The Japanese Economy Needs its Older Workers

Japan has remained steadfast to the idea that immigration is not a solution to the "problem" of its aging population. So, what to do? An article just published in the open source journal Demographic Research lays out a policy initiative--keep older workers in the labor force while giving them the new skills they need to remain economically productive. The authors, by the way, are long-time experts on the demography and economy of Japan and need to be listened to.

In spite of the aging of the population and increasing life expectancy, many Japanese companies maintain mandatory retirement policies at the relatively young age of 60. The Japanese government is currently attempting to encourage firms to increase the mandatory retirement age to 65. The Law Concerning Stabilization of Employment of Older Persons, passed in 2004, requires firms to increase the age of mandatory retirement to 65; however, no penalties were specified for noncompliance and to date few companies have complied.

Given these long term trends and projections of future demographic change, it is easy to understand the importance of high labor force participation rates among older men and women. It is equally important for older workers to maintain and enhance their human capital if they are going to continue to make substantial contributions to the national output.

Although people are forced to retire at a relatively young age in Japan, the labor force participation rate among males 65 and older in Japan is higher than in Europe, but they tend to go into part-time work that is much less productive economically. The authors suggest that everyone needs to have a higher level of financial literacy in order to understand what the future may hold for them. Indeed, everyone needs some sort of lifelong learning (my term, not theirs, although it seems to be what they are saying) in order to be in a position to contribute to a company's bottom line well into old age. Since there are ever-fewer young Japanese coming along to run the nation's businesses, this is probably the only policy that has any chance of successfully maintaining the nation's standard of living.