As Japan's population ages, the nation's pension finances are becoming precarious. Japan can no longer avoid raising the pension eligibility age.
When the pension eligibility age is raised, many elderly people will try to defer their retirement in order to maintain their current standard of living. But a barrier they face is the compulsory retirement system. Even if they want to find a new job at another company after retirement, there are few companies willing to hire elderly people, and only a handful of them can find a new job where they can utilize the skills they have acquired over the years. In fact, research by Keio University President Atsushi Seike and Professor Atsuhiro Yamada has shown that the probability of retired elderly people landing a new job is low.
About 10 years ago, the retirement age in Japan in many cases was set at 60. The pension eligibility age was generally 60, ensuring a smooth transition to living on a pension upon retirement. However, as the retirement age is in the process of being raised to 65, companies are also coming under pressure to continue employing their workers until age 65.
The government, for its part, partially revised the Law Concerning Stabilization of Employment of Older Persons (Law No. 68 of May 25, 1971), calling on companies to continue employing workers until age 65. Companies have the option of either abolishing compulsory retirement, deferring the retirement age, or rehiring retired workers, but most companies are rehiring their retired workers. The main reason is to terminate the existing employment contract at retirement age, and then rehire the person at a significantly lower wage.
According to research conducted by Yokohama National University Associate Professor Ayako Kondo, the enactment of the amended law actually has increased the labor participation rate for people in their early 60s. Some economists criticize this law for limiting opportunities for young workers by forcing companies to continue employing elderly workers.
This is due to companies possibly refraining from hiring young workers to limit the total labor cost as they try to maintain the employment of elderly workers. It is not yet clear whether this is actually occurring; we need to wait for further research results.
* Translated by RIETI from the original Japanese "Yasashii Keizaigaku" column in the October 29, 2013 issue of Nihon Keizai Shimbun.
