Reexamination of Mandatory Retirement System in Japan

Atsushi SEIKE (Professor, Keio University)

Japan is experiencing an unprecedented move toward aging society with more than 20 percent of its population aged 65 or older now, and the percentage to be 25% around the year 2014. In order for the rapidly aging nation to maintain its vitality, it is necessary to realize a "life-long working society," where those elderly people who are willing and able to work can continue working to their full potential as long as possible. Before discussing how to achieve such an ideal situation, let us examine the current state of employment for elderly workers in Japan.

First of all, the number of elderly employees has consistently been increasing for the last three decades. In 1975, there were about 4,800,000 elderly employees aged 60 or older, and the number increased to 10,030,000 by 2007, growing much faster than the total number of employees of all ages. This phenomenon has resulted primarily from the fact that elderly population has been rapidly growing in Japan, but also from the interaction of supply and demand for elderly workers. So we shall next examine the supply side and demand side of the equation.

The supply of labor of elderly workers is a product of their total population and their labor participation rate, where the former has been increasing, and the latter has been declining over time. According to our recent empirical studies (see the reference), the labor participation rate among the elderly largely depends on three factors, that is, health, public pension and mandatory retirement. While health is the most significant factor of all, it is noteworthy that the mandatory retirement system accounts for close to a 20 percent decrease in the labor participation rate of elderly people. Even today, more than 90 percent of companies with 30 employees or more have a mandatory retirement system with 60 years old as their retirement age.

On the demand side, it is clear that very few companies are actively seeking elderly workers, as reflected in the widespread mandatory retirement system among typical Japanese companies. While recent revisions in the Elderly Employment Stabilization Act were intended to encourage companies to raise their mandatory retirement age to 65, still few companies have so far adjusted their retirement age accordingly, while many companies are adopting a kind of rehiring system, although only 60 percent of the companies recently surveyed are actually rehiring all of those elderly workers who wish to work beyond the retirement age (see the reference). This means that the reality is far from a "life-long working society."

How about the "quality" of employment for the elderly to receive as a result of the interaction of supply and demand? While a majority of elderly workers would like to be regular employees, they are actually employed as dispatched or contractual workers with much lower wages than before retirement. Furthermore, less than half the elderly employees who are rehired after retirement and receiving some public pension are doing the same type of work as before retirement (see the reference). This may well mean that elderly workers are not allowed to utilize their full potential at work even though they continue to work after retirement. In other words, the quality of employment for the elderly tends to decline significantly, primarily due to the mandatory retirement system.

As seen above, elderly employment has been increasing, rather rapidly in recent years, at least quantitatively, thanks to public policies including legal measures to require companies to employ their workers until 65 years old in some form, but there is still much room for improvement in terms of government policies in this field. In particular, the mandatory retirement system remains to be the main obstacle for the elderly to work effectively beyond 60 years old or so, and opposite to the ideal of a life-long working society, as elderly people are forced to retire purely based on age, regardless of their will or ability. Therefore, reexamination of this system is urgently needed.

As is well known, age discrimination at work and mandatory retirement are legally prohibited in the U.S. and EU nations. Since Japan is becoming an aging society faster than those nations, more serious efforts should be made to realize a life-long working society. For that purpose, it is not satisfactory just to require companies to offer employment opportunities in any form to elderly workers until 65, since they are often employed not as regular workers, but rather as dispatched or contractual workers, as pointed out before. It is about time to discuss this matter seriously among management, labor and policy makers, and adopt at least the same kind of rules as those in the U.S. and EU nations, prohibiting age discrimination at work and reexamining the mandatory retirement system in Japan.

REFERENCE:
Atsushi Seike "Kawaru Koreishano Hatarakikata" (Changing Work Style for the Elderly), The Keizai Seminar, September 2008.