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Japan Table of Contents


Aging and Retirement of the Labor Force

Japan's population is aging. During the 1950s, the percentage of the population in the sixty-five-and-over group remained steady at around 5 percent. Throughout subsequent decades, however, that age-group expanded, and by 1989 it had grown to 11.6 percent of the population. It was expected to reach 16.9 percent by 2000 and almost 25.2 percent by 2020 (see Population , ch. 2). Perhaps the most outstanding feature of this trend was the speed with which it was occurring in comparison to trends in other industrialized nations. In the United States, expansion of the sixty-five-and-over age-group from 7 percent to 14 percent took seventy-five years; in Britain and the Federal Republic of Germany (West Germany), this expansion took forty-five years. The same expansion in Japan was expected to take only twenty-six years.

As Japan's population aged, so did its work force. In 1990 about 20 percent of the work force was made up of workers aged fifty-five and over (see table 18, Appendix). The Ministry of Labor predicted that by 2000 about 24 percent of the working population (almost one in four workers) would be in this age-group. This demographic shift was expected to bring about both macroeconomic and microeconomic problems. At the national level, Japan may have trouble financing the pension system. At the corporate level, problems will include growing personnel costs and the shortage of senior positions. If such problems become severe, government will be forced to develop countermeasures.

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

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

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

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

Data as of January 1994