Japan should reform retirement policies to meet challenge of ageing workforce

This article is brought to you in association with OECD.

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Japan must improve job quality and further reform the mandatory retirement age to address upfront the challenges of its rapidly ageing and shrinking labour force, according to a new OECD report. Working Better with Age: Japan highlights that Japan has the highest old-age dependency ratio of all OECD countries, with over one person aged 65 and over for every 2 persons aged 20 to 64 in 2017. This is projected to rise to almost 8 for every 10 in 2050. If work patterns remained unchanged in Japan, its labour force will fall by 8 million by 2030. However, this could be reduced to a smaller fall of 2.4 million if conditions are created to allow older people to continue contributing their skills to the economy, and if more women are encouraged to remain in the labour force. “Japan already has one of the highest participation rates for older people in the OECD”, said Gabriela Ramos, OECD Chief of Staff and G20 Sherpa, at the launch of the report taking place in Tokyo. “But Japan needs to do more to make its labour market more inclusive for women, non-regular workers and the many workers who face a job change following mandatory retirement at 60.” Further progress in fulfilling G20 commitments to reduce the labour participation gap between men and women by 25% by 2025 will help offset a shrinking labour force while boosting incomes and pensions at older ages and reduce inequality. The report stresses that some progress has been made to encourage employers to retain older workers after mandatory retirement up until the age of 65. However, due to Japanese employment practices, these workers are often re-hired as non-regular workers in poor quality, insecure and low-paid jobs. Encouraging greater involvement of Japanese women at younger ages in the labour market is also an important factor to increase the labour force, the report notes. At just under 78% in 2017, the participation rate of prime-aged women (25-54) in Japan is well below the rate in a number of other advanced OECD countries. Even for those Japanese women who return to work after having children, poor job quality is an issue as many of them end up in a non-regular job, with a junior, part-time position. Greater opportunities for flexible working are necessary, to allow women to manage better their work and caring responsibilities for children and elderly parents. This would help keep women in the workforce. Reforming employment regulation as well as seniority wages that encourage employers to use more precarious forms of employment would help tackle labour market dualism. At the same time, providing non-regular workers with more training and better working conditions, such as reducing excessive overtime hours would improve their employability and chances of continuing to work at an older age. Recent government initiatives to promote a job- and performance-based system for setting wages and tackle excessive hours of work have the potential to help improve the productivity and working conditions of older workers. Fundamentally, cultural change is needed to promote a more balanced work life balance, which could deliver better for all but particularly for the elderly, women and children. “Towards the end of their working lives, older workers deserve better than non-standard contracts, if they still wish to work. We should also ensure society can fully benefit from the wisdom, skills and experience that eldery people bring to the labour market as well as to the broader economy. Japan must therefore increase the mandatory retirement age to reduce this risk, and in the long-term abolish it altogether as done in several other OECD countries”, said Gabriela Ramos. Providing good opportunities for workers to upgrade their skills and learn new ones throughout their working careers is also a key requirement for fostering longer working lives in good quality jobs. The OECD recommends that Japan take further action in a number of areas:

• Undertake further reform of mandatory retirement age and seniority wages to encourage employers to hire and retain older workers
• Tackle labour market dualism by reducing the incentives for employers to hire workers using non-regular, precarious forms of employment
• Invest in lifelong learning to support the good foundation skills among older and younger Japanese adults and reduce inequalities in training participation by age, skill and type of employment contract
• Improve job quality to increase opportunities for workers to continue working at an older age by: tackling excessive hours of work; adequately implementing the Work Style reforms; and adopting more systematic and obligatory psychosocial risk assessment of working practices
• Boost opportunities to combine work and care for children and elderly parents in order to help women to (re-)enter and stay longer in the workforce