of women. They tend to be under-represented as professional and technical workers, and as clerical and related workers, especially in the case of women. Overall, almost 45% of older workers are working in potentially physicallydemanding jobs as manual workers.8 8.

Manual occupations include “agricultural, forestry and fishery workers”, “transport and communications workers”, “craft and related trade workers” and “labourers”.

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57

Table 2.1. Japanese older workers by selected job characteristics, 2002 Percentages Older workers (aged 50 and over) in each category: As a share of all employed persons in each category

As a share of all older workers

Total

Men

Women

Total

Men

Women

37.0

37.8

35.9

100.0

100.0

100.0

Self-employed

68.7

70.1

64.6

19.6

24.5

12.1

-- Agriculture

87.6

88.1

85.0

4.8

6.8

1.8

-- Non-agricultural industries

64.1

65.3

61.3

14.8

17.8

10.2

Family worker

61.3

25.9

68.8

8.0

1.1

18.3

-- Agriculture

76.0

41.2

79.8

3.2

0.5

7.2

-- Non-agricultural industries

53.7

17.1

62.2

4.7

0.5

11.0 69.0

All employed Employment status

Employee

31.7

33.1

29.7

72.1

74.1

-- Agriculture

53.8

45.5

62.5

0.9

0.7

1.1

-- Non-agricultural industries

31.6

33.0

29.5

71.3

73.4

67.9

. Regular employee

31.3

32.6

29.1

61.2

67.0

52.2

-- Ordinary employee

28.1

28.8

26.8

50.1

53.2

45.2

-- Director

65.6

65.4

66.0

11.0

13.8

6.9

. Temporary employee

32.1

36.7

29.9

8.2

4.9

13.2

. Daily employee

37.9

40.4

35.9

1.9

1.5

2.5

Professional and technical worker

24.0

27.4

19.8

9.1

9.4

8.6

Manager and official

73.8

74.4

77.8

5.9

8.8

1.5

Clerical and related worker

28.7

34.3

25.2

15.0

11.5

20.4

Occupation

Sales worker

34.2

32.2

37.7

13.6

13.3

14.2

Security worker and service worker

36.8

33.1

39.7

11.3

7.4

17.1

Agricultural, forestry and fishery worker

77.0

74.6

80.3

9.6

8.9

10.5

Transport and communications worker Production process worker and labourer

44.1

45.5

27.3

4.0

6.4

0.3

39.8

36.2

48.5

30.9

33.5

26.7

Source: Labour Force Survey.

In terms of their current workplace characteristics, older workers in Japan are more likely than younger workers to be employed in mining and agriculture and in the personal services sector (Table 2.2). They are less likely to be working in public utilities, professional services, amusement services and in government administration. They are also more likely to be employed in smaller enterprises, with the proportion of older workers falling steadily as the size of enterprise increases. Overall, just under 40% of all older workers are employees of enterprises with less than 100 employees compared with around 25% who are employees of enterprises with 100 or more employees.

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Table 2.2. Japanese older workers by selected workplace characteristics, 2002 Percentages Older workers (aged 50 and over) in each category: As a share of all employed persons in each category

As a share of all older workers

Total

Men

Women

Total

Men

Women

37.0

37.8

35.9

100.0

100.0

100.0

Agriculture, forestry and fishing

76.7

74.4

78.7

9.7

8.8

10.7

Mining

40.0

50.0

0.0

0.1

0.1

0.0

Construction

39.8

39.9

39.1

10.5

14.9

3.9 17.7

All workplaces Industry

Manufacturing

36.9

35.3

40.1

19.2

20.2

Public utilities

26.5

24.1

20.0

0.4

0.5

0.1

Transport and communication

36.7

39.1

26.0

6.3

9.0

2.1

Wholesale trade

34.2

36.5

29.4

5.4

6.4

3.8

Retail trade

36.1

35.2

36.6

12.0

8.3

17.5

Food and drinking places

35.3

29.3

39.8

4.4

2.4

7.5

Finance, insurance and real estate

34.4

40.5

27.8

3.5

3.6

3.4

Professional services

29.4

36.3

24.0

9.9

8.8

11.4

Other services

35.6

35.8

35.3

15.4

12.7

19.5

Other government services

28.1

29.4

23.4

2.6

3.5

1.2

Private/public sector (employees only) Private sector

32.0

33.2

30.1

65.3

66.7

63.1

Public sector

29.4

31.6

25.9

6.8

7.4

5.9

Workplace size (non-agricultural private sector employees only) (No. of employees) 1-4

45.3

45.1

45.9

8.0

7.4

8.9

5-29

34.9

36.4

33.3

19.7

19.3

20.4

30-99

32.9

34.5

31.1

12.1

12.1

12.2

100-499

28.7

30.6

25.9

11.4

11.9

10.6

500-999

26.0

27.7

22.1

3.4

3.8

2.7

1000+

24.9

27.1

21.1

9.3

11.0

6.9

Source: Labour Force Survey.

Those sectors or occupations where older workers account for a relatively high proportion of the workforce have tended to be the ones experiencing the greatest declines in total employment over the past decade. For instance, there is a negative correlation (-0.53) between the proportion of older workers in total employment in each sector in 2001 and the growth in total employment over the

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59

1990s in the corresponding sector (Figure 2.4). 9 The textile industry, in particular, experienced a large fall in employment of over 40% between 1990 and 2000 and more than half of all of the remaining workers in this industry are older workers. Similarly, there is a negative correlation (-0.75) between employment shares of older workers and job growth by occupation (Figure 2.5).10 In particular, there has been a large fall in employment among managers and officials who tend to be mostly older workers. At the other end of the scale, there has been a very strong increase in employment for professional workers and technical workers, of whom less than one quarter are older workers. Figure 2.4. Employment share of older workers, 2001, and overall job growth by industry, 1990-2000

Employment share, 2001

Percentages 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

1

3 6

14

7 12 8 9

18 4

10

-50 -45 -40 -35 -30 -25 -20 -15 -10 -5 1 = Agriculture 2 = Mining & construction 3 = Textiles 4 = Heavy chemicals 5 = Other chemicals 6 = Iron & steel 7 = Fab. metal products

20

5

0

2 11 15 13 17 16 22 24 19

23

21

5 10 15 20 25 30 35 40 45 50

Employment growth, 1990-2000 (%) 8 = Machinery 14 = Clothing & 9 = Electrical equipment household goods 10 = Transport equipment 15 = Food & drink 11 = Food, drink, tobacco 16 = Other retail trade 12 = Other manufacturing 17 = Restaurant 13 = Utilities, transport & 18 = Finance, insurance communications & real estate

19 = Professional service 20 = Personal service 21 = Business service 22 = Amusement service 23 = Other service 24 = Government

Source: Labour Force Survey.

9.

This correlation is stronger for men (-0.61) than women (-0.49) and remains significant even when the agricultural sector, which is an outlier, is excluded.

10.

Again, this correlation is stronger for men (-0.80) than for women (-0.68) and remains significant even when agricultural workers are excluded.

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AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Figure 2.5. Employment share of older workers, 2001, and overall job growth by occupation, 1990-2000

Employment share, 2001 (%)

Percentages 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

8 4

11

9 10

7

6 5

2

3 1

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Employment growth, 1990-2000 (%) 1 = Technician 2 = Teacher 3 = Other professional & technical worker 4 = Manager & official

5 6 7 8

= Clerical & related worker = Sales worker = Service worker = Agricultural, forestry & fishery worker

9 = Transport & communications worker 10 = Craftsman, manufacturing, mining & construction worker 11 = Labourer

Source: Labour Force Survey.

A.

Lifetime employment and job security under strain

Japan has been characterised as having a strong system of “lifetime” employment (JIL, 2002). However, some observers have claimed that, in the face of weak economic growth and the need for corporate restructuring, this system may be coming under strain (see, for example, Casey, 2002). This section first looks at the extent to which Japan’s lifetime employment system guarantees job security for older workers and whether there are signs that this system is becoming less important. Average job tenure provides one indication of how widespread lifetime employment practices are in Japanese enterprises. For example, if all workers in the age group 55-59, i.e. just prior to the common mandatory retirement age of 60 (see Chapter 3), have spent their entire career with the same employer, they would have average job tenure of around 35 to 40 years, depending on when they left school. In the largest firms, there is indeed evidence of considerable job stability for men prior to the age of 60. Average tenure is 30 years for men aged 55-59 in firms with 1 000 employees or more (Figure 2.6). However, in smaller firms, especially those with less than 100 workers, average job tenure is much lower and, hence, job stability is also AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

61

lower in these firms. The flattening of the curve between the ages 50-54 and 55-59, especially in the small and medium-sized enterprises, suggests that some men leave their jobs through early retirement programmes or as a result of company restructuring before the common mandatory retirement age of 60. For women, average job tenure is much lower than for men in all age groups under 65 and firm sizes. While this may be partly explained by career breaks because of childcare and caring for elderly relatives it also points to very poor career prospects for Japanese women. Relatively few older women acquire much seniority and so there is a high risk for older working women of being employed in low-paid jobs. Figure 2.6. Job tenure by age, gender and firm size in Japan, 2002 Years 10-99 35

100-999

1000+

35

Men

Women

25

25

20

20

15

15

10

10

5

5

0

0 65 +

30

20 -2 4 25 -2 9 30 -3 4 35 -3 9 40 -4 4 45 -4 9 50 -5 4 55 -5 9 60 -6 4

30

4 9 4 9 4 9 4 9 4 -6 -5 -5 -4 -4 -3 -3 -2 -2 60 55 50 45 40 35 30 25 20

+ 65

Source: Basic Survey on Wage Structure.

These job tenure profiles thus suggest that while male workers in large firms benefit from lifetime employment, this is a much less common occurrence for female workers in firms of all sizes and for all workers in smaller firms.11 They also suggest that Japan’s lifetime employment system only provides a guarantee of a job within the same enterprise up to the age of 60, but not necessarily beyond this age. After the age of 55-59, there is a sharp fall in job tenure that is most pronounced for men in the largest firms. This fall is less pronounced for women and average job tenure subsequently picks up for women aged 65 and over. 11.

62

The data in Figures 2.6 and 2.7 refer to regular workers only and average job tenure would be somewhat lower if the increasing share of non-regular workers were also included. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Figure 2.7. Job tenure by age and gender in selected OECD countries, 2000 Germany 24 22

20

20

18

18

16

16

14

14

+ 65

60 -6 4

55 -5 9

50 -5 4

45 -4 9

20 -2 4

+ 65

60 -6 4

0 55 -5 9

0 50 -5 4

2

45 -4 9

4

2

40 -4 4

6

4

35 -3 9

8

6

30 -3 4

10

8

25 -2 9

US

12

10

35 -3 9

12

UK

Women

30 -3 4

Years

22

20 -2 4

Years

France

40 -4 4

Korea

Men

25 -2 9

Japan 24

a) The data for Japan and Korea refer to regular workers in enterprises with 10 or more regular workers, excluding the agricultural, hunting forestry, fishing and general government sectors. The data for the other countries are based on labour force surveys covering all workers. Source: Japanese Basic Survey on Wage Structure; Korean Wage Structure Survey; European Labour Force Survey; and Job Tenure Supplement to the US Current Population Survey.

The sharp drop in average job tenure after the age of 60 in Japan, especially for men, can be contrasted with the situation in other OECD countries (Figure 2.7). In France and Germany, average job tenure for men declines only slightly (France) or continues to rise (Germany) between the ages 55-59 and 60-64. In Korea, on the other hand, average job tenure falls steeply at an earlier age than in Japan. Interestingly, for men in the age groups 60-64 and 65 and over, average job tenure is almost the same in Japan as in the UK and the United States. In these latter two countries while average job tenure is much lower than in Japan for prime-age workers (25-49), there is also much less of a drop in tenure after the age of 60. While average job tenure for workers in their 50s is high in Japan relative to other countries, has there nevertheless been a decline in job security for older workers in Japan? Over the past two decades, average job tenure has increased for older workers (aged 50-64) in Japan, although some flattening in the trend rise occurred during the 1990s (JIL, 2002). This would appear to indicate an increase in job security for these workers.

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63

However, these changes in average job tenure provide only an indirect measure of whether the risk of job loss among Japanese workers in their late 50s has risen or not. Moreover, they will also be affected by compositional changes. For instance, average job tenure will rise by more if it is workers with the shortest job tenure who lose their jobs than in the opposite case. Moreover, some workers who are retired from their jobs may not subsequently find a new job or may move outside of the scope of the survey, e.g. in the case of Japan’s establishment survey of regular workers, they switch to a daily job or become self-employed. Thus, the rise in average job tenure may be overstated as the shorter or zero years of tenure of these (former) workers are not taken into account. An alternative indicator, which takes into account some of the drawbacks of using average job tenure to measure job stability, is the five-year retention rate, i.e. the proportion of all workers who are still working with the same employer five years later.12 In general, retention rates tend to be humped shape with age (Figure 2.8). Typically, they are low for younger workers, since they change jobs relatively frequently or “job shop” while making the transition from school to work, and then rise with age as workers become more settled in their careers. They subsequently decline at the older ages as workers either reach the official or mandatory retirement age or, where this possibility exists, take advantage of an early retirement scheme. Of course, these retention rates will reflect both voluntary and involuntary quits and so, for older workers, the decline in their retention rates may also reflect involuntary job loss rather than just voluntary retirement. A comparison of retention rates confirms that there is generally more job stability for younger men in Japan than in the other OECD countries shown in Figure 2.8. However, with the exception of Korea, retention rates in these other countries continue to rise with age for men through to their mid to late 40s. In Japan, they peak much earlier, albeit at a higher level. For men aged 35-39 in 1995, more than 80% of them were still working in the same enterprise in 2000. This falls to around 65% for men who were in their early 50s in 1995. Between the ages 55-59 and 60-64, the rates drop sharply to around 20%, well below the rate in the UK and the US. Thus, while the UK and the US are generally noted for having highly flexible labour markets, there appears to be greater job security for older workers in these two countries than in Japan. 12.

64

These retention rates are estimated using cross-sectional data on job tenure rather than from directly observing job retention. They are calculated by taking the ratio of the number of workers in any given five-year age group, with at least five years of job tenure, to the total number of workers in the preceding age group five years earlier. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Figure 2.8. Retention rates by age and gender in selected OECD countries, 1995-2000a Percentages France

65 +

0 55 -5 9

10

0

50 -5 4

10

45 -4 9

20

US

Women

40 -4 4

20

20 -2 4

30

60 -6 4

40

30

55 -5 9

50

40

50 -5 4

50

45 -4 9

60

40 -4 4

70

60

35 -3 9

80

70

30 -3 4

80

25 -2 9

90

35 -3 9

Men

90

20 -2 4

UK

100

30 -3 4

100

Korea

25 -2 9

Japan

a) Retention rates refer to the proportion of workers in 1995 (1996 in the United States) who were still with the same employer five years later (four years later in the United States). The age groups refer to a worker’s age in 1995 (1996). The data for Japan and Korea refer to regular workers in enterprises with ten or more regular workers, excluding the agricultural, hunting forestry, fishing and general government sectors. The data for the other countries are based on labour force surveys covering all workers. Source: Japanese Basic Survey on Wage Structure; Korean Wage Structure Survey; European Labour Force Survey; and Job Tenure Supplement to the US Current Population Survey.

For women, retention rates are significantly lower than for men in Japan, especially for prime-age women (Figure 2.9). In fact, this gap is considerably larger than in any of the other OECD countries shown in Figure 2.8. The retention rate also tends to be lower for workers with fewer educational qualifications, although this gap narrows for older men. Over time, five-year retention rates have declined slightly for prime-age men and women but increased for workers aged 50-54. This latter trend may be linked to the rise that took place in the legal minimum age for mandatory retirement in firms from 55 to 60 (as discussed in Chapter 4). For workers aged 55-59, there has been a decrease in retention rates from levels that were already quite low. The drop was particularly noticeable in the latter half of the 1990s, which may reflect the poor state of the economy. The rise in retention rates for workers in their early 50s and the decline for workers in their late 50s may indicate that firms have held onto workers past the age of 55 and up to the age of 60, as required by the government, but have shifted some of the burden of employment adjustment onto workers aged 60 and over instead.

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65

a

Figure 2.9. Retention rates by age and gender in Japan, 1980-2000 Percentages 1980-1985 100

1985-1990

Men

90

1990-1995 100

Women

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

1995-2000

0 <25

25-49

50-54

55-59

<25

25-49

50-54

55-59

a) Retention rates refer to the proportion of workers who were still with the same employer five years later. The age groups refer to a worker’s age at the beginning of each five-year period. The data refer to regular workers in enterprises with ten or more regular workers, excluding the agricultural, hunting forestry, fishing and general government sectors. Source: Basic Survey on Wage Structure.

These trends in five-year retention rates can be compared with annual data on separation rates, i.e. the proportion of all employees who left their job in any given year. Based on this measure, it would also appear that the risk of job loss has remained fairly stable over the 1990s for workers in their 50s but has increased considerably for workers aged 60 and over, especially for those aged 60-64 (Figure 2.10). At the beginning of the 1990s, the annual separation rate for workers aged 60 64 was around 28% for men and 20% for women. By 2000, this had risen to 38% for men and 30% for women. Of course, these separations include both voluntary and involuntary job loss. Therefore, some of the rise in separation rates for older workers may represent a rise in the rate of voluntary quits. However, the data on the reasons for job separations show that the proportion of involuntary quits for both men and women in the older age groups rose over the 1990s. The data also reveal significant differences across age groups and by gender in the relative proportion of job separations that are involuntary (Table 2.3). For example, almost three-quarters of job separations for prime-age workers (25-49) in 2001 were for personal reasons. However, the proportion who left their jobs “involuntarily” at the initiative of the firm rises steeply from 13% for prime-age workers to between 25-30% for workers in their 50s. For workers aged 60-64, the principal reason for job loss is because of reaching the mandatory retirement age, accounting for over 50% of all separations in the case of men. For workers 66

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aged 65 and over, the main reasons for job loss are the expiration of a fixedterm contract and for personal reasons. Moreover, the rise in separation rate for workers in the older age groups has not been matched by any increase in their hiring rates (i.e. the proportion of all employees who were hired during the year). In other words, the substantial gap between the number of older workers aged 60 and over that lose their jobs and those that are hired in any given year increased further during the 1990s (Figure 2.10). A smaller deficit in hirings relative to job separations also exists for workers aged 55-59, but this has remained more or less stable during the past decade. Figure 2.10. Hiring and separation rates for older workers versus all workers, 1991-2001 Annual hirings and separations as a percentage of all regular employees n each age group All ages 45

50-54 Hiring rate, men

55-59 45

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

45

Separation rate, women

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

Hiring rate, women

Separation rate, men

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

45

65+

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

40

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

40

60-64

a) The data refer to regular workers in enterprises with five or more regular workers, excluding the agricultural, forestry, fishing and general government sectors. Source: Survey on Employment Trends. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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Table 2.3. Job separations in Japan by reason, 2001 Percentages

25-49

50-54

55-59

60-64

65+

Total Total Expiration of contract Firm's reason -- Temporary transfer -- Transfer to previous firm Mandatory retirement Employee's own fault Personal reason Sickness, injury, death

100.0 7.7 12.7 2.0 2.2 4.5 73.8 1.2

100.0 10.9 29.4 3.6 2.8 3.8 52.6 3.3

100.0 11.9 24.5 2.5 2.4 6.5 3.3 50.2 3.5

100.0 18.1 8.3 0.8 0.5 47.6 1.6 21.3 3.0

100.0 35.3 7.9 0.1 0.0 17.9 0.8 33.2 5.0

Men Total Expiration of contract Firm's reason -- Temporary transfer -- Transfer to previous firm Mandatory retirement Employee's own fault Personal reason Sickness, injury, death

100.0 6.5 18.4 3.3 4.2 5.8 67.9 1.4

100.0 6.7 38.1 5.9 5.3 4.0 46.7 4.5

100.0 9.5 31.5 3.8 4.3 7.2 3.9 44.0 4.0

100.0 17.2 8.3 0.5 0.7 51.6 1.5 17.8 3.6

100.0 37.3 7.4 0.0 0.0 17.3 0.7 31.9 5.5

Women Total Expiration of contract Firm's reason -- Temporary transfer -- Transfer to previous firm Mandatory retirement Employee's own fault Personal reason Sickness, injury, death

100.0 8.9 7.6 0.8 0.4 3.4 79.2 0.9

100.0 15.3 20.3 1.2 0.1 3.5 58.8 2.1

100.0 15.0 15.9 0.9 0.0 5.7 2.7 57.9 2.9

100.0 20.3 8.4 1.4 0.0 37.9 1.9 30.0 1.5

100.0 30.9 8.8 0.4 19.3 1.0 36.0 4.1

- No one in this category. a) The data refer to regular workers in enterprises with five or more regular workers, excluding the agricultural, forestry, fishing and general government sectors. Source: OECD estimates based on the Survey on Employment Trends.

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3.

Unemployment among older people

Trends in unemployment rates also confirm that older workers are facing increasing difficulties on the labour market in Japan. Since the early 1990s, unemployment has risen for all age groups and for both men and women (Figure 2.11). However, the biggest rise has occurred for men aged 60-64 as well as for younger people aged 15-24. The unemployment rate for men aged 60-64 has doubled from around 5% in 1992 to over 10% in 2001. Over the same period, the unemployment rate for men aged 55-59 has been closely following the rate for prime-age men (25-49), whereas previously it had been consistently higher. Again, this suggests that the government’s policy of raising the legal minimum age of mandatory retirement may have improved job security for men in their late 50s but at the expense of men in their early 60s. Figure 2.11.

Unemployment rates by age and gender in Japan, 1970-2002 Percentages

15-24

25-49

50-54

55-59

60-64

65+

12

12

Men

Women

11

11

10

10

9

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0 1970 1974 1978 1982 1986 1990 1994 1998 2002

0 1970 1974 1978 1982 1986 1990 1994 1998 2002

Source: Labour Force Survey.

For older women, their unemployment rates have remained consistently below the rate for prime-age women. This may possibly reflect a tendency among older women to drop out of the labour market altogether during an economic downturn.

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The higher unemployment rates for older men than for younger men do not reflect a higher rate of voluntary job quits. In fact, among older unemployed men in 2002, 79% of those who had left a job had done so for involuntary reasons, including 32% because of mandatory retirement (Table 2.4). For prime-age men, the comparable figure was only 51%. The incidence of involuntary job loss was also higher for older women than for prime-age women. Table 2.4. Unemployment in Japan by reason, 2002 Percentages

Total Total (declared) Entering labour market Quitted joba of which: Voluntarily Involuntarily Mandatory retirement or term of employment agreement ended Men Total (declared) Entering labour market Quitted joba of which: Voluntarily Involuntarily Mandatory retirement or term of employment agreement ended Women Total (declared) Entering labour market Quitted joba of which: Voluntarily Involuntarily Mandatory retirement or term of employment agreement ended

of which: 50-54 55-59 60-64

Total

<25

25-49

50+

65+

100.0 23.4 76.6 (100) 47.1 52.9

100.0 47.1 52.9 (100) 71.9 28.1

100.0 19.3 80.7 (100) 55.1 44.9

100.0 14.5 85.5 (100) 25.6 74.4

100.0 13.9 86.1 (100) 37.9 62.1

100.0 11.5 88.5 (100) 30.4 69.6

100.0 11.4 88.6 (100) 10.3 89.7

100.0 25.0 75.0 (100) 22.2 77.8

13.6

6.3

5.1

28.9

3.4

8.7

65.5

44.4

100.0 18.9 81.1 (100) 40.0 60.0

100.0 50.0 50.0 (100) 72.2 27.8

100.0 14.3 85.7 (100) 49.4 50.6

100.0 11.0 89.0 (100) 21.1 78.9

100.0 8.3 91.7 (100) 33.3 66.7

100.0 5.6 94.4 (100) 25.0 75.0

100.0 7.1 92.9 (100) 8.0 92.0

100.0 27.3 72.7 (100) 22.2 77.8

16.4

5.6

3.9

32.4

4.8

12.5

68.0

44.4

100.0 29.9 70.1 (100) 58.7 41.3

100.0 44.8 55.2 (100) 73.3 26.7

100.0 26.6 73.4 (100) 66.0 34.0

100.0 24.1 75.9 (100) 30.0 70.0

100.0 23.1 76.9 (100) 37.5 62.5

100.0 25.0 75.0 (100) 28.6 71.4

100.0 28.6 71.4 (100) 33.3 66.7

100.0 0.0 100.0 (100) 0.0 100.0

9.8

6.7

7.5

20.0

0.0

14.3

66.7

100.0

a)

Quitted job involuntarily refers to the following reasons: “close down of business”; “dismissal”; “slump in business”; “company convenience”; and “retiring age or similar reason”. Quitted job voluntarily refers to all other reasons. Source: Labour Force Survey (Detailed Tabulation).

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Once unemployed, older people in Japan, as in other OECD countries, face considerable difficulties in finding a job. In 2002, 36% of the older unemployed had been unemployed for one year or more compared with 30% for the primeage unemployed and only 22% for unemployed youth (Table 2.5). In general, the incidence of long-term unemployment is higher for men than for women. Table 2.5. Incidence of long-term unemployment in Japan by age a and gender, 2002 Percentages

Total 15-24 25-49 50+ of which: 50-54 55-59 60+

Total 30.3 21.5 29.9 36.1

Men 35.5 25.6 38.1 38.5

Women 22.2 21.4 20.5 28.6

34.3 36.0 39.6

36.4 37.5 40.5

23.1 25.0 50.0

Proportion of all unemployed in each group (who declared their duration of unemployment) who have been unemployed for one year or more. Source: Labour Force Survey (Detailed Tabulation).

a)

4.

Inactivity among older people and potential labour supply

Some older people who are currently not in the labour force would like to work if suitable jobs became available. Thus, measures that increased job opportunities for older people would not only help to boost labour supply by reducing unemployment but also by drawing these older “discouraged workers” back into the workforce. A discouraged worker can be broadly defined as someone who is currently outside of the labour force, i.e. neither working nor actively looking for work, but who would nevertheless like to work. Using this broad definition, 4% of the population aged 45-64 in 2002 were discouraged workers (Table 2.6). For men, there is a sharp rise in the proportion of discouraged workers after the age of 55, mainly reflecting the fact that relatively few men are inactive prior to this age. Unlike for men, the proportion of women who are discouraged workers is actually much higher in the 25-44 age group than in the older age groups, and it is much higher than for men in all age groups prior to the age of 65. Of course, not all of these older discouraged workers would take up jobs even if they were presented with suitable offers. In fact the proportion of the population aged 45-64 who were “discouraged” workers falls to 2% when only AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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those who were also available to take up a job are taken into consideration. Nevertheless, there would appear to be some margin in Japan for boosting its labour supply both by lowering unemployment but also by encouraging older people outside of the labour force to take up jobs. In the case of women, there is clearly a potential to boost labour supply at the younger ages as well. Table 2.6. Inactivity and the desire for work in Japan, 2002 As a percentage of the total population in each age and gender groupa

25-44 45-54 Total Not in the labour force 18.5 16.8 Want to work 6.6 3.7 Available 2.0 1.8 Not available 4.6 1.7 Want to work, by reason not seeking work: Temporary illness 0.5 0.9 No job prospects 1.8 1.9 Other 4.2 0.8 Men Not in the labour force 3.3 3.3 Want to work 1.0 0.8 Available 0.2 0.2 Not available 0.7 0.6 Want to work, by reason not seeking work: Temporary illness 0.3 0.6 No job prospects 0.3 0.1 Other 0.3 0.1 Women Not in the labour force 34.0 30.2 Want to work 12.3 6.4 Available 3.6 3.5 Not available 8.6 3.0 Want to work, by reason not seeking work: Temporary illness 0.6 1.2 No job prospects 3.5 3.6 Other 8.0 1.6

55-64

65+

34.4 3.5 2.0 1.5

79.1 1.4 0.8 0.6

0.7 2.1 0.6

0.3 0.8 0.3

17.1 2.4 1.3 0.9

68.2 2.0 1.2 0.7

0.6 1.3 0.4

0.5 1.2 0.2

50.6 4.6 2.6 1.9

87.1 1.1 0.6 0.4

0.8 2.9 0.8

0.2 0.6 0.1

Because of rounding and non-response, the sub-totals may not always add up exactly to the totals. Source: Labour Force Survey (Detailed Tabulation).

a)

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Chapter 3 STRIKING THE RIGHT BALANCE: INCOME SUPPORT FOR OLDER PEOPLE AND WORK INCENTIVES

Striking the right balance between guaranteeing an adequate income for the elderly while not undermining work incentives is a challenge facing all OECD countries. Therefore, the purpose of this chapter is to examine the details of the current income support arrangements for the elderly in Japan and to assess the likely impact of these arrangements on the retirement decisions of older workers. The impact of other welfare benefits, more generally, is also briefly examined. 1.

An overview of Japan’s pension system

A.

The three-tier scheme

The Japanese pension system can be characterised as a pay-as-you-go, defined-benefit scheme. It consists of three main tiers (Figure 3.1). The first tier, the National Pension (NP), consists of a mandatory universal flat-rate basic pension. The second tier, Employees’ Pension Insurance (EP), comprises a mandatory earnings-related pension for all private-sector employees aged less than 70.13 The third tier consists of various types of voluntary (mainly definedbenefit) corporate pension schemes. The main schemes are the Employees’ Pension Funds (EPF) and the Tax-Qualified Pension Plan (TQP), as well as various types of retirement allowance schemes.14

13 .

Some employees in the business office or the work places of public bodies are also covered by the EP under certain conditions, and the employees in the following work places are not compulsorily covered: small office home office of agriculture, forestry, and fisheries industry, service sector, leisure industry, and religious circles with less than five employees.

14 .

To be more precise, EPFs include an opting out portion of the EP, the second tier, and so provide a part of EP benefits from their funds. Therefore, the role of EPFs has legally both the characteristics of a public pension and a corporate pension.

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Government employees and private school teachers are covered by Mutual Aid Associations Pension Schemes (MAAPS), which have mixed characteristics of schemes in the second and third tiers. Self-employed people are covered by the first tier and have their own voluntary third tier scheme, the National Pension Fund (NPF). In addition, there are many kinds of individual pension schemes. More recently, a defined-contribution and a new corporation pension schemes have also been introduced as a part of the third tier. Figure 3.1. A summary of Japan’s pension system DCP: Defined DCP: Defined Contribution Plan Contribution Plan (Individual-based) (Corporation-based) NPF: EPFs: National Employees' Pension Pension

Tier 2: mandatory and income-related schemes

Tier 1: mandatory and flat-rate scheme

Groups covered

Defined Benefit Plans

Defined Contribution Plans

Tier 3: voluntary schemes (except MAAPs)

EP: Employees' Pension

NP: National Pension (Basic Pension)

Housewives (category 3)

Self-employed and Students (category 1)

MAAPs: Mutual Aid Association Plans

Notional NP (premiums Notional NP (premiums collected collected through EP scheme and based on through MAAPs and based on earnings rather than flat rate) earnings rather than flat rate) Private-sector employees (category 2)

Public-sector emplyees and school personnel

Source: OECD.

B.

Pensionable age

From age 65 onwards, retired employees are entitled to both NP and EP benefits, which consist of a flat-rate and an earnings-related portion. However, employees aged 60-64 have been able to receive the “specially-provided” EP benefit, which is de facto equivalent of the benefits for those who are aged 65 and over. Thus, up until 2001, the minimum age for receiving a full pension was effectively 60. Rapid ageing of Japan’s population, however, has prompted the government to adopt reforms to phase out the specially-provided old-age pension and to raise the effective minimum age for receiving a full pension 74

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to 65. This will take place in two stages. In the first stage (as set out in the 1994 pension reforms), the earliest age at which the flat- rate portion can be received is being raised progressively to 65 over the period 2001-2013 for men and 2006-2018 for women. In the second stage (as set out in the 2000 pension reforms), the minimum age for receiving the earnings-related portion will also be raised from 60 to 65 over the period 2013-2025 for men and 2018-2030 for women. C.

Beneficiaries

In Japan, take-up of old-age pensions is already quite high in the age group 60-64, mainly because of eligibility for the “specially provided” Employees’ Pension (Table 3.1). In 2000, around two-thirds of all men aged 60-64 were in receipt of some form of old-age pension and, for women, the corresponding proportion was just over one-half. For both men and women, these proportions rise to over 90% in the age group 65-69. However, only a relatively small proportion of older men, and even fewer older women, were in receipt of a corporate or individual pension. Table 3.1. Beneficiaries of old-age pensions by type of pension, 2000 As a percentage of the population in each gender and age category

All beneficiariesa

55-59 3.8

Men 60-64 66.7

65-69 94.3

55-59 5.6

Women 60-64 51.9

65-69 93.1

National Pensionb 0.4 4.7 16.4 0.5 10.9 38.7 Employees' Pension 2.2 50.7 66.6 4.3 35.8 47.5 Mutual Aid Associations 0.3 10.1 14.6 0.5 3.8 6.1 EPFs/TQPs 0.4 11.1 11.0 0.4 2.3 2.3 Other (individual) pensions 0.5 2.2 3.1 0.4 1.2 2.0 a) That is, all persons receiving at least one type of old-age pension. b) Except EP beneficiaries. Source: Ministry of Health, Labour and Welfare, Survey on Employment Conditions of Older Persons (2000).

D.

Financial sustainability

Compared with other OECD countries, Japan currently has a medium level of expenditure on old-age pensions relative to GDP (Figure 3.2). In 2000, total expenditure on public pensions, including administrative costs, amounted to 8.0% of GDP or more than a half (52.7%) of all social security expenditure (National Institute of Population and Social Security Research, 2002). Together with other OECD countries, it is likely to experience rising public expenditures

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associated with population ageing. However, Japan is projected to experience one of the smallest increases in expenditures on public old-age pensions relative to GDP.15 Figure 3.2. Public old-age pension expenditures in OECD countries, a 2000-2050 Levels as a percentage of GDP, changes in percentage points Levels in 2000

Change between 2000 and 2050 Italy France Germany Poland Austria Spain Sweden Belgium Finland Portugal Japan Czech Republic Denmark Hungary Netherlands Canada Norway New Zealand United States United Kingdom Australia Korea

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

a) For France, the estimates refer to the period 2000-2040. Source: OECD (2001b).

Nevertheless, the Pension Bureau in MHLW has estimated that in order to maintain the value of benefits at their current levels (in constant prices), the contribution rate of EP, which is shared equally by employers and employees, would have to be increased from 13.58% to 22.4% by FY 2025 to ensure the 15.

76

The data underlying Figure 3.2 were prepared on the basis of projections carried out in each country, including Japan, using a common set of macroeconomic and demographic assumptions. See OECD (2001b) for a description of these assumptions as well as for a more detailed discussion of the results of these projections. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

long-run sustainability of the public pension system. Similarly, the NP flat rate contribution would also have to increase from 13,300 yen per month currently to 21,600 yen (in FY 2001 prices) by FY 2025.16 As part of the 2000 pension reform, however, the contribution scheme itself was left untouched. Instead, to curb the rise in pension benefits, a number of reforms were made, including: i) the future level of EP benefits was rolled back by 5%; ii) it was announced that the pensionable age of the earningsrelated portion of the specially-provided EP would be raised to 65 over the period 2013-2030; and iii) the payment suspension rule (namely, an earnings test) was reintroduced in 2002 for working beneficiaries aged 65-69. 17 In addition, once the pension amount is awarded at the pensionable age, the amount will no longer be indexed on wage growth but only adjusted for inflation (or deflation). This change in the indexation rule is of special importance, because it is likely to reduce the benefit level by up to a maximum of 20% compared with the level based on the former rule. 2.

The impact of the pension system on retirement decisions

An indication of how the pension system influences retirement decisions can be gleaned from data on “retirement rates” by single year of age for older people (as estimated from changes in labour force participation rates). In the case of Japan, both for men and women, there are noticeable spikes in the 16 .

This estimation conducted by MHLW is based on the case that the state contribution finances half of the cost of the basic pension, using the latest “medium” population projection (National Institute of Population and Social Security Research, 2002, Population Projection for Japan: 2001-2050). The underlying macro-economic assumptions are the following: (1) wage growth rate = 1.0% (2.5% as from 2008); (2) inflation rate = 0.0% (1.5% as from 2008); (3) the investment yield = 2.5% (4.0% as from 2008); and (4) the indexation rate for the newly entitled benefit = 0.8% (2.5% as from FY 2009 and 2.3% as from FY 2025).

17 .

The payment suspension rule for beneficiaries aged 65 to 69 is more generous relative to the rule for the EP working beneficiaries aged 60 to 64. It is calculated as follows: If the sum of an older worker’s wages and pension is less than 370 000 yen, the full amount of the old-age EP benefit (earnings-related portion) is paid; Otherwise, the EP benefit (earnings-related portion) is reduced by half the amount of the excess above 370 000 yen; and In both cases, the full amount of the old-age basic pension (flat-rate portion) is paid.

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retirement rate at the age of 60 and 65 (Figure 3.3). These spikes correspond to the youngest age at which wage and salary earners are eligible for a “full” pension as well as the “standard” pension age of 65 for all workers. Thus, there would appear to be some support for the fact that the pension system may be influencing retirement decisions even at the relatively early age of 60 in Japan. Indeed, the spike at the age of 60 is even more pronounced than at age 65. However, this may also reflect the pervasive practice of mandatory retirement in firms at the age of 60. Moreover, these spikes in the retirement rate in Japan are still fairly small in relation to the United States where there are much larger spikes at 62 and subsequently at 65. Thus, while some workers retire at 60 in Japan, they are relatively few and, even at 65, the proportion of older workers choosing to retire is much smaller than in the United States. Figure 3.3. Retirement rate by age in Japan and the United States, a 2000-2001 Japan

United States

Men

Women

15

15

10

10

5

5

0

0 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

20

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

20

a) Percentage decline in the participation rate between successive years of age. 2000 data for Japan and average of 2000 and 2001 data for the United States. Source: Census tabulation for Japan; Current Population Survey for the United States.

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A.

Effective and official age of retirement

The fact that most older workers in Japan continue to work well after the age of 60 − the age at which they are initially eligible for an old-age pension − translates into an average effective age of retirement that is generally much older than in other OECD countries (Figure 3.4). Figure 3.4. Effective and official age of retirement in OECD countries, 1997-2002 Effective

Official

75

Men 70

65

60

55

France

Hungary Hungary

Czech Republic

Belgium

Austria

Slovak Republic

Poland

Belgium

Luxembourg Austria

Slovak Republic

Poland

Finland Netherlands

Germany Finland

France

Italy

Netherlands Luxembourg

Spain Italy

Germany

Czech Republic Australia

Turkey

Greece

Canada

United Kingdom

Australia

Norway

Sweden

New Zealand

Ireland

United States

Portugal

Denmark

Korea

Switzerland

Japan

Iceland

Mexico

50

75

Women

70

65

60

55

Greece

United Kingdom

New Zealand

Spain

Canada

Turkey

Sweden

Denmark

Norway

United States

Portugal

Switzerland

Japan

Ireland

Korea

Mexico

Iceland

50

a) The average effective age of retirement corresponds to the estimated average age at which individuals older than 40 left the labour force during any given five-year period. The estimates are derived using pseudo cohorts by five-year age groups for persons initially aged 40 and over. They are calculated by weighting the average age of each cohort over a given five-year period by its share of the total decline in participation rates for all cohorts between the beginning and end of the period. Source: OECD estimates derived from the European and national labour force surveys.

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The effective retirement age was 69.6 for men and 65.7 for women in Japan during the period 1997-2002. For men, the effective retirement age is higher only in Mexico, and for women, it is higher only in Iceland, Mexico, Korea and Ireland. In addition, Japan has one of the biggest gaps between the effective and official age of retirement, almost ten years for men and six years for women. Thus, Japanese people are working much longer than the official age of retirement, while people in most other OECD countries tend to retire earlier than the official retirement age. The official age of retirement in Japan is being raised to 65, but this would still leave it below the current average effective age of retirement. However, as shown by Figure 1.5, the average effective age of retirement has been falling in recent years. The economic recession and the declining share of the self-employed in total employment are probably the main factors behind this trend (Higuchi and Yamamoto, 2002). B.

Replacement rates and participation rates

Across OECD countries, there is a negative relationship between participation rates of older men and average replacement rates for old-age pensions (Figure 3.5).18 Average replacement rates for pensions are relatively modest in Japan and so this partly would explain its high participation rates for older men but it nevertheless remains an outlier in terms of having much higher participation rates than other OECD countries with the same or lower replacement rates. Blöndal and Scarpetta (1999) find that more generous pension replacement rates would have a negative impact on participation rates. 19 However, other 18.

The negative correlation between participation rates and average replacement rates across OECD countries is robust to a number of minor variations in the way that average replacement rates are calculated. For example, the old-age dependency ratio used to calculate the replacement rate is defined as the population aged 65 and over to the population aged 20-64. If the total population instead is used as the denominator, replacement rates will be substantially higher for all countries but with almost no effect on either the size or significance of the correlation coefficient. Similarly, if old-age expenditures are subtracted from GDP, replacement rates will be slightly higher but again with almost no change in the correlation coefficient. Finally, the negative relationship is also preserved, although slightly weaker, when participation rates refer to all persons aged 50-64 instead of men aged 50-64.

19 .

Blöndal and Scarpetta (1999) investigated the determinants of variations in the participation rate of older men based on the panel data across OECD countries. They also suggested that the unemployment rate for prime-age men, the generosity of other welfare benefits, health status and other socio-economic factors of older workers are important determinants of retirement decisions.

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aspects of the pension system appear to be more important such as the minimum age for eligibility and pension wealth accrual rates. Even in Japan, where a strong work ethic is often cited as the reason of a high labour force participation rate among the older people, economic reasons including the pension level and its availability also seem to be playing a certain role in the work/retirement decisions of older persons. Thus, while 15% of pension beneficiaries reported as a reason to work “because it is a worthwhile life style,” some 40% reported “because it is needed for daily life” and 15% reported “because it provides a supplement for a better life” (MHLW, Survey of Old-Age Pension Beneficiaries 1997). Another survey indicated that nearly one half of older people aged 60 or over, whose spouse is not working, think their monthly pension benefits would not be enough to maintain their living expenditure if they were not able to obtain income from work in addition to their pension (Cabinet Office, Old-Age Persons’ Attitude about Life Finance FY2001). Figure 3.5. Replacement rates and participation rates for older men a in OECD countries, 2000 Percentages 90.0

Japan

80.0

Participation rate

United Kingdom 70.0

Norway New Zealand Korea United States

Sweden Portugal Denmark Spain

Australia Canada

Czech Republic Germany Finland France

Netherlands Austria

60.0

Italy Poland

Belgium Hungary 50.0

40.0 10.0

20.0

30.0

40.0

50.0

60.0

70.0

Replacement rate

a) The replacement rate refers to the GDP share of total public expenditures on old-age pensions and other early retirement benefits divided by the old age-dependency ratio. The participation rate is calculated for men aged 50-64. The correlation coefficient is -0.50 and is significant at the 5% level. Source: OECD (2001b); OECD Labour Force Statistics; and OECD estimates.

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Seike (2001) also suggests that the strong rise in the real value of old-age pensions over time in Japan, even though starting from a low base, may have contributed to the decline in the participation rate of men aged 60-64 from around 82% in the early 1960s to about 71% in the late 1980s.20 Using micro data, he also shows that eligibility for a public old-age pension is negatively related to labour force participation. According to Higuchi and Yamamoto (2002), an increase in the amount of employees’ pension benefits significantly reduces the number of people wishing to be employed full-time as well. C.

Combining work with an old-age pension

Moreover, while Japan achieved the universal pension coverage in 1961, the society has faced the rapid ageing. The relatively low maturity of pension and this change of demographic factor, the speed of which is much faster than other European countries, necessitated taking a retirement income policy that combine pension with working income. Since the mid 1960’s, the pension system has been designed for “working pensioner”.21 The proportion of older people by work and pension status is shown in Figure 3.6. Here, “with pension” means receiving either a private pension (EPFs, TQP, individual pension, etc.) or a public pension (NP, EP, and MAAPs), or both. The figure shows that about half of males aged 60-69 are workers with a pension, although the proportion has gradually declined during the last decade. On the other hand, the proportion of retirees, i.e. not working and with a pension, has been increasing and is now close to 50%. 20.

There was a subsequent recovery in these participation rates but they have since fallen back to around 72% in 2001

21 .

In 1965, the EP scheme introduced its first payment suspension rule, and it allowed workers aged 65 and over to receive 80% of their full benefits. Until then, the pension benefits had been fully suspended for those workers aged 60 and over, because the qualification as a beneficiary was “retirement.” In 1969, the payment suspension rule for the workers aged 60 to 64 was also introduced. The rule suspended the workers’ pension by 100, 80, 60, 40 or 20% depending on their wage levels. Until 1980, there were several changes of rules in terms of the maximum wage level at which level the pension benefit was fully suspended. However, in line with the upward revision of pensionable age in 1984, the payment suspension for the working pensioners aged 65 and over was abolished in 1985. In 1989 and 1994, the payment suspension rule for workers aged 60 to 64 was modified. The modifications smoothed the budget constraints curve of working pensioners. The latest reform in 2000 reintroduced the payment suspension for working pensioners aged 65-69. This new payment suspension rule was enacted in 2002.

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Figure 3.6. Combining work and pensions in Japan, 1992-2000 Percentages of total population in each age and gender group

Working with pension Not working with pension

Working without pension Not working without pension Women

Men 100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

0 1992 1996 2000 1992 1996 2000 1992 1996 2000 55-59

60-64

65-69

1992 1996 2000 1992 1996 2000 1992 1996 2000 55-59

60-64

65-69

Source: OECD estimates based on Ministry of Health, Labour and Welfare, 1992, 1996 and 2000 Survey on Employment Conditions of Older Persons.

D.

Suspended EP benefit and labour supply

If the persons who are eligible for old-age EP benefits are aged 60-64 and working, all or part of their benefit is suspended by the earnings test. 22 In FY2002, the EP scheme reintroduced the payment suspension rule for working beneficiaries aged 65-69, although the rule is simpler than for those aged 60-64. Therefore, from the age of 70, there is no reduction in the pension if a person continues to work. For both working pensioners aged 60-64 and 65-69, additional

22 .

The amount of the pension that is suspended is calculated as follows: (1) If the sum of the monthly wage and the “monthly base amount” of the pension (80% of the monthly pension called as “kihon-getugaku”) is less than equal to 220 000 yen, 20% of the monthly pension is suspended; (2) If the sum exceeds 220 000 yen and the wage is less than 370 000 yen, the pension amount equivalent to half of the amount in excess is suspended; and (3) If the wage exceeds 370 000 yen, the pension amount equivalent to the wage above this level is suspended.

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pension rights accrue for each additional year of contributions.23 MAAPs also have a similar rule, but NP does not have the pension suspension rule. The proportion of all persons who are entitled to the EP benefit and who are working as employees is shown in Figure 3.7. The number of working pensioners includes persons whose pension amount is completely suspended because of their high earnings. In FY2000, around 20% to 35% of all EP entitled men at age 60-64 were working. The peak is at age 60 and subsequently decreases with age, which suggests that there is a gradual transition from work to retirement via the “working-pensioner” status in Japan.24 The corresponding decline by age for women is less pronounced. a

Figure 3.7. Employees entitled to EP in Japan by age and gender, FY2000 Percentages of all persons entitled to EP Men

Women

40 35 30 25 20 15 10 5 0 60 61 62 63 64 a) Including those persons whose benefit is fully suspended because their earned income was too high. Source: Social Insurance Agency, Annual Operational Report FY 2000.

23 .

Even after the rise in the pensionable age to 65 is completed in 2030, the payment suspension rule for working beneficiaries aged 60-64 will be retained. This is because it will be possible to draw a pension at a reduced rate before the age of 65.

24 .

There are no official statistics of the number of working pensioners who are in a part-time or part-year job as opposed to a full-time job.

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In fact, for 28% of all employees who are entitled to EP, the benefit is fully suspended because their working income is too high. The wage distribution of all employees who are entitled to EP and the share of them whose EP was fully suspended is shown in Figure 3.8. About one third of the employees who are entitled to EP are concentrated around the wage level equivalent to 60% of APW earnings, and virtually all of them receive some EP benefit. Figure 3.8. Wage distribution of employees entitled to EP and proportion whose pension was fully suspended, FY2000 Percentages Employees entitled to EP = 100% (Left-hand scale) Employees entitled to EP but benefits are fully suspended (Right-hand scale) 50

100

45

90

40

80

35

70

30

60

25

50

20

40

15

30

10

20

5

10

0

0 < 40

40-60

60-80

80-100

100-120

120-140

140-160

>160

Current wage (as a % of average wages)

Source: Social Insurance Agency, Annual Operational Report FY 2000.

The current payment suspension rule for working beneficiaries has been carefully designed to avoid causing disincentives to work, especially when compared with the previous system. Until 1994, 20% to 100% of the pension was suspended depending solely on the wage level. After the pension reform in 1994, the suspension schemes became sensitive to the total of the pension benefit and wage. This reform smoothed out the income curve to some extent. However, some kink points still remain and thus the payment suspension rule

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may still be causing disincentives to work or increase work effort in terms of working full-time or for a higher wage. Higuchi and Yamamoto (2002) argue that a reduction in the amount of pension benefits for working pensioners is still affecting negatively older people’s incentives to work even after the 1994 reform. After the reform, fulltime employment probabilities rose by about 3% as a result of the change in the payment suspension rule. However, without any payment suspension rule at all, the full-time employment probability would have increased by approximately 12%. They also indicate that a rise in a ceiling of the payment suspension rule significantly increases the number of people who chose to be employed fulltime. Actually, according to a special tabulation of the 2000 Survey on Employment Conditions of Older Persons by MHLW, among older men aged 60-64 who are entitled to the EP, 1% reported that they had decided not to work and 23% reported that they had reduced their working hours or days in consideration of the pension suspension. On the other hand, 58% had not been influenced in their working arrangements by the pension suspension. In the case of women, 3% reported that they had decided not to work, 15% reported that they had reduced their working hours or days and 49% reported no change in their working arrangements. Thus, for both older men and women around one fifth to one quarter of those entitled to the pension reported that their work choices had been influenced by the payment suspension rule. E.

Suspended EP benefit and labour demand

Not only individual workers, but also employers seem to be quite sensitive to the payment suspension rule. Again, according to the special tabulation of the 2000 Survey on Employment Conditions of Older Persons, 43% of firms that hire working beneficiaries reported making some special arrangements about wages and working hours to reduce the possible loss of pension benefits of their eligible employees (e.g. through limiting the monthly wage to less than JPY 340 000, or through setting the total of the pension and wage at no more than a certain amount, etc.). Thus, the payment suspension would appear to be having a measurable impact on the labour demand decisions of employers as well as on supply decisions of older persons aged 60-64, in the direction of reducing work hours or the wage level. There are other problems with the payment suspension rule for working pensioners. Part-timers are not subject to the reduced pension, since part-timers 86

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are not usually covered by the EP system itself, and therefore they do not pay EP premiums, which full-time working pensioners usually have to pay.25 The fact that part-timers can get a full pension without any payment suspension may encourage some older workers to switch from full-time to part-time work. While this may promote work-sharing among older workers, it would not seem to be an appropriate policy to discourage full-time work and to forgo the corresponding premiums, given the future decrease in labour supply. 3.

The impact of other welfare benefits on work incentives

The retirement decision does not just depend solely on pension or pension wealth but also on the provision of other social security benefits and the interaction of these benefits with the pension system. In some OECD countries, explicit early retirement schemes have been set up while in others de facto pathways to early retirement have emerged through the system of disability and unemployment benefits. A.

Early retirement schemes

In Japan, the government has never developed any explicit early retirement programs. These were introduced in some OECD countries in the mistaken belief that by encouraging older workers to retire early this would “free up” jobs for a rapidly rising number of unemployed youth. However, across OECD countries, declines in employment rates for older workers tend to be associated with an increase in the unemployment rate for younger people rather than a decrease (Figure 3.9). In Japan, until recently, there had been less pressure to introduce an early retirement scheme since unemployment rates of younger people had remained relatively low and the economic growth rate was relatively high even after the oil crisis in the early 1970s. However, following a prolonged period of economic stagnation during the 1990s, unemployment rates for youth have risen to 10% or more (Figure 2.11). But, as the negative correlation in Figure 3.9 suggests, the solution to high youth unemployment in Japan is not to discourage older workers from remaining longer in work.

25 .

If a part-timer’s working hours and working days are equivalent to, or more than, three-fourths of a regular worker’s, they are covered by EP.

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Figure 3.9. Change in employment rates for older people (50-64) versus change in youth unemployment rates (15-24), 1992-2002 Percentage points E/P change for 50-64 20

20 NZL

NLD

15

15

IRE

10

AUS FIN GBR

ESP

5

HUN

10

FRA CAN NOR USA

BEL LUX PRT

5

DNK ITA ISL

0

GRC CHE

SWE

0 DEU JPN

KOR -5

-5

TUR

-10

-10

-15

-15 -25

-20

-15

-10

-5

0

5

10

15

U/R change for 15-24

Source: OECD Labour Force Statistics.

B.

Unemployment benefits

Since FY 1998, recipients of unemployment benefits cannot receive an old-age pension. This reform resolved a contradiction in policy objectives between old-age pension benefits and unemployment benefits: the objective of the former is to provide a source of income for a person retiring permanently from the workforce, while the objective of the latter is to serve as a short-term support for a person capable of working while they search for a job. There is some evidence that unemployment benefits affect the labour supply decisions of older persons. Higuchi and Yamamoto (2002) found that an increase in unemployment benefits tends to reduce full-time and part-time employment and increases unemployment of men in their early 60s. Yashiro (1999) argues that the unemployment benefits are actually working as a form of “retirement allowance” or “a lump-sum pension” for older persons. The amount of unemployment benefits is determined according to the contribution period and the level of wages older unemployed had previously, i.e. in a similar way to retirement allowances or an earnings-related pension. For older workers it 88

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would be rational to choose to be unemployed after mandatory retirement in order to receive unemployed benefits, since the actual replacement rate is quite high (i.e. the level of market wages for them drops so sharply that the unemployment benefits – based on their wages in their old job – can replace their potential wages in a new job by almost 100%). After mandatory retirement, it had been observed that there was a tendency for workers to receive unemployment benefits for the maximum period possible, and then either take up jobs or retire completely. More than 40% of older persons aged 55 or over, who had received unemployment benefits half a year ago, answered that they were not interested in taking up jobs (MHLW, 1995, General Survey on Job Seekers 1993). In FY 2001, the maximum number of days of unemployment benefits was significantly reduced for older unemployed aged 60-64, especially for those who were unemployed following mandatory retirement (i.e. from 300 days to 180 days). This would appear to be a move in the right direction in order to serve better the original purpose of unemployment benefits: i.e. supporting the unemployed to search for a job. It is important that unemployed benefits do not end up encouraging older persons aged 60-64 to quit their jobs and become or remain unemployed, instead of finding a new job. Additionally, in May 2003, the Employment Acceleration Allowance (EAA) (Shugyo Sokushin Teate) was introduced under the current unemployment scheme. EAA provides the equivalent of 30% of the unemployment benefit as a top up of the wage for those unemployed who find a job including the older unemployed. C.

Employment Continuation Benefit for the Aged (ECB)

The Employment Continuation Benefit for the Aged (ECB) was introduced in 1995 under the employment insurance system. ECB is paid in the form of a wage subsidy to workers. The objective of this form of in-work benefit is to increase the incentives for older persons aged 60-64 to continue working rather than to take up unemployment benefits. Initially, older workers aged 60-64, whose wages fell by more than 15% compared with their wages at age 60, were eligible for a subsidy equivalent to 25% of their current wages, although this subsidy rate was reduced if the current wage was between 64% to 85% of the wage at age 60. In FY2001, about 3% of the labour force aged 60 to 64 received ECB (Table 3.2). Expenditure on ECB has increased sharply and was three times as much in FY2000 as in FY1996, and amounted to 4% of the total cost of unemployment related social security in FY2000.

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Table 3.2. Expenditure on Employment Continuation Benefit and number of beneficiaries, 1996-2001 1996 Total benefits Billions of Yen As a % of total expenditure on unemployment benefits Beneficiaries Number (000s) As a % of labour force aged 60-64 Unemployment rate Persons aged 60-64

1997

1998

1999

2000

2001

36.9

56.7

77.3

95.4

108.6

125.0

1.7

2.5

2.9

3.4

4.1

n.a.

45.8 1.1

67.1 1.5

87.6 2

104.4 2.4

117.6 2.8

135.0 3.1

6.4

6.2

7.5

7.9

8.0

8.1

Source: Ministry of Health Labour and Welfare, Annual Report of Employment Insurance, 2002; National Institute of Population and Social Security Research, Cost of Social Security, 2002.

As from May 2003, only older workers aged 60-64, whose wages have fallen by more than 25% compared with their wages at age 60, are eligible for ECB at the reduced rate of 15% of their current wages, and this rate is reduced if the current wage is between 61% to 75% of the wage at age 60. 26 The maximum duration of this benefit is two years, which is much longer than the maximum period of 150 days for receiving unemployment benefits in the case of job loss by mandatory retirement. If older persons aged 60-64 receive unemployment benefits before re-employment, they lose the entitlement to ECB or the benefit duration is reduced. EAA beneficiaries also cannot receive ECB simultaneously. Higuchi and Yamamoto (2002) found that the ECB increased full-time employment, but its effect was not statistically significant and marginal. Yashiro (1999) points out that this benefit has a positive effect on incentives to work as long as a worker earns less than 64% of his/her former wage at age 60, but it has the opposite effect on work incentives in the range 64-85%, where the subsidy rate is reduced. He argues that this reduction in the subsidy rate effectively creates a marginal tax of 76% against additional increases in wages under the 1995 rule. Even after the modification of the rule in May 2003, there is still a high marginal tax rate of 65% in the range 61-75% of a worker’s former wage. Therefore, there may be a risk that some workers aged 60-64 would be induced to take up low-paid jobs relative to their former jobs. 26 .

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In addition, the ECB, as with the pension benefit for working beneficiaries, may operate as an implicit wage subsidy to employers. In theory, it allows employers to reduce the wage level of their older workers by up to the maximum amount of the benefit without lowering the overall income from work of older workers. In the case of an excess supply of older workers, most of the benefit could actually accrue to employers. Thus, this benefit faces the same problems as other wage subsidies, such as substitution effects, stigmatisation (by suggesting that all older workers require protection) and large deadweight loss (i.e. most of the subsidised workers would have worked or been hired anyway). The potential substitution effects are of particular importance given the increasing numbers of young unemployed.27 On top of that, the benefit is not targeted at the most disadvantaged groups among the older people, such as the unskilled long-term unemployed. Instead, those older workers who have benefited the most from lifetime employment practices and the seniority wage system may gain the most from the benefit. The benefit undoubtedly enhances the ability of firms to hire or rehire older workers at substantially lower wages that may be more in line with the actual productivity of these workers. Nevertheless, in the longer run, a first-best solution may be to change the Japanese seniority wage system (as discussed in Chapter 4). More generally, in view of the situation facing the older unemployed, it is important to consider whether the ECB reaches the right target group. D.

The combined effect of pensions and ECB on total income

The total income of a worker aged 60 to 64 is potentially composed of earnings from work, (earnings-tested) EP benefit and the ECB. Thus, the issue of work incentives needs to be considered from the angle of the total amount of the three sources of income. As shown in Figure 3.10, when the ECB was introduced in 1995, the curve for total income had a deep kink point (A), and thus there were some incentives to reduce labour supply at those points. This distortion was modified by the introduction of an adjustment system between the pension and this benefit in 1998. Following the May 2003 reform, the slope of total income became more moderate. Even after these reforms, however, a deep kink point still remains at zero (B), which is caused by the pension suspension rule (see the left panel of Figure 3.10). 27 .

Several researchers have suggested that there would be actually a trade-off between the employment of older and younger workers (Kaneko, 1997; Genda, 2001; Ohta, 2002; and Mitani, 2001).

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Figure 3.10.

Total income of a worker from earnings, pension benefits a and the Earnings Continuation Benefit (ECB) In JPY (000s)

Total income under ECB rules of 1995, 1998, 2003

Components of total income, 2003

A

400 350 300 250 B

200 150 100 50

pension

ECB

400 Gross income under the 2003 rule

Total income = wage + pension + ECB

wage

350 300 250 200 150 100 50 0

0 0

50 100 150 200 250 300 350 400

Wage

0

50 100 150 200 250 300 350 400

Wage

a) This simulation is for a male worker aged 61, who used to earn JPY 400 000 at the age of 60 and is entitled to an old-age pension of JPY 210 000 if he does not work. The former wage of JPY 400 000 is chosen since the average scheduled cash earnings for men aged 55-59 was JPY 396 800 in June 2000. The pension of JPY 210 000 is chosen since the average amount of monthly old-age pension (Employees’ Pension) for men was JPY 205 435 as of March 2000. JPY 400 000 is equivalent to 112% of APW earnings. Source: OECD estimates.

Based on micro data of 1996, Oishi and Oshio (2000) showed that the disincentive effect, which was caused by the EP’s payment suspension rule, halved after the introduction of ECB. However, Yashiro (1999) suggests that the adjustment between the EP earnings test and ECB, which was introduced in 1998 to modify the kink point A, undermined the work incentive effect of ECB. In principle, it is not efficient to have two measures, which have opposite effects, simultaneously. The coexistence of ECB and the earnings-tested EP is like a driver who puts on the brake and presses the accelerator at the same time. It is also problematic in terms of financing those benefits. Spending on ECB in FY2000 was equivalent to 12% of the sum of the suspended pension (which is not paid to the working EP beneficiaries). In other words, a certain portion of the savings generated by the EP earnings test is offset by ECB spending.

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To summarise, under the current suspended EP scheme, there are two problems. First, working pensioners can not choose a deferred pension, and this primarily causes the work disincentive. Although it is not technically easy to modify, to provide an option of deferred pension for the current working pensioners may be a way to improve the work incentive. The second problem is that working pensioners immediately lose 20% of their pension benefit, when they start to work, and this means that it generates a deep kink point B in their labour supply decisions. How to smooth this kink point is also a way to reduce the disincentive problem. Additionally, when the joint impact of taxation and social security contributions on total net income is taken into consideration, the potential work disincentive effects appear to be more serious. Before the May 2003 reform, as shown in the Table 3.3, net income increased much less than any given increase in earned income. For example, it would increase by only about JPY 10 000 when the wage rose from JPY 200 000 to JPY 400 000, i.e. the equivalent of a marginal effective tax rate of 95%. This was caused by several arrangements: the tax exemption rule, which is applied to the public pension; social security contributions; and non-taxable ECB. Thus again, although the ECB impact was moderated by the May 2003 reform, it is likely that older workers will still try to avoid as much as possible these high marginal effective tax rates and take up or remain in lower-paid jobs. Table 3.3. Wage and net income of male workers aged 60-64 JPY Current wage Old-age pension Suspended amount of pension Additional pension ECB

400 000 0

350 000 14 000

300 000 44 000

250 000 64 000

200 000 94 000

150 000 119 000

100 000 145 000

0 0 0

0 24 975 0

-12 190 24 975 30 480

-24 381 24 975 62 500

-20 000 24 975 50 000

-15 000 24 975 37 500

-9 800 24 975 25 000

Gross income Social insurance fee Income tax Net income

400 000 57 666 13 240 329 095

388 975 50 589 10 500 327 886

387 265 42 213 8 170 336 882

377 094 36 525 5 690 334 879

348 975 28 146 3 360 317 469

316 475 21 120 910 294 446

285 175 13 812 0 271 363

Employer's cost

461 189

403 745

344 907

288 769

229 934

172 441

114 689

This simulation with the 1998 rule of ECB is for a male worker aged 61, with a dependent wife, who used to earn JPY 400 000 at the age of 60 and is entitled to an old-age pension of JPY 210 000 if he does not work. The former wage of JPY 400 000 is chosen since the average scheduled cash earnings for men aged 55-59 was JPY 396 800 in June 2000. The pension of JPY 210 000 is chosen since the average amount of monthly old-age pension (Employees’ Pension) for men was JPY 205 435 as of March 2000. JPY 400 000 is equivalent to 112% of APW earnings. Source: Tokyo Employment Supporting Center for People of Advanced Age, Wage Simulation. a)

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E.

Disability pension

As the experience of several OECD countries has shown, disability benefits may provide an alternative and significant pathway into early retirement (SZW, 1997; European Commission, 1998; Casey et al., 2002). For example, in some countries, older workers without a severe disability may be able to obtain disability benefits for labour market reasons, i.e. when it is considered that they have only a low chance of finding a new job, or because medical controls are not very strict. Partial benefits may also be available for relatively minor disabilities. In many countries, workers on a disability benefit can subsequently transfer to the old-age pension, which is usually more generous, once they reach the official retirement age. Moreover, in some countries, the period on disability benefits is counted as adding to an individual’s insurance contribution record for the purpose of calculating the amount of the old-age pension. The possibilities to use disability pension for early retirement in the case of Japan appear to be quite restricted at present. Eligibility for the benefit is determined on strictly medical grounds, depending on the degree of disability. Thus, Japan has avoided taking the same path as some other OECD countries, where the disability benefit scheme has become a de facto early retirement scheme. 4.

Other areas of concern

A.

Allocation of net social transfers

Across a range of OECD countries, the risk of poverty for the majority of working pensioners is generally relatively low (Casey and Yamada, 2002). However, older people increasingly rely solely on pension incomes as they age and thus may face a higher risk of falling into poverty. The success of the “working pensioner” model in Japan in terms of contributing to high labour force participation rates for older people tends to mask other important policy concerns. It is important to take into consideration the situation of older people with low incomes since high participation rates for older people in Japan is partly the result of a relatively low (average) replacement rate for the pension. The allocation of net social transfers are very much concentrated on the middle-income group and have been disproportionately distributed to them, whereas the allocation for the lowest-income group has been slightly falling

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(Yamada 2002). 28 It would be desirable to review the way that net social transfers are allocated in Japan. Further, the earnings-related pension scheme may tend to reproduce the income differences of the working-age population in their retirement age, and therefore the redistributive effect of taxes may become more important for income transfers among older people as the pension scheme matures. This suggests that the current generous tax exemption rule for the public pension of people aged 65 and over should be reviewed and the new financial resources generated by any reform should be directed towards older people in poverty.29 B.

Level of the NP and public assistance

While the NP provides a universal basic pension, the level of this pension alone is not sufficient to cover the expenses of older people living in large urban areas. The average benefit level of the old-age basic pension (NP) is lower than Public Assistance (PA).30 The minimum living cost for an older couple in large urban areas, which is set by PA, was 43% of APW wages, and for an older couple in regional areas it was 24%, while the average old-age NP benefit was only 19% of APW in 1999. Reflecting the relative low level of the average NP benefit, 4.5% of older households were beneficiaries of PA (MHLW, 2001, Fukushi Gyosei Hokoku Rei). Given the indexation rules applicable to NP benefits, the real value of NP benefits risk falling increasingly below the real value of PA benefits, since the latter are indexed to the growth of expenditure by working household as opposed to the consumer price index. Therefore, in the future, a greater number of older poor persons, who are entitled only to NP, may choose to rely on PA instead of NP. The next scheduled reform of NP for 2005, which is currently 28 .

Net social transfers are simply defined as gross social security transfers minus direct tax and social security contributions.

29 .

The lowest taxable limit for a person aged 65 and over with a spouse is high at around 80 % of APW earnings, compared with around 50% for younger couples (Okuda 2002).

30 .

Public Assistance (PA) is provided upon a receipt of an application from a household in need and after a careful examination through a means test. PA is calculated by subtracting the household's final income, including social security benefits, from the minimum cost of living. The minimum cost of living is set at 60% of the average household real consumption level (per capita basis), however, the current level is effectively around 70%. In case the minimum cost of living exceeds the final income, the difference is given as PA. If one receives pension benefits only, the applicable amount of PA is the gap between the minimum cost of living and the pension amount.

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being discussed, should be targeted effectively at NP beneficiaries in poverty. Utilising an additional subsidy, the introduction of a minimum guaranteed pension may be an alternative policy option. C.

Pension rights of women

Older women are one of the groups targeted by social policy in many countries. In Japan, older women, especially those who are living alone, are one of the more vulnerable groups in terms of their economic position (OECD, 2001c), which is presumably linked with their working history and marital status. Since the 1985 pension reform, dependant spouses (almost entirely wives) of employees are classified as a Category 3 insured person. It means that they were nominally covered by the NP without paying their own premiums and they will receive their own basic pension benefits. If dependant wives work part-time and their annual wages exceeds JPY 1.3 million, they have to pay their own premium to the NP scheme. If they work full-time, they will have to pay their own premium to the EP scheme. In both cases, their net income is likely to be reduced until their wages reach a certain level. This arrangement is unfair for working wives, who pay their own premiums, and it probably distorts labour supply decisions by women. 31 However, given that Japan is facing a declining labour force, it is particularly important that the pension system is neutral with respect to work incentives for women and whether they take up or remain in full-time jobs. Interestingly enough, there is no difference in the average pension benefit level between onebread winner and two-bread winner couples (Table 3.4). Table 3.4. Average pension and income of older couples for different combinations of work history, 1997 JPY (000s on an annual basis)

Husband's work history Wive's work history Mainly non-employed Mainly employed Mainly self-employed Mainly self-employed Mainly employed Mainly employed

Average pension 301 151 300

Average income 415 389 482

Source: MHLW, 1997 Survey of Old-Age Pension Beneficiaries.

31 .

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For the Category 3 insured, this arrangement is also somewhat unfair as well, because they are excluded from the newly introduced DC scheme (Kikuchi, 2002). AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

Moreover, the disincentives created by the current contribution scheme would result in many women failing to qualify for a decent level of their own EP benefit. This is because they usually have low-paid jobs or short contribution periods compared with men. Divorce may immediately put older women who have been dependent wives at risk of poverty, since they are often entitled to their old-age NP only and its average level is below PA level. This is problematic as the number of divorces with 30-35 years of cohabitation, has been increasing rapidly and rose by around 10% in FY2002 (MHLW, Vital Statistics in FY2002). One way of solving these problems would be to introduce a more individual-based system of pension rights. The benefit granted for dependents would have to be reviewed while at the same time granting pension rights to women for a longer period of absence from the workforce because of childbirth or caring for young children or elderly relatives than is currently the case. Finding the right balance would not be easy and may require a considerable phase-in period. Nevertheless, the protection of pension rights for divorcees should be strengthened in the short run, even if splitting pension rights in the case of divorce may not be technically easy. In fact, some recent precedents took account of awarded pension rights or future pension rights as a property settlement in the case of divorce (Ninomiya, 1998; Nakamasu, 2001). D.

Improving the portability and security of corporate pensions32

It would not appear that the Japanese corporate pension system, which forms the third tier of Japan’s pension system, has seriously undermined work incentives for older people. It seems to have had a limited effect as a whole, compared with the public pension (Kaneko and Takahashi, 1997). However, in the past, there has been some concern about the portability and security of corporate pensions. As a result of the economic downturn during the 1990s, many firms faced difficulties in maintaining their pension (EPF/TQP) schemes, especially given that they were defined-benefit schemes. A change in the accounting system also requires firms to disclose their unfunded accrued corporate pension costs. In addition, many bankruptcies made it clear that strengthened legal arrangements were necessary to protect corporate pension rights. On top of that, the definedbenefit scheme of the third tier was criticised for being an obstacle to workers changing their jobs, since their accrued pension rights were not fully portable. 32 .

There is no legitimate definition of “portability” in law, and therefore this word has some ambiguity.

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In response to these policy challenges, the Japanese Diet recently passed two laws. The Defined Contribution Pension Law was enacted in October 2001 to establish “Defined Contribution Pensions” (DCP) (Kakutei Kyoshutsu Nenkin).33 In April 2002, the Defined Benefit Corporation Pension (DBCP) Law was enacted and it obliges all TQP, where pension rights have not been appropriately protected, to be converted into the new corporate DCP, DBCP or the other schemes within ten years. These recent reforms should improve the portability and the security of corporate pension schemes, but they need to be accompanied by a careful evaluation of whether this has actually occurred. Nevertheless, considering the fact that the origin of the corporate pensions is the traditional system of retirement allowances, which aimed to reduce the quit rate, it might be difficult to improve further the portability of occupational pensions in terms of DBCP or EPF. Additionally, the coverage of workers by DB-type corporation pensions is far from universal and depends on firm size, sector and type of worker. It is true that those who are not covered by them can participate in new DC plans. However, by definition, the DC plans put investment risk on workers themselves. It will be important, therefore, to monitor the extent to which coverage of both DB-type third tier pensions and DC plans improve over time.

33 .

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Chapter 4 ENCOURAGING EMPLOYERS TO RETAIN OLDER WORKERS LONGER

Neither the old age-pension system nor other aspects of the social security system provide strong incentives for Japanese workers to retire early. But, while participation rates for older workers in Japan are quite high, their career paths do not seem to be very secure, especially as they approach the mandatory retirement age. As a result of mandatory retirement, restructuring or bankruptcy, many older workers are faced with the prospect of leaving a long-term regular job. This often entails a shift to less secure jobs and a substantial reduction in income. The chapter begins by describing the employment practices of firms with respect to older workers. It then looks at the reasons why many employers appear to be reluctant to retain workers beyond a certain age and suggests a range of measures to address this issue. 1.

Employment practices of firms

A.

Mandatory retirement

In most Japanese firms there is a mandatory age of retirement. This is set in agreement or consultation with labour and specified in either a collective agreement, working rule or labour contract. This is the age at which workers are expected to resign from their current post, although they may subsequently be transferred elsewhere within the same firm or to a supplier firm. In Japan, the mandatory retirement system is regarded as serving two purposes: one is to terminate employment at a certain age and the other is to secure employment until a certain age. For employers, a mandatory retirement system has been necessary to remove costly workers (especially given seniority wages) within a regime of strict employment protection. For employees, there has been a guarantee of job security up until the mandatory age of retirement. If the system of seniority wages and employment protection changes in the future, employers may react differently to a mandatory retirement system. Or if lifetime employment and seniority wage become less prominent, employees AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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would also react differently. However, up until now, a mandatory retirement system clearly has had a rationale for both parties. a

Table 4.1. Firms with a mandatory retirement system Percentages of all firms

Total

1976 1985 1990 1995 2002

74.1 87.3 88.2 91.8 91.5

Firms with a uniform mandatory age of retirement Retirement age (as a share of all firms with a uniform system): 59 and 66 and under 60 61-64 65 over 52.4 63.5 32.3 0.3 2.8 0.5 70.3 44.5 51.0 2.1 1.8 0.5 81.8 36.0 60.1 1.1 2.7 0.0 88.9 14.2 78.6 1.7 5.4 0.1 87.9 0.6 90.3 2.3 6.6 0.2

of which: By firm size (no. of regular employees): 30-99 88.7 100-299 97.3 300-999 99.7 1000-4999 99.8 5000 and over 100.0 By industry: Mining Construction Manufacturing Electricity, gas, heat supply and water Transport and communication Wholesale and retail trade, eating and drinking places Finance and insurance Real estate b Services

84.8 94.2 97.6 96.6 94.5

0.8 0.2 0.3 0.2 -

89.1 92.3 93.3 96.7 98.2

2.0 3.0 2.8 1.9 1.2

7.8 4.5 3.6 1.0 0.6

0.3 0.1 0.2 -

89.2 87.9 96.1

84.9 83.5 94.3

0.8 0.6

86.4 88.0 93.0

5.1 0.9

12.7 6.8 5.5

0.0

100.0 92.9

97.5 85.5

-

98.5 86.0

1.5 5.7

8.3

-

85.7 97.3 90.2 90.8

82.4 95.3 84.1 86.4

0.9 2.0 1.9

95.6 93.3 87.1 83.5

0.6 4.3 3.6 2.9

3.8 1.5 5.6 10.7

1.6 1.1

- There are no firms in this category. a) The data refer to non-agricultural private enterprises whose head offices employ 30 or more regular employees. b) Excluding domestic services, education and foreign government and international agencies. Source: Ministry of Health, Labour and Welfare, Survey on Employment Management 2002.

In 2002, 88% of firms (95% of large firms with 5000 or more employees) have a uniform mandatory retirement system (Table 4.1).34 The current age of mandatory retirement is set mostly at 60, while 55 was the predominant age up 34 .

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to the mid 1970s. The incidence of firms with a mandatory retirement age of 60 or over has increased substantially from 19% in 1976 to 87% in 2001. The shift in the standard age for mandatory retirement from 55 to 65 reflected a series of government measures. In 1963, the Employment Security Act was revised to establish measures to promote employment of middle-aged and older unemployed workers. It was the first legislative approach to address older workers’ employment issues. The Special Measures Law for Promoting Employment of Middle-aged and Older Persons, enacted in 1971, provided for special employment measures for these age groups. In 1976, the Japanese government introduced a quota system requiring a certain share of the workforce to be aged 55 or over. In 1986, the Special Measures Law was renamed the Law concerning Stabilisation of Employment of Older Persons. This stipulates that firms should make efforts not to set their mandatory retirement age at less than 60 years old. In 1994, the government revised the law, in accordance with the pension reform to raise the minimum age for receiving the basic pension from 60 to 65, and firms were no longer permitted to fix their mandatory retirement age at less than 60 years old (with effect from 1998). And the 2000 revision of the law called for a rise in the mandatory retirement age and the introduction of “continued employment” measures by firms to guarantee employment until age 65. B.

“Continued employment” until age 65

Currently, only 27% of all firms have some schemes to guarantee employment until 65 years old to all employees who wish to work: i) 6% of all firms have a mandatory retirement age of 65 or older; ii) 13% of all firms have some form of continued employment system (such as an extended employment system or a re-employment system) at least up to age 65, accepting all applicants in principle (i.e. firms do not choose or limit who they retain); and iii) almost 9% do not have mandatory retirement and retain older workers as long as they can work (Figure 4.1). These proportions have not varied much over the past decade. C.

The smaller, the more older-worker friendly

Interestingly, smaller firms seem to be more older-worker friendly. As mentioned in Chapter 2, a higher share of their workforce consists of older workers than is the case in larger firms. Moreover, whereas less than 8% of firms with 1 000 or more employees have a system to guarantee employment until age 65 to all employees, the figure is 16% for firms with 100-299 employees and 32% for firms with 30-99 employees (Figure 4.1). In addition, the proportion of firms that do not have a mandatory retirement system AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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is 0.2% of firms with 1 000-4 999 employees and 0.3% of firms with 300-999 employees, but 3% of firms with 100-299 employees and 11% of firms with 30-99 employees. Thus, smaller firms are more likely to retain or hire older workers than larger firms (Survey on Employment Management, 2002). Figure 4.1. Firms employing all applicants up to age 65 Enterprises with retirement system: 91.5% <100%>

Retirement system by job category or other systems a 3.7% < 4.0% >

Uniform age retirement system 87.9% <96.0% (100%)>

Retirement before 60

Retirement between 60-64

0.5% (0.6%)

81.3% (92.6%)

No retirement system 8.5%

Retirement at 65 b 6.0% (6.8%)

Employment extension or re-employment at least up to 65 53.8% (61.3%) Accepting all applicants in principle 12.6% (14.3%)

18.6% (21.1%)

Enterprises ensuring employment up to 65: 27.1% Size of enterprise (number of employees)

5 000 or more 1 000 - 4 999 300 - 999 100 - 299 30 - 99

7.0% 7.5% 10.0% 16.4% 32.1%

a) Among the firms that have the retirement system by job category or other retirement systems, there are some firms that secure employment up to 65. b) Some firms have a retirement age above 65. c) The figures in bracket (for example <100%>) indicate a percentage over the total number of firms with a mandatory retirement system. The figures in parentheses, for example (100%), indicate a percentage over the total number of firms with uniform age mandatory retirement systems. Source: Calculated by the Ministry of Health, Labour and Welfare (based on its Survey on Employment Management 2002).

D.

Lifetime employment is becoming less prominent

As discussed in Chapter 2, the evidence based on retention rates and hiring and separation rates suggests that job security may have declined slightly for older workers, especially those aged 60 and over. As a result, lifetime employment may be becoming somewhat less prominent in Japan. In fact, the Survey on Employment Management shows that in 1990, 27% of firms 102

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“attached importance to the lifelong employment practice” but this rate fell sharply to only 8.5% in 2002. Nevertheless, a survey of the Study Group on Human Resource Management at the Ministry of Health, Labour and Welfare (1999) revealed that nearly 80% of firms wish to maintain some forms of lifetime employment practices. The precarious employment situation of persons aged 60 and over is probably explained as much by the general weak demand for labour due to the sluggish economy, as by changes in the employment practices of firms. 2.

Possible factors behind low retention rates

There are a number of possible factors behind the apparent reluctance of firms in Japan to retain or hire older workers. First, there may be cases where, as a result of the seniority-based wage system, the wages of older workers are too high relative to their productivity. Second, strict employment protection legislation may encourage firms to use a mandatory retirement system as a way of adjusting their workforce. Third, there may also be some age discrimination operating. These reasons are discussed below, leaving aside the issue of skill obsolescence, which is discussed in the next chapter. A.

Seniority wages

In most countries, wages tend to rise with age. This may reflect the increasing productivity of workers as they gain more experience. However, the age-profile of earnings may also be the result of an implicit contract between the employer and the employee such that wages depend on age or length of service, i.e. seniority, rather than an individual worker’s performance. This practice can serve to encourage greater work effort and commitment from workers, especially new hires, in cases where it is difficult and costly for firms to monitor work effort (Lazear, 1979). But, in such a system, wages will eventually rise above a worker’s productivity after initially being below it. Consequently, the only way that such a system can be made compatible with long-run profit maximisation is if the firm can set a mandatory retirement age as part of the implicit contract. Thus, to the extent that seniority wages are an entrenched feature of the Japanese economy, this would help to explain why most Japanese employers do not retain older workers beyond a certain age. More generally, the seniority wage and mandatory retirement age systems are two faces of the same coin.

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The wage system in Japan is still predominantly a seniority-based system.35 In 2001, 73% of firms linked age/tenure in the wage determination for managers (79% for non-managers). 36 57% of firms have not changed the relative weight attached to age/tenure in the determination of wages for managers (62% for non-managers) over the past five years. Even among large firms with 1000 or more employees, 35% have not changed the weight for age/tenure and only 15% have decreased the weight for age/tenure (General Survey on Working Conditions 2001). Although 30% of all firms and 51% of large firms with 1000 or more employees increased the weight for performance in determination of wages for managers (29% and 41%, respectively, for non-managers), Morishima (2002) claims that performance is being introduced not in place of previous evaluation factors but as an additional factor. He also points out that employers may have kept wage disparity narrow in order to alleviate problems arising from the lack of an agreed, accurate and fair system of evaluation. An international comparison of wage profiles by age also suggests that wages in Japan are still strongly linked to seniority (Figure 4.2). Wages for men up to the age of 50-54 rise more steeply in Japan than elsewhere. The steep drop in wages for the older age group indicates that many of the new jobs that Japanese men find after mandatory retirement offer substantially lower wages on average than their former jobs. Wages for women also rise relatively steeply in Japan up until the age of 30-34, level off until 40-44 and gradually decline thereafter. Even when workers with similar levels of education are compared, there is still a large drop in wages for men from the age of 50-54 onwards (Figure 4.3).37 The more educated a male worker is, 35 .

This does not mean that other factors such as individual qualifications do not influence the level of a worker’s wages but that increases in wages over time will be strongly influenced by the length of service with a firm.

36 .

Importantly, the practice is extended to job switchers: 40% of firms that hired job switchers in 2001 linked age in the determination of wages for managers and 55% for clerical workers (Survey on Employment Management 2001). Although these numbers have decreased significantly over the past six years, it is noteworthy many Japanese firms still take age into account even when they hire workers through external labour markets.

37 .

The wage profiles in Figure 4.2 refer to a point in time and so they are comparing the wages of different cohorts of workers with different levels of education, hence they may not necessarily give a good indication of how wages vary over the careers of workers in any given generation. For example, the decline in wages for older workers in Japan could reflect the fact that these older generations of workers have less education and fewer qualifications than younger workers.

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the steeper the rise and the steeper the subsequent drop in wages with age. However, even highly educated women do not show as steep a seniority curve as men in the same group. Figure 4.2. Age-earnings profiles in selected countries Earnings of 25-29 year olds = 100 Japan

Korea

Germany

UK

Australia

France

US

Men 200 180 160 140 120 100 80 60 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

65+

Women 200 180 160 140 120 100 80 60 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

65+

Sources: Korean Ministry of Labour, Wage Structure Survey; Japanese Ministry of Health, Labour and Welfare, Basic Survey on Wage Structure; August Supplement to Australian Labour Force Survey; US Current Population Survey; Blöndal and Girouard (2002).

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Figure 4.3. Age-earnings profiles by level of education in selected countries Earnings of 25-29 year olds = 100

Men Japan

Women Korea

France

US

Less than high school

Less than high school 260

260

220

220

180

180

140

140

100

100

60

UK

60 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

High school

High school 260

260

220

220

180

180

140

140

100

100

60

60 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

Higher education

Higher education

260

260

220

220

180

180

140

140

100

100

60

60 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

Sources: Korean Ministry of Labour, Wage Structure Survey; Japanese Ministry of Health, Labour and Welfare, Basic Survey on Wage Structure; US Current Population Survey; Blöndal and Girouard (2002).

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These findings are confirmed by a survey of the Japan Institute of Labour (Actual Survey on Utilisation of Older Workers at Workplaces 2000) on employers’ views of the wage/age profile from age 40 to the mandatory retirement age. The survey shows that wages start to fall before the mandatory retirement age. 38 B.

Wage declines at older ages

Thus, the seniority wage system is still deeply entrenched in Japan. But, as a consequence, after a certain age, wages fall steeply. The wage of older workers who are re-employed by the same employer after mandatory retirement decreases significantly. 73% of firms that have a re-employment system after the uniform mandatory retirement age lower the wages of their older workers that are re-hired. Among those firms where wages are lowered, 36% (63% for large firms with 5000 and more employees) cut the wage level by 30% or more. Of the firms that have an extended employment system (kinmu enchou) after the uniform mandatory retirement age, 51% lower the wages of older workers who utilise the system (Survey on Employment Management 2000).39 Some examples of employment practices for continued employment of older workers are given in Box 4.1. These employment practices are associated with different ways of adjusting the wages of older workers. For example, some firms change their wage system for workers after the mandatory retirement age of 60. Wages can either drop abruptly after age 60, or gradually decline before age 60 by a fixed percentage of former wages. Seniority-related increases in wages can be completely discontinued after age 50 or so due to the introduction of non-age related elements (i.e. simply linked to duties or performance). However, most firms change their wage system only around older ages, and seem reluctant to reform their wage systems more extensively at younger ages. This is suggestive of the difficulty in changing radically the whole wage system into a new one that can be agreed upon as being fair and operational. 38.

In terms of whether the upward sloping wage curve changes its profile after a certain age: 40% of firms answered that it becomes less steep; 20% of firms answered that it becomes flat; and another 20% answered that it turns downward or drops substantially. Among these firms who answered that the upward sloping curve changes at some age: 32% said age 55 is the changing point; 22% said it is age 56-59; and 16% put it at age 50.

39 .

In re-employment systems, workers first retire at the mandatory retirement age and then get re-employed by the same employer afterwards with a new contract. In extended employment systems, they do not retire at the mandatory retirement age and continue to be employed by the same employer and with the same contract.

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Box 4.1. Some examples of employment practices for continued employment (1) Fixed-term contract after mandatory retirement age of 60 After mandatory retirement, an employee can start a new fixed-term (one to three years) contract at the “market” wage (i.e. the same wage as a new worker hired through outsourcing). (2) Re-employment contract before mandatory retirement age of 60 An employee can choose to retire before the mandatory retirement age (e.g. 55 years old) and immediately start a new contract with an extended retirement age and a lower wage (e.g. a discounted wage based on performance). (3) Extension of the mandatory retirement age with a discount pay scheme After reaching the age of 55, an employee can enter a career program where the mandatory retirement age is extended. If an employee chooses this course at 57 years old, the retirement age is automatically extended up until 63, with a small (around 20%) cut in wages until 60 years old and a bigger (around 50%) cut in wages after 61. (4) Extension of mandatory retirement age with a different wage scheme after age 50 (or 55) In exchange for an extended mandatory retirement age, employees are subject to a new age-free (i.e. linked only to duty and performance) wage system after age 50 (or in certain cases 55).

C. Other changes in employment arrangements after mandatory retirement As mentioned above, firms appear to start adjusting their wage profiles by age before mandatory retirement, and many workers face a significant drop in wages after the mandatory retirement age regardless of being retained by the same employer or being hired by a new employer. There are also other changes in employment arrangements in terms of job position, job content, or working arrangements. Among those firms that have a re-employment system after uniform mandatory retirement age, when they re-employ their older workers, 56% change their positions, 18% change their job content, 87% offer the same working days and hours, and only 19% offer a regular job status. Among those firms that have an extended employment system (kinmu enchou) for their older workers after uniform mandatory retirement age, 34% change their positions, 11% change their job content, 86% offer the same working days and hours, and 42% offer a regular job status (Survey on Employment Management 2000). Moreover, older workers in larger firms tend to experience more changes in their employment situation and status after mandatory retirement than is the case for their counterpart in small firms.

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Seike (1997) argues that the extent to which the human capital of older people (aged 60-69) is utilised falls after mandatory retirement. This may be due to the fact that, as shown above, the job content (and sometimes the occupation) often changes after mandatory retirement, entailing a loss of human capital. Or, it may be the case that in larger firms, older workers before mandatory retirement are often not well allocated in terms of their job status or wages for their actual skills or productivity. D.

Employment protection – obstacle or security?

The relationship between employment protection legislation and employment of older workers is complex. In general, stricter legislation tends to reduce labour turnover and may have an impact on the composition of employment, but its impact on overall employment levels is less certain (OECD, 1999). The OECD has ranked countries according to the strictness of employment protection governing individual dismissals based on a combination of several different factors such as the notice period involved, the amount of severance pay, the definition of unfair dismissals, etc. Overall, Japan was ranked 7th in the OECD league table of strictness of employment protection for regular workers (Table 4.2). In Japan, firms are guaranteed dismissal rights under the Civil Code, and the Labour Standards Law only ordains that firms are required to give at least 30 days of advance notice or pay average wages for 30 days or more. However, abusive dismissals are quite strictly restricted by case law. Dismissals without objectively reasonable grounds, or dismissals which have objectively reasonable grounds but are not socially accepted as an appropriate dismissal, are considered unlawful as an abusive exercise of employers’ rights of dismissals. In addition, collective dismissals for labour adjustment are considered unlawful and void if all of the following four requirements are not satisfied: strong necessity of personnel cut due to severe financial difficulties, efforts to avoid dismissal being already made by the employer; fair and reasonable selection of persons to be dismissed; and appropriate procedures being taken such as consultation with labour unions. Thus, the requirements for justifying dismissals are quite strict. In addition, firms face considerable uncertainty as to whether their dismissal decision will be judged as acceptable if challenged in the courts. These restrictions on the ability of employers to lay-off individual workers do not apply once workers have reached the mandatory retirement age set by the firm. Thus, firms do not have strong incentives to either raise or abolish the mandatory retirement age. Basically, without mandatory retirement, it would be very difficult for firms to achieve the necessary reductions or changes in the skill composition of the firm’s workforce. Firms claim that they cannot retain AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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all of their workers up to 65 years old, since there is a wide difference of ability, physical fitness, or job preferences among older workers. Thus, while it may be sub-optimal to get rid of all the workers at the age of 60, it is also sub-optimal for firms to retain all of their workers until 65 years old. Thus, if the government wants to raise/abolish the mandatory retirement age, a complementary reform of employment protection legislation would appear to be needed. Table 4.2. The strictness of employment protection for regular employment in OECD countries in late 1990s Country ranking United States United Kingdom Canada Australia Switzerland Belgium Denmark Ireland New Zealand a Italy Hungary Finland Poland Mexico France Norway Greece Austria Spain Turkey Japan Germany Sweden Czech Republic Netherlands Korea Portugal

Overall strictness of protection against individual dismissals 0.2 0.8 0.9 1.0 1.2 1.5 1.6 1.6 1.7 2.0 2.1 2.1 2.2 2.3 2.3 2.4 2.4 2.6 2.6 2.6 2.7 2.8 2.8 2.8 3.1 3.2 4.3

a)

The value for Italy has been revised with respect to the value originally reported in OECD (1999). Source: OECD (1999).

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E.

The presence of age discrimination

Age discrimination may also be another barrier to the continued employment of older workers. According to the Japan Institute of Labour’s Survey on Ageing and Vocational Ability 1997, employers have a less optimistic perception of the employability of older workers than their employees. On average, employers suggest that “the age until which it is possible to work normally” is 53 and “the age of being able to work if some special considerations are given” is 61. For employees, the corresponding ages are 57 and 63, respectively. Age limits imposed by employers on job vacancies also pose a barrier to older jobseekers. In some OECD countries, this practice of placing age limits in job vacancies has been banned as discriminatory. As shown in Table 4.3, an “age limit” imposed by potential employers was cited as the most common reason by older jobseekers for not being able to find a job. Table 4.3. Unemployed in Japan by age and reason for not finding a job, 2001 a

Percentages of all unemployed persons in each age category

25-44 45+ 45-54 55-64 65+

Mismatch 66.2 29.8 35.3 28.3 15.4

Age limit 7.6 46.0 39.2 50.0 53.8

No jobs available 7.6 12.1 9.8 13.3 15.4

Other 14.4 9.7 11.8 8.3 7.7

Total 100.0 100.0 100.0 100.0 100.0

a) Because of rounding errors the sum of the individual categories may add to slightly more or less than 100%. b) Mismatch refers to the following reasons: preferable kind of job is not available; available job does not require acquired skill or knowledge; need more skill or knowledge; or workplace is not nearby. Source: Special Survey of the Labour Force Survey, February 2001.

3.

Measures to enhance employment prospects for older workers

There is no single measure that would dramatically increase retention or hiring rates for older workers, especially in view of the current economic stagnation in Japan. Moreover, many of the barriers to firm’s retaining or hiring older workers are deeply embedded in employer practices concerning human resource management and wage determination. Although there exist rather direct measures to change these practices such as employment protection legislation, the role of government measures is limited in this area and changes will necessarily take time. Nevertheless, a range of measures could be taken to improve the situation over the longer term. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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A. Establishing more clearly how policy objectives will be achieved and the likely costs and benefits The 9th Basic Plan for Employment Measures, which was decided by the Cabinet in 1999, states that the government will try within the next ten years to ensure that setting the mandatory retirement age at 65 will be a widespread practice, and that, at a minimum, it will aim to ensure that older workers with the capacity and desire to work can stay in employment until age of 65 (i.e. by finding a new employer or being re-employed by the same employer, etc.). It also declares that in the future Japan should create a society in which older persons can continue to work regardless of age as long as they have the desire and ability to do so – so-called “age-free employment”. The government appears to be attempting to first achieve “employment until 65” through a comprehensive package of measures targeted at older persons, including wage subsidies. However, such measures require the least adjustment on the part of firms and greater change in employment practices may be necessary to achieve “age-free employment”. For example, the Employment Continuation Benefit for the Aged, together with the pension scheme for working beneficiaries, enables firms to cut the wages of workers aged 60-64 without much opposition from them. Thus, it reduces the pressure on firms to carry out more extensive change in human resource management and wage-setting practices based on age and seniority. Moreover, policies to achieve “employment until 65” could result in a deterioration of labour market outcomes for workers aged 65 and over relative to workers in their early 60s. As discussed in Chapter 2, when measures were taken to raise the standard age of mandatory retirement to 60, the employment situation of the age group 60-64 worsened significantly over the 1990s compared to that of the age group 55-59. “Age-free employment”, on the other hand, would imply the eradication of all age-related employment practices, including seniority wages and lifetime employment. “Age-free employment” would also need a more active and mature external labour market, since there would be higher labour turnover if life-time employment becomes less important and mandatory retirement is abolished. Although the government has declared that its ultimate goal is “agefree employment”, it is not apparent that it is providing a clear message about the extensive change that will be required in human resource management practices to achieve this goal and the difficult policy choices that may be involved. For example, it may be necessary to expand the role of the external labour market to improve hiring opportunities for older workers but this may in turn only be possible at the cost of some weakening of job security for regular employees.

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B.

Restricting further the use of mandatory retirement

One approach would be to progressively raise the minimum age for mandatory retirement – in line with the increase in the minimum age for receiving the pension. Another one would be to abolish the mandatory retirement system. However, any moves in this direction would require adequate consultation among social partners and advanced notice – so that other employment and pay practices could be adjusted accordingly. It has sometimes been argued that the practice of mandatory retirement should be banned since it gives rise to large job turnover for older workers and may not only result in unemployment but a loss of human capital. More generally, it is inappropriate to dismiss everybody at a certain age. Older people have a wide variety in their vocational abilities, physical fitness, and attitudes towards work and leisure. However, if the Japanese government were to prohibit mandatory retirement practices in the current situation, what would happen? Because of strong employment protection and no clear due standards to choose workers for dismissal, firms would not be able to fire older people until they quit voluntarily. If companies did want to fire some older workers, they could face expensive lawsuits, especially if stronger anti-age discrimination legislation were to be introduced as well. Firms would also face a huge increase in wage costs, at least in the short run, by employing older people for a longer (a priori indefinite) period. 40 In short, firms would suffer a double burden: higher firing costs and wage costs. For firms, an extension of the mandatory retirement age might be more realistic in the current circumstances. This would have to go hand-in-hand with an adjustment of wages. But given the Employment Continuation Benefit for the Aged and the pension scheme for working beneficiaries, a significant wage cut after 60 might be accepted without too much opposition since the overall income of older workers would not be changed very much.

40.

Firms could perhaps try to introduce some schemes of wage cut after 50 or so as an emergency remedy, but it would not be as easy as what they are doing now in exchange of guaranteeing employment after mandatory retirement. In addition, most current changes of wages for older workers are not forced on them; instead older workers are given such new wage arrangements as options other than retiring completely at the mandatory retirement age of 60. It should be noted that it is difficult in Japan not only to fire, but also to introduce unfavourable labour conditions for workers. Some firms might introduce early retirement programs to avoid the sudden increase in wage costs.

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Japanese firms seem adverse to radical changes and instead they seem to be in favour of gradualism or “additionalism”. As mentioned before, firms that introduced employment extension systems seem to adjust to the new situations by changing their wage system only around older ages. In addition, age/tenure are still used as key elements in setting wages and performance is being introduced as an additional element. However, compared to an introduction of employment extension systems on a voluntary basis, raising the mandatory retirement age would require that a larger weight be placed on performance or capability in the determination of personnel management. In terms of firing costs, a gradual raising of the minimum age of mandatory retirement that can be set by firms may be preferred by them to an outright ban of mandatory retirement, since firms would still be able to count on mandatory retirement to get rid of workers after a certain age without incurring any additional firing costs in terms of possible lawsuits. However, it would still be difficult for firms to retain all their older workers aged 60-64. Therefore the following conditions would appear to be important to facilitate adjustment to a further rise in the minimum legal age of mandatory retirement (and a fortiori in the case of a ban): i) a well-developed system of job specification and fair personnel evaluation; ii) competence and performance become the main factors for personnel decisions, instead of age; iii) due standards for dismissals become more transparent and less onerous; and iv) forms of employment (part-timers, fixed-term contract workers, self-employed, volunteer, work sharing, etc.) become more diversified. In particular, it should be noted that a well-developed system of job specification and fair personal evaluation would be a prerequisite to both put more weight on performance or competence (rather than age) in the determination of wages, and introduce more transparent standards for dismissals. C.

Reforming employment protection rules

It is difficult to see how employers could afford to raise the age of mandatory retirement without at the same time reforming employment protection rules. On the side of employees, loosening Japan’s strict employment protection would have two opposite effects: lowering job security for employed older workers and increasing the chance of employment for the older jobless. Thus, there would be more dismissals but also potentially more hirings because firms would face a lower risk of hiring due to lower firing costs (i.e. employers would be less hesitant to hire an older person if they can more easily fire that person). However, it should be noted that the chances of the latter case would most likely be very limited, if labour demand remains weak, if there is 114

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pervasive age discrimination, if seniority wages remain well entrenched or if older persons lack the necessary skills. The difficult question is how to strike the best balance between the conflicting interests of employed older workers who are enjoying secure jobs with seniority wages and the older jobless who are struggling to find employment. However, the labour situation has changed a lot over the past decade (e.g. there has been a sharp increase in unemployment) and further development of the external labour market is urgently needed. Too much protection of regular jobs would also hinder the improvement of arrangements for irregular forms of work. If regular workers were getting their job security and generous treatments disproportionately to their own contribution, firms would need to fill the gap by taking advantage of irregular workers. In other words, irregular workers may well be used as a buffer. Relaxing strict employment protection for regular workers could bring a better balance. Better working arrangements for irregular work would be beneficial to older workers, since many of the older unemployed are seeking irregular work: 17% of the male jobless aged 55-59 who wish to work but who had not found a suitable job want to take part-time jobs, and this share increases to 43% for the age group of 60-64 and 50% for the age group of 65-69 (Survey on Employment Conditions of Older Persons 2000). For employees, there is another possible effect of some further loosening of employment protection: it could have an impact on their attitudes towards the wage system and could also, somewhat paradoxically, improve employment prospects for older workers. If the guarantee of working with the same employer becomes less certain, a seniority system becomes less attractive. Workers would face a higher risk of being forced to leave the firm before recouping their “deferred” wages, i.e. receiving wages above their productivity after being paid below their productivity in the early stages of their careers. Thus, they may prefer to have their wage equal to (the marginal value of) their current productivity instead of hoping without certainty to eventually recoup their “deferred wages”. This could weaken opposition to any initiative by employers to reduce the weight of the age factor in wage formation under the pressure to decrease wage costs for older persons in the case of raising the mandatory retirement age. Of course, there are older workers who will lose their privileged “deferred” wages, but in a long run, the flatter seniority wage curve will decrease the wage cost of older workers and thus make it more attractive for firms to retain or hire older workers. In sum, a loosening of Japan’s relatively strict system of employment protection and developing the external labour market will be required to cope with the further change of industrial structure due to globalisation and knowledge-intensive economy, and it will be necessary for employers if the AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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mandatory retirement age is raised or abolished. On the side of employees, there are conflicting interests between employment security on the one hand and better re-employment chances on the other. To balance these challenges, the government should consider introducing legislation to clarify and simplify the obligations of employers and the rights of their employees concerning lay-offs and dismissals. Such a proposal had been under discussion within the government and in June 2003 the Labour Standard Law was revised to put into statutory form the basic idea of court rulings that “dismissals without objectively reasonable grounds, or dismissals that are not socially accepted as an appropriate one are unlawful and void”. The new law also requires that reasons for dismissals should be included in the working rules of each firm. However it is not clear that this represents much actual progress in terms of the clarity of dismissal requirements, since these will still be determined by case law as a result of dismissals being challenged in the courts. It is important that any reform of employment protection legislation should be taken in conjunction with strengthening measures to tackle age discrimination and improving the employability of older workers. It would be necessary to pay due attention to the possible increase of unemployment because of loosening of employment protection. A better social security net would also be needed. For example, social protection of non-regular forms of employment would have to be strengthened. A more generous unemployment benefit, coupled with strict activation and a balanced carrot-and-stick approach, could be considered. The government should also better make efforts to develop a more active labour market and improve placement services, as discussed in Chapter 5. D.

Reforming the seniority wage system

The role of government measures is limited in changing private employment arrangements. However, the government should support the efforts of the social partners to reform wage-setting practices based on seniority by developing guidelines for enhancing the role of competence and performance in pay determination. It could also set an example by applying these guidelines in the civil service. Putting more emphasis on competence or performance rather than age in wage determination is occurring in any case as a result of globalisation the development of a knowledge-based economy. In addition, restricting the use of mandatory retirement and loosening the strictness of employment protection combined with reforms to the social safety net, as suggested above, would further encourage the social partners to change the wage system.

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E.

Tackling age discrimination

Measures are also required to tackle age discrimination. The Japanese government introduced a new provision in the Employment Measures Law that requests employers to make efforts to give equal opportunities regardless of age when recruiting or hiring (effective October 2001). In addition, based on the new provision, the Guidelines for Employers to Offer Equal Opportunities to Job Seekers Regardless of Age were enacted. These guidelines have been publicised through local economic organisations, the mass media and by guidance at Public Employment Security Offices (PESOs) and private placement agencies. This is the first attempt in Japan to tackle age limits in job offers. It is a significant step in the sense that it highlights the issue of age discrimination and promotes a change of attitudes towards setting arbitrary age limits when hiring. In the PESOs, staff are instructed to explain the Guidelines to employers. In the event that some restriction on age is inevitable, employers are requested to clearly state the reason for this. The guidelines seem to be having some positive impact already since there has been a large increase in the number of job offers without age limits from 1.6% in September 2001 to 20.3% in December 2001. However, little improvement has been recorded since then, possibly because the guidelines allow too many exemptions. For example, firms with a mandatory retirement system may legitimately set an age limit for recruitment on the ground that substantial training is required in the post. Or firms with a seniority wage system are often exempted, if they cannot hire an older person at a lower wage because of their working rules. There are different approaches to combating age discrimination among the OECD countries. Of the EU countries, the UK has taken the most comprehensive approach but one that is based on a voluntary code of practice rather than legislation. However, all EU countries will be required to comply with the EU directive to introduce by 2006 legislation prohibiting direct and indirect discrimination at work on the grounds of age (as well as sexual orientation, religion and belief, and disability), although some differences of treatment based on age will be permitted under certain conditions. The United States has banned mandatory retirement in the context of comprehensive anti-age discrimination legislation. However, the effectiveness of legislation prohibiting age discrimination in improving employment prospects for older people is not clear (see Neumark, 2001, for a survey of the US evidence). Korea is the only OECD country that has a quota system requiring 3% of the workforce in large firms to be aged 55 or over. The likely benefits and costs of these approaches are not easy to assess and the results are likely to differ from one country to another.

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Box 4.2. Policy measures to assist employers Encourage employers to continue employing their older workers up to age 65 (a) Continued Employment Security Promotion Subsidy (three types, I-III, introduced in 1997): I. Eligibility: employers who raise the mandatory retirement age or introduce a continued employment system. Benefit: JPY 300 000 to JPY 3 million, depends on the number of years extended and the size of company, maximum five years. II. Eligibility: employers whose workforce has more than 15% of 60-64 year olds. Benefit: JPY 15 000 per month for an additional 60-64 year-old employee exceeding the 15%. JPY 20 000 for SMEs, maximum five years. III. Eligibility: employers who meet the conditions of (i), have made a plan for raising the retirement age and job adaptation, and have engaged in some consultation to their old employee. Benefit: two-thirds of the cost of lecture or consultation (maximum JPY 250 000 per employee) and three-quarters of the cost for SMEs (maximum JPY 350 000 per employee). (b) Subsidy for Employment Security of Transferred Older Persons (introduced in 2001, effective until 2005) Eligibility: a subsidiary company which is set up by a parent company in order to retain older workers in the course of restructuring of its business organization. Benefit: JPY 300 000 or JPY 100 000 per person depending on types of continued employment systems the subsidiary company has. (c)

Counselling and assistance to employers

At the Associations of Employment Development for Senior Citizens, the Advisers of Older Workers Employment and the Instructors of Promotion of Continued Employment offer counselling and assistance to employers on continued employment, such as guidance of personnel management, assessment of impediment factors, introduction of good practices. The associations also provide the grants listed in (a) on behalf of the government. Encourage employers to assist workers scheduled to be discharged to find a new job* * Examples of re-employment assistance by employers: granting time-off for job-search activities or vocational/skill training; finding job offers for employee; providing training for re-employment. (a) Subsidy to Assist Job Seeking Activities of Employees (four types, I-III were introduced in 2000, IV was introduced in 2001): I. Eligibility: employers who introduced paid time-off to older (45-64) employees to allow them to seek re-employment. Benefit: JPY 5 000 per day per person (maximum 30 days, until March 2005, in a certain case, maximum 60 days). II. Eligibility: employers who utilized re-employment assistance agencies and succeeded to find new employment for their employees scheduled to be dismissed. Benefit: one-fourth of commissioned fee (maximum JPY 300 000 per person) III. Eligibility: SME employers association that arranged some supporting system for reemployment (e.g. set up an office for counselling, hire a counsellor, etc.) based on an officially approved plan. Benefit: half of cost (maximum JPY 1 million).

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IV. Eligibility: employers who immediately (within less than three months of job separation) employ older (45-64) persons who are currently employed by another firm and seeking re-employment under a re-employment assistance plan. Benefit: JPY 300 000 yen per person. (b) Counselling and assistance to employers At the Associations of Employment Development for Senior Citizens, the Consultants for Re-employment Assistance offer counselling and assistance to employers who provide re-employment assistance to their employees. The associations also provide the grants listed in (a) on behalf of the government. Encourage employers to hire older persons (a) Subsidy for Employment Development for Specified Job Seekers Eligibility: employers who hired an older person (60-64) through introduction from PESOs and other placement agencies. Benefit: one quarter of wage, one-third of wage for SMEs, for a year. (b) Subsidy for Urgent Employment Development for middle-aged and older persons Eligibility: employers who hired older (45-59) persons on a trial basis for a set period. Benefit: JPY 100 000 per month per person, for the trial period (maximum three months). Encourage employers to improve their workplace for older workers (a) Subsidy for employment environment improvement for older workers (introduced in 1994) Eligibility: Employers who improved workplace facilities and equipment to facilitate work for older employees (60-64) and actually increased the number of their older employees, or those who opened new plants where they have many older employees. Benefit: JPY 250 000 to JPY 20 million for three to five years. (b) Subsidy for barrier-free workplaces for older people (introduced in 2000) Eligibility: Employers who make comprehensive efforts as a model to create barrier-free workplaces that take into consideration the needs of older workers. Benefit: two-thirds (SMEs three-fourths) of the total cost of the working environment arrangement. (c) Financial aid for workplace remodelling designed to improve working conditions for older workers Loan with a special low interest rate. 30% of total cost will be financed by the Japan Policy Investment Bank. Encourage employers to improve safety, sanitation and health management of employees Although there is no particular policy exclusively for older workers, the government has been promoting “Total Health Promotion Plan” which covers both mental and physical fitness at firms and introduced the “Guidelines Concerning Measures to Be Taken by Employers for Establishing Comfortable Working Environments” in August 2000.

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F.

Other measures to support retention and hiring of older workers

Job security is a major priority for government, labour and management. The government relies on employers to take a wide variety of responsibilities and duties under the Law for the Stabilization of Employment of Older Persons. For instance, employers should make efforts to secure employment opportunities for their older employees through taking measures for the development and improvement of occupational ability, improvement of working facilities and other conditions, and assistance in finding new employment. They also have to make efforts to provide necessary assistance to their employees in designing their “occupational life plan” in their older ages. They cannot set a mandatory retirement age below 60 (effective since April 1998) and those employers who fix a mandatory retirement age have to make efforts to adopt the necessary measures for ensuring the stable employment of older persons until age 65, such as through raising retirement ages, and the introduction or improvement of continued employment systems (effective since October 2000). Employers are also supposed to take measures to assist their older workers who are leaving due to the mandatory retirement age or dismissal upon their request such as seeking job offers for them. Employers are required to draw up and provide re-employment assistance plans for older persons (45-64) leaving their job due to retirement or a voluntary quit if requested by the chiefs of PESOs (effective since October 2000). The government provides a range of subsidies and other assistance to employers to encourage and facilitate them to meet these responsibilities. Box 4.2 shows the main policy measures (except for training policies which are discussed in the next chapter). Most of these measures that are targeted specifically at the older age groups, including wage subsidies, would appear to serve the purpose of achieving the objective of “employment until 65” rather than the more ambitious goal of “age-free employment”. Higuchi and Yamamoto (2002), using data from the Survey of Employment Conditions of Older Persons for 1992, 1996 and 2000, found that those firms that changed the wage system, provided training, introduced a flexible work system, improved working methods, and were concerned about the health and safety of their employees, had better performance in terms of the employment of older workers. They also show that retention of workers aged 60-64 tends to be relatively high in firms that are aware of the government’s employment subsidy policies.

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Box 4.3.

Wage subsidy schemes for older workers in selected OECD countries

Austria: Employer’s unemployment insurance contributions are halved for hiring workers between 50 and 55 years of age and eliminated for those hired over the age of 55. This subsidy is one part of Austria’s Bonus-Malus system, where the “malus” is a penalty payment for dismissing a worker over the age of 50. It is staggered according to the age of the dismissed worker. Belgium: Employers hiring long-term unemployed people aged 45 and over are partially exempted from paying their social security contributions during five years. In addition, as these newly hired workers are entitled to an employment subsidy under the programme “Activa”, employers may reduce their wages by up to EUR 500 per month. Denmark: Under the Service Jobs Scheme, municipalities hiring individuals who are more than 48 years old and have been unemployed for at least 18 months are paid an indefinite wage subsidy of DKR 100 000 per year. France: Companies hiring an unemployed person aged 50 or above can take advantage of the “Contract to promote employment” (Contrat Initiative Emploi). The subsidy consists of a total reduction in employer’s social security contributions at the level of the minimum wage, i.e. amounting to around 40% of gross minimum wages. The subsidy is normally paid for 24 months in the case where a permanent employment contract is offered and indefinitely in the case of a person aged 50-64 who is disabled or has been either unemployed or on social assistance for more than one year. Germany: There is an “integration” subsidy (Eingliederungszuschüsse) available for hiring long-term unemployed persons aged 55 and over. The subsidy corresponds to 50% of wages. Sweden: The Special Employment Subsidies programme encourages employers to recruit persons above 57 years who have been unemployed for at least two years. The subsidy is paid to employers during a maximum period of 24 months and up to 75% of the wage costs to a maximum of SEK 525 per day, i.e. SEK 10 500 per month (roughly half of the average salary of a full-time worker).

A number of other OECD countries also have wage subsidies for hiring older workers. These are described in Box 4.3 for a few selected countries. The results of evaluations of wage subsidies in other OECD countries indicate that they are likely to be more effective if they are tightly targeted (Grubb and Martin, 2001). Thus, the Subsidy for Employment Development for Specified Job Seekers could be modified to target the older long-term unemployed (although it was already revised to target the older unemployed aged 60-64 in October 2001 rather than those aged 55-64). In addition, it should be noted that subsidies that are targeted broadly by age may have a stigmatising effect, and may not be very effective because of substitution effects and deadweight loss. As seen in Box 4.2, most of the subsidies were introduced recently. However, there are few rigorous evaluations of these schemes and it is important that

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proper procedures are put in place to allow for a systematic evaluation of these measures in order to determine their effectiveness. G.

Disseminating of best practice

The government has been disseminating best practices of firms through the website of the Association of Employment Development for Senior Citizens, a public utility foundation which provides extensive services to employers for improving employment of older persons (see Box 4.2). The Association holds an annual Contest of Employment Development of Older Persons to identify best practices for retaining older workers and improving their working conditions. Its website includes programs for a better work environment and detailed examples from its annual Contest.

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Chapter 5 BETTER ACCESS TO BETTER JOBS

Older persons in Japan face a relatively high unemployment rate and, for those in employment, the incidence of non-regular forms of employment is relatively high. One way to improve the situation is to improve the “employability” of older workers. Therefore, the chapter reviews strategies for achieving better access to better jobs for older workers by strengthening the possibilities for lifelong training, by giving them better job-brokering services and by arranging better forms of non-regular employment. 1.

Employability and training

A.

Improving skills

The ongoing shift away from the production of goods to the production of services, together with technological change, has increased the need for better and more adaptable skills. This has put pressure on the education and training system in Japan to adapt to these changes, on employers to provide more training and on individual themselves to engage actively in lifelong learning. Currently, the educational attainment level of older workers is not very high in Japan, which may partly explain the difficulties that many of them face in finding or keeping good jobs. In 2000, around 28% of Japanese workers aged 50-64 had not completed high school and only around 22% had some form of tertiary qualification (Figure 5.1). However, educational attainment has been rising rapidly among the younger generations and so there is likely to be a dramatic improvement in the average education level of older workers in the future. By 2025, simple extrapolations suggest that only around 6% of older workers will not have completed high school. Moreover, over 45% will have a tertiary qualification, which would place Japan at the top among its major competitors in terms of the proportion of older workers being highly educated. This rapid rise in educational attainment could be an important source of future gains in productivity (Bassanini and Scarpetta, 2001) and could improve employment prospects for older workers. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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Figure 5.1. The rise in education level of older workers Share of labour force aged 50-64 by level of educational attainment (%) Tertiary 100%

Upper secondary

Less than upper secondary

6.0

90%

20.2

17.3

12.3

8.8

12.0

11.1

51.3

50.1

36.7

38.8

41.9

Korea (2025)

United States (2000)

United States (2025)

28.4

80%

43.4 47.2

70%

65.1

60% 50%

42.8

54.4

49.3

59.8

49.4

40%

36.9

30% 46.8

24.4

20% 10%

37.0 28.3

22.1

27.9

19.8 10.6

0% Japan (2000)

Japan (2025)

France (2000)

France (2025)

Germany Germany (2000) (2025)

Korea (2000)

Source: For 2000, OECD, Education at a Glance; for 2025, OECD estimates based on the data for 2000 and obtained by applying participation rates by educational attainment, gender and five-year age group for the population aged 50-64 to the corresponding population aged 25-39. For Japan, the estimates are interpolations of data grouped in ten-year age brackets.

However, while formal education is important, changing job requirements mean that individuals regularly have to acquire new skills and upgrade their existing skills. Moreover, the fact is that in the next few years, Japan will face the challenge of addressing the problems of a large pool of relatively low-educated older workers. Hence, vocational training and, lifelong learning activities in general, are also important. Adult learning and training can play a fundamental role in addressing the lack of formal education for the adult working population. It can significantly enhance worker employability and productivity, not to mention wages and firm profits (OECD, 2001c and 2001d).41

41.

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B.

Traditional firm-based training system

In Japan, firms play a key role in human capital formation. Traditionally, training has been primarily regarded as each firm’s responsibility. Firms are expected to train their employees and even give paid training leave during such activities, and cover part of the costs for such activities. Firms are also encouraged to make a systematic in-house human resources development plan and to appoint a “human resources development promoter”. The government is providing information, guidance, and several types of subsidies to assist such efforts. Subsidies are paid to firms for: providing training in line with their annual human resources development plans; providing paid leave for training, skill tests, or career consulting; introducing a system for a long period of training leave (1 month or more); and allowing employees to take skill tests outside firms. However, the traditional system of firm-based training in Japan is facing some major challenges. Lifelong employment practices may be becoming less prevalent because of the large increase in irregular workers. Firms cannot be very sure that they can recoup their investment for these workers, while these workers themselves cannot be sure that the training given by firms will be useful when they switch jobs. As a result of economic stagnation, industrial restructuring, greater international competition and the increased importance of ICT, both firms and employees are facing stronger needs for higher skills and knowledge, which cannot be easily met through current in-house training. C.

Policy initiatives for “self-training”

Although firms are still very much expected to play an important role in human resource development, it will not be sufficient to rely on their efforts alone. This is why the Japanese government has begun to encourage “selftraining”. In 1998, it introduced the “Education and Training Benefit”, which directly assists individuals to take some designated courses by covering part of their training costs. This benefit is provided through the employment insurance scheme. The benefit is increasing its popularity and there were already approximately 285 000 (0.4% of all labour force) beneficiaries in 2001 (Table 5.1). In January 2001, the ceiling of the benefit was raised from JPY 200 000 to JPY 300 000, but in May 2003, both of the ceiling and the subsidy rate were cut back due to a budgetary constraint. This benefit could help expand opportunities for training of disadvantaged groups. This benefit is generally well utilised by women, who usually get less training by employers. For the age groups of 15-29, the number of women AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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beneficiaries was about twice that of men. However, for the age group of 55-59, the number of women participants is less than that of male participants by 38%, and the gap rises to 50% for the age group of 60-64 and to 63% for the age group of 65 and over. Moreover older persons are not taking advantage of the benefit to the same extent as younger persons (Table 5.1). The lower take up of the training benefit by older people may reflect a general unwillingness on the part of older persons to take self-training or possibly that the designated courses are not very attractive to them. In order to encourage more in-depth training (which would be especially useful in certain situations such as major job changes), Yashiro (2001) argues in favour of a loan scheme. The other problem with the training benefit is that a number of parttimers or temporary workers are not eligible for the benefit since they are not covered by employment insurance. Without access to suitable training opportunities, many younger part-timers and temporary workers may remain relatively unskilled throughout their work careers. It should be noted that these groups of people could be the ones who need self-training the most since there is less prospect of them participating in training given by firms. D.

Incidence of training

There is no data available on the age profile of participants in subsidised training within firms. Some data by age is available for participants of public training for the unemployed. According to these data, the take-up rate for older persons is not much different from that of middle-aged persons. Table 5.1. Recipients of public assistance for training by age group, FY2001 Labour force FY2001

15-29 30-44 45-54 55+ 55-59 60-64 65+ 15+

Million persons 15.4 20.19 16.23 15.56 6.30 4.34 4.92 67.38

Share 23% 30% 24% 23% 9% 6% 7% 100%

Recipients of Education and Training Benefit FY2001 Thousand persons 67.4 133.5 58.8 25.1 16.7 7.8 0.6 284.7

Share 24% 47% 21% 9% 6% 3% 0% 100%

Take-up ratea 0.44% 0.66% 0.36% 0.16% 0.27% 0.18% 0.01% 0.42%

Participants of public training for the unemployed FY2001 Thousand persons 109 166 130 115 520

Share 21% 32% 25% 22% 100%

Take-up ratea 0.71% 0.82% 0.80% 0.74% 0.77%

- Data not available a) Take-up rates are defined as a share of receipients or participants in the total labour force of each age group. Source : Ministry of Health, Labour and Welfare.

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A much broader picture of the participation of individuals in vocational training can be obtained from the Survey on Education and Training in the Private Sector (JSET), and a comparison can be made with the situation in other OECD countries using the International Adult Literacy Survey (IALS) (see Box 5.1). 42 Both surveys provide similar information on whether individuals undertook some form of training activity in the past 12 months. Clearly because of possible differences in definitions and methodologies these results should be treated as only giving a broad rather precise indication of differences across countries. These comparisons suggest that participation in job-related training in Japan is at the top of the OECD countries, whether one is referring to selftraining and off-the-job training (Off-JT) (Figure 5.2, Table 5.2). This holds true both for older workers and mid-career (25-54) workers. It is noteworthy that the difference between the two age groups is relatively small in Japan compared to other OECD countries. Thus, Japanese older workers appear to do relatively well in terms of participation in training compared with their counterparts in other OECD countries. The real problem seems to lie in the wide gap between men and women, rather than the age gap. The gender gap is a lot larger than in any other OECD country.

42.

The Survey on Education and Training in the Private Sector was expanded to the Basic Survey on Ability Development in 2001 (the reference period is 2000), and this new survey plans to cover a wider perspective of human resources development including not only training but also career formation and ability evaluation. They both cover enterprises and their employees. However, their results are not comparable since they have different coverage: the former targeted establishments with 30 or more regular employees and the latter targets firms with 30 or more employees. In addition, the reply rates significantly dropped from the former to the latter: from 49% to 22% for enterprises and from 45% to 19% for employees. For the purpose of comparison with IALS data (which were gathered from 1994 to 1998), data from the Survey on Education and Training for 1998 are used. However, it should be noted that the data of the Basic Survey show significantly lower participation rates both for Off-JT (35% on average) and self-training (37% on average). Part of the reason for this discrepancy could be that the Basic Survey covers mostly smaller sized firms (about 70% are firms with less than 99 regular employees and only 7% are firms with more than 300 regular employees).

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Box 5.1. The International Adult Literacy Survey (IALS) and the Japanese Survey on Education and Training in the Private Sector (JSET) IALS is a large-scale household survey assessing adult literacy skills; 18 OECD countries participated in three rounds over the period 1994 to 1998. The survey is composed of two main parts, i.e. questions on background information and a booklet for testing literacy level. The information on lifelong learning used for comparison is extracted from the background information of questionnaire, which contains demographic and labour force status. JSET is a regular survey done every year by the Japanese Ministry of Health, Labour and Welfare. The survey is composed of questionnaires for establishments with 30 or more regular employees and for their employees. The data covered by this survey deal with the incidence of Off-JT and OJT at firms and the take up of Off-JT and selftraining by employees. In this survey, “Off-JT” means a type of training given by employers and for which employees need to be away from their usual work, “OJT” means a type of training given systematically by employers according to their in-house training plan and for which employees do not need to be away from their usual workplace, and “self-training” means a type of job-related training which is taken by employees at their own will (including the cases where the cost of training is subsidised by their employers or the government.) JSET is a regular survey done every year by the Japanese Ministry of Health, Labour and Welfare. The survey is composed of questionnaires for establishments with 30 or more regular employees and for their employees. The data covered by this survey deal with the incidence of Off-JT and OJT at firms and the take up of Off-JT and selftraining by employees. In this survey, “Off-JT” means a type of training given by employers and for which employees need to be away from their usual work, “OJT” means a type of training given systematically by employers according to their in-house training plan and for which employees do not need to be away from their usual workplace, and “self-training” means a type of job-related training which is taken by employees at their own will (including the cases where the cost of training is subsidised by their employers or the government.) There are some caveats in mind in using these survey data for comparative purposes. For example, despite identical methodology and instruments in IALS among countries, the training questions are very broad, thus this could have created some variations among respondents. Likewise, careful consideration should be given to the comparison of IALS and JSET data. Not only the purposes of the two surveys are different and the scope of target is much broader in IALS, but also there are differences in the coverage of training: the IALS data shown in the Table 5.2 and Figure 5.2 include all kinds of job-related training regardless of who initiated the training, while in the JSET questions about Off-JT and self-training are asked separately; and IALS excludes people who obtained training of less than six hours during the previous year, while there is no such restriction in JSET.

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Figure 5.2. Incidence of job-related training for employees by age in OECD countries Percentages 25-54

55+

60

60

50

50

40

40

30

30

20

20

10

10

an d Po l

um

(F l

an d

er s)

ly

la nd

Ita

Ire Be lg i

Sw i tz C er ze la ch nd R ep ub lic

da N et

he rla

nd s

lia

an a C

d

Au st ra

nl an Fi

U SA

0

Ja pa Ja n pa se n l fO tra ffJT in in by g em pl oy er D U en ni m te d ar Ki k ng N do or w m ay (E ng la nd N ew ) Ze al an d

0

Source: See Box 5.1.

Table 5.2. Participation in job-related training by employees Percentages Australia Belgium (Flanders) Canada Czech Republic Denmark Finland Ireland Italy Netherlands New Zealand Norway Poland Switzerland United Kingdom (England) USA Japan self-training 1998 Japan Off-JT by employer 1998

Total 36.7 18.6 35.5 26.3 52.5 44.1 22.8 24.6 30.6 44.8 49.8 16.1 29.2 49.5 44.3 56.4 55.5

Men 37.6 19.7 36.1 29.8 50.5 44.6 20.4 25 33.1 44.8 47.5 16.1 31.2 48.7 43.9 59.5 59.5

Women 35.5 16.7 34.7 22.1 55.1 43.4 27.1 24 26.3 44.9 52.7 16 26.5 50.4 44.7 47.8 44.4

Difference 2.1 3 1.4 7.7 -4.6 1.2 -6.7 1 6.8 -0.1 -5.2 0.1 4.7 -1.7 -0.8 11.7 15.1

25-54 38.0 18.5 35.9 26.4 54.8 44.9 24.1 25.2 31.9 47.1 52.0 16.7 30.0 51.8 45.6 57.5 55.8

55+ 23.3 20.6 28.3 24.0 36.9 35.0 12.7 18.0 14.2 27.8 34.7 6.9 25.7 33.1 37.3 54.7 46.8

Difference

14.7 -2.2 7.7 2.4 17.9 9.8 11.3 7.2 17.7 19.3 17.3 9.8 4.3 18.7 8.2 2.8 9.0

Source: See Box 5.1.

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However, in terms of training intensity, as measured by hours of training per employee, Japan is around the OECD average (Table 5.3).43 It is noteworthy that relative to men, Japanese women again compare a lot less favourably than in other OECD countries. a

Table 5.3. Incidence and intensity of Off-JT

Japand

UK

France

Germany

OECD averagee

Total Men Women 24 or less 25-34 35-44 45-54 55 or over Total Men Women Total Men Women Total Men Women Total Men Women

Incidence of Trainingb 35% 39% 27% 31% 35% 39% 35% 31% 49% 50% 46% 46% 48% 44% 32% 34% 29% 36% 36% 34%

Hours / participant Hours / employeec 34 36 25 49 34 34 29 23 26 27 25 36 38 33 27 28 25 34 34 35

12 14 7 15 12 13 10 7 13 14 12 17 18 14 9 10 7 12 12 12

a)

Off-JT relates events that take place away from the place of work, e.g. in a classroom or training centre, at which a group of people receive instruction from teachers/tutors/lecturers. b) Percentage of employees participating in Off-JT. c) Hours per participant multiplied by incidence of training. d) Firms with less than 30 employees are excluded. e) Unweighted average of 16 OECD countries. Source: Japanese Basic Survey on Ability Development 2001, European Continuous Vocational Training Survey 1999.

The Japanese government has been promoting the idea of “lifelong” human resource development. This could be why the participation rates for both Off-JT and self-training are high for both mid-career and older workers in Japan. To ensure better lifelong human resource development, the government is now focusing on assisting workers to develop the career formation assistance 43 .

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Here the Basic Survey on Ability Development is used. It points to a significantly lower incidence of training than the Survey on Education and Training in the Private Sector used in the previous comparison with the IALS. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

system and the ability evaluation system. The former is to help workers to have a better view of their life-long career formation through providing systematic and accurate information and consultation on careers. In addition to the focus on self-training and life-long human resource development, the government has increasingly put an emphasis on IT-related training and co-operation with private training facilities. 2.

Employment services

A.

Strengthening the Public Employment Service

Given the severe employment situation of older persons, it is essential that they have access to good employment services to help them find new jobs. The Public Employment Security Offices (PESOs) have been providing placement services, guidance and assistance to older persons, as well as a unique service of developing job opportunities for older workers by visiting local firms one by one. In addition, over the past several years, the government has been making intensive efforts to improve the placement services of PESOs. This has included: i) the creation of “Shigoto Joho Net (Job Information Network)” in August 2001 that provides information on job offers from both PESOs and private placement agencies through the internet; and ii) the provision of specialised services by career consultants inside PESOs. Particularly for older persons, the government has taken the following measures: i) there are special PESOs officers who provide placement services and occupational guidance to older workers and give guidance to firms on extension of the mandatory retirement age or continued employment; and ii) special offices have been created that support older job seekers or older incumbents (see Box 5.2). The placement rate of regular workers at PESOs (new monthly applicants/monthly placements) is quite low for older persons compared with younger groups (15% and 9% respectively for the age group of 60-64 and 65 or over, in contrast with 33% and 32% for the age group of 40-44 and 45-49 in October 2000.) The main reason is that active opening rates (monthly active opening / monthly active applicants) are very low for older workers (0.08 for the age group of 60-64 in contrast with 1.17 for the age group of 35-39). However, it should be noted that there was a small improvement in the placement rate for the age group of 60-64 in 2000 (from 13% in the past years to 15% in 2000). The expansion of services including career consultation, and introduction of specialised offices for older persons, may have contributed to this increase. This direction of improving the quality of information, and the technique of effective guidance and consultation at the public offices, including PESOs, should be pursued further. Attempts should be made to evaluate such initiatives rigorously in order to identify what works best for older workers and under what conditions. AGEING AND EMPLOYMENT POLICIES: JAPAN– ISBN-92-64-02109-4 © OECD 2004

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Box 5.2.

Special offices to support older job seekers or older workers

There are four types of specialized offices to support older persons to find jobs and an office/corner to support older incumbents to prepare for the latter stages of their career: i)

Talent Banks

The government started to set up Talent Banks as affiliated organizations to the PESOs in 1999 and there are already 26 of them in major cities throughout Japan. The Banks are providing placement services to job seekers aged 40 or over who used be in managerial positions or positions requiring specialized or technical knowledge. The Banks are intended to introduce skilled middle-aged and older workers to SMEs. ii)

Career Exchange Plazas

There are 12 Career Exchange Plazas. Middle-aged and older white-collar workers can enroll in Plazas that will support their preparations for job-seeking activities. The Plazas hold job-hunting assistance seminars that will help older persons to know better their market status and their skill level, and provide know-how for their job-seeking activities. The Plazas provide opportunities to job seekers to exchange their experiences. The Plazas are providing their services in close cooperation with Talent Banks. The rate of employment is about 37%. iii)

Older Persons Vocational Experience Utilization Centers

The Older Persons Vocational Experience Utilization Centers are public welfare organizations and provide free placement services and dispatching services specifically for older persons aged 60 and over. iv)

Industry Employment Security Center

The Industry Employment Security Center, a public welfare organization, provides matching services to middle-aged or old persons who are employed. The Center has placement services for jobs in foreign countries as well. v)

Elderly Employment Support Centers/Corners

The Elderly Employment Support Centers/Corners are established as an office or a corner of PESOs, one in every prefecture. They hold seminars and provide assistance to the middle-aged and older persons in work to develop their career life plans.

3.

Flexible and diverse work arrangements

A.

Encouraging diverse participation in society

The government has also been keen to encourage a more diverse participation in society by older persons, in order to pursue its “active ageing” objective. Active participation does not necessarily need to be in the form of traditional employment contracts. Japan has a very unique approach for more flexible and diversified pathways to retirement. In the mid 1970s, the Japanese government introduced the scheme of the Silver Human Resources Centres:

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public welfare organisations that provide free placement services for temporary, part-time lobs involving light tasks mainly to their older members or “affiliates” after mandatory retirement (over age 60). Such jobs are closely related to daily life in the local communities, including jobs in households and public offices. The centres are basically run voluntarily and autonomously by these welfare organisations, with financial support from central and local government. The number of affiliates to these Centres has been increasing and there are more than 640 000 of them. The government is eager to expand not only the number of affiliates, but also the functions of the centres (e.g. to include providing training). Promotion of volunteer activities among retirees is also of increasing importance. The government has also set up the Employee’s Volunteer Centre, which gathers and disseminates information on volunteer activities for retirees. The possibilities for some sub-contracting out to private and non-profit employment agencies of placement service for older job seekers with special needs should be considered, building on the experience of the Silver Human Resource Centres. B.

Promoting self-employed

The share of self-employed in total employment has been on a downward trend for a long time: down from 19% in 1970 to only 11% in 2001. The share of self-employed increases with age, 24% and 39% for the age groups of 60-64 and 65 or over respectively, in contrast to 6% and 9% for the age groups of 30-39 and 40-49, respectively, in 2001. But even for the age groups of 60-64 and 65 or over, the share of self-employed has been decreasing over time (in 1985, it was 32% and 44%, respectively). The downward trend of the share of self-employed partly accounts for the gradual decrease of labour participation rates of older persons aged 60 or over during the 1970s and 1980s. Thus, for older persons, self-employment is an important form of work. The Japanese government currently has designated an assistant organization specifically for older persons to gather start-up experiences of older entrepreneurs. In addition, the government has introduced the Subsidy to Create Joint Employment Opportunities for Older People. A group of three older persons (each 45 or older) jointly establishing a business and thus creating sustainable employment opportunities for themselves is eligible for the Subsidy. The level of benefit is two-thirds of initial expenses for the first six months to help establish the business.

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C.

Providing better arrangements for non-regular workers

The number of part-timers and dispatched workers (i.e. temporary workers who are supplied by dispatching agencies) has been growing rapidly. Part-time workers (i.e. persons working 1-34 hours on average per week) accounted for 20% of all employees in 2000 in contrast with 10% in 1980. The number of dispatched workers has increased even more rapidly. The share of dispatched workers among all employees jumped from 1.1% in 1990 to 2.6% in 2000 (Report on Employment Agencies 2001). To reduce personnel costs and manage specialised jobs efficiently, firms are likely to want to increase the share of non-regular workers in the future. In the past, during periods of slower growth, firms often adjusted their labour force by suppressing the number of irregular workers. However, during the most recent period of stagnant growth, firms have tended to replace regular workers with irregular ones. At the same time, more and more older workers might prefer non-regular forms of work, with more diversified values of working styles. Thus, potential labour supply could be better mobilised if older people could work in more flexible schedules that suit their preferences. However, it is necessary to improve working conditions for non-regular workers, who in the past have been used by firms as a less expensive source of labour than regular workers (i.e. easy to dismiss, less costly in terms of social security, low-paid, etc.). The report on Employment Systems for Diversified and Flexible Working Forms points out the potential problems associated with these two polarised ways of working: regular workers with high job security and good treatment (e.g. wages, fringe benefits, training) but restrictions on working hours, places to work, choice of tasks; and, in contrast, non-regular workers with low job security, low wages, and less access to social security, but with more freedom of working hours, places to work and tasks to do. This polarisation makes it a difficult task to try and find a middle ground between these two extremes and ensure “fair” working conditions. In order to achieve fairness among different working styles, developing systems for job specification and performance/ability evaluation is necessary. Although the means to encourage fair treatment of non-regular workers are limited, at least the government should make efforts to expand coverage of social security (pension, health insurance, employment insurance, etc.) to these non-regular workers. In this regard, the elimination of income requirements for part-time and dispatched workers to be covered by employment insurance in April 2001 was a step in the right direction.

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In addition, deregulation of non-regular forms of work is also very important in order to stimulate labour demand for non-regular employment. There has already been significant progress in this area. In 1999, the sectors where dispatched workers can work were broadened and now there are relatively few areas where dispatched workers cannot work. Further, there has been deregulation specifically for older persons. The maximum term of dispatching contracts was extended from one to three years specifically for older dispatched workers and the maximum duration of fixed-term contracts was also raised from three to five years for older workers aged 60 and over. There are an increasing number of older part-timers. The share of part-time workers increased from 23% in 1990 to 29% in 2000 for older men aged 60 or over and also increased from 43% in 1990 to 48% in 2000 for older women aged 60 or over. According to the Survey on Employment Conditions of Older Persons 2000, only 2.5% of older male employees aged 55-59 were actually working part-time (shorter hours per day or less days per week or month), and 27% and 39% respectively for the age groups of 60-64 and 65-69. In the case of women, 35% of older employees aged 55-59 were working part-time, and 53% and 60%, respectively, for the age groups of 60-64 and 65-69. The survey also examined the job preferences of older jobless who wish to work but cannot find jobs. 17% of such older men aged 55-59 answered they wish to work part-time, and 43% and 51%, respectively, for the age groups 60-64 and 65-69. Among older women, the rates are quite high (above 50%) irrespective of age. For older men, there is a wide gap between the desire for part-time jobs and the actual choice of work. This suggests there is a serious demand-supply gap for part-time jobs and more older men would take up such jobs if more part-time job opportunities were available. For older women, a large gap between desire and actual choice exists only for the age group of 55-59. In sum, developing demand for part-time work could be of increasing importance to lower unemployment rates and increase employment rates of older persons. However, should the government encourage employers to create more part-time jobs? One risk would be that full-time workers could be replaced with part-timers, and even with an increase in the number of part-time workers newly mobilised, total hours worked (i.e. the volumes of labour services available) might well decline. Therefore, the government should be careful about how many potential part-time workers can be mobilised and how much labour demand will exist in the society as a whole.

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Japan is expecting a falling labour force over the coming decades and special attention should be paid not only to participation rates but also to the number of hours worked. In this regard, it should be noted that the government’s current measures to improve personnel practices for part-time workers would increase their labour costs and thus these measures could result in suppressing the demand for part-time workers or in delaying the tendency of replacing full-time workers with part-timers. When considering policies for non-regular workers, due attention should also be paid to gender implications. Women’s share among irregular workers was 70%, while that among regular workers was only 30% [Labour Force Survey (Detailed Tabulation), 2002]. Improving the working conditions of nonregular jobs and achieving fair treatment between regular and non-regular positions could also serve as a key to reducing gender segmentation in the labour market. D.

Reducing work hours

Long work hours for full-time workers could be an obstacle for older workers to continue working full-time. In this area, the government has already made some progress. It introduced the Special Measures Law concerning Temporary Measures for the Promotion of Shorter Working Hours in 1992, and the average annual actual hours worked at firms with five or more employees has fallen from 2 064 hours in 1990 to 1 836 hours in 2001. However, hours of work for older workers in Japan continue to be long by international standards. Among older workers, the rate of absence from work is very low and the rates of workers working very long hours of 49 hours or more are noticeably higher compared to other countries (Table 5.4). Average weekly hours of work decrease with age, but even for the age group 60-64, more than 20% of them are working 49 or more hours per week (Table 5.5). The government should continue to push for lower working hours, perhaps by setting targets for reductions in work hours for older workers in particular.

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Table 5.4. Weekly hours of work for older workers aged 50 or over in selected OECD countries, 2001

35-48

49-59

60+

Average weekly a hours

Weekly hours worked (% of all workers aged 50 and over):

Total

0

1-34

Total Japan

100.0

2.2

29.4

44.8

12.6

10.7

40.3

France

100.0

8.8

21.0

52.3

9.4

8.5

35.4

Germany

100.0

5.1

24.9

52.6

8.1

9.3

35.8

Italy

100.0

4.9

16.9

63.2

8.8

6.2

37.5

Sweden

100.0

12.8

43.3

35.6

4.9

3.4

29.6

UK US

100.0 100.0

9.9 5.2

36.9 24.2

38.5 52.0

8.8 10.5

6.0 8.1

30.7 39.0

Japan

100.0

2.5

18.9

49.2

15.6

13.3

44.1

France Germany

100.0 100.0

8.3 5.0

10.6 9.0

57.0 61.8

12.3 11.2

11.7 13.0

38.8 40.6

Men

Italy

100.0

4.5

10.3

67.0

10.9

7.3

39.5

Sweden

100.0

10.0

38.6

39.5

6.4

5.5

32.5

UK

100.0

9.2

22.3

46.5

13.0

9.0

35.7

US

100.0

4.5

18.3

52.3

13.6

11.2

41.6

Women Japan

100.0

1.3

45.2

38.1

8.0

6.6

34.9

France

100.0

9.3

33.9

46.4

5.9

4.6

31.1

Germany

100.0

5.1

47.5

39.6

3.5

4.2

29.1

Italy

100.0

5.8

31.2

54.9

4.4

3.7

33.1

Sweden UK US

100.0 100.0 100.0

15.9 10.8 6.0

48.5 55.7 30.9

31.3 28.2 51.7

3.2 3.3 6.8

1.1 2.0 4.6

26.4 24.4 36.0

a) For people at work. Source: Japanese Labour Force Survey; European Labour Force Survey; US Current Population Survey.

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Table 5.5. Weekly hours of work in Japan by age and gender, 2001 Weekly hours worked (% of all workers in each age group): Total 0 1-34 35-48 49-59 60+

Average weekly hoursa

Total All ages 25-49 50+ 50-54 55-59 60-64 65+

100.0 100.0 100.0 100.0 100.0 100.0 100.0

1.6 1.4 2.2 1.4 1.8 2.3 4.0

24.4 20.0 29.4 23.0 23.3 33.8 45.2

46.5 47.3 44.8 48.6 49.8 42.4 33.8

14.7 16.6 12.6 14.6 13.7 10.9 9.2

12.4 14.4 10.7 12.1 11.2 10.4 7.9

42.2 44.0 40.3 42.6 42.2 39.3 34.6

Men All ages 25-49 50+ 50-54 55-59 60-64 65+

100.0 100.0 100.0 100.0 100.0 100.0 100.0

1.6 0.9 2.5 1.4 1.9 2.9 5.0

13.5 7.6 18.9 9.3 11.7 24.6 39.3

48.2 47.8 49.2 53.0 54.9 47.5 37.3

19.0 22.0 15.6 19.4 17.2 12.7 9.7

17.3 21.1 13.3 16.6 13.9 11.9 8.3

46.7 49.4 44.1 47.7 46.2 42.2 36.6

Women All ages 25-49 50+ 50-54 55-59 60-64 65+

100.0 100.0 100.0 100.0 100.0 100.0 100.0

1.7 2.1 1.3 1.1 1.3 1.3 1.7

40.1 38.3 45.2 42.1 40.8 48.0 55.0

44.0 46.4 38.1 42.4 41.7 34.2 27.8

8.5 8.4 8.0 8.0 8.3 7.9 7.8

5.2 4.5 6.6 5.8 7.1 7.9 6.7

35.7 35.9 34.9 35.7 36.3 34.5 31.6

a) For people at work. Source: Labour Force Survey.

E.

Improving the employment prospects of female older workers

Female older workers may face special problems requiring specific measures to help them retain and/or find jobs. Moreover, older women, in particular single older women, tend to face a higher risk of poverty. There is no policy directed specifically at older female workers. In fact, some measures for facilitating the employment of older persons may have more of an impact on the employment situation of male older workers than that of female older workers. For example, the Employment Continuation Benefit for the Aged would not be 138

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as beneficial to older women who do not go through mandatory retirement or experience as large a wage drop as do older men. On the other hand, there are measures, such as the family care leave system, which are not devised particularly for older female workers but actually would have a relatively more of a positive impact on female older workers than male older workers. This system could enable many women not to drop out of the labour market in the middle or the later stages of their career, and thus facilitate them building up longer careers in work. Better protection for irregular forms of work would be of special help to women to stay longer in employment, as already discussed above. Special training measures for (older) women, which could help to close the large training gap between sexes highlighted above (Table 5.2), could also be an effective policy to improve the employment situation of older women. More generally, the labour participation rates for women have been increasing both for younger age groups and older age groups. The rates for older women are projected to increase slightly in 2010 (Koyou Seisaku Kenkyuukai, 1999), based on the fact that the rates for younger women have risen.

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