Some argue that as the labor force participation rate of the elderly rises, the unemployment rate of young people goes up. This argument seems like a self-evident truth. However, it is based on the assumption that there is a limited number of jobs which are shared among workers, but this is not always the case.
If elderly and young people are equal substitutes as workers, the hiring of elderly people may mean lost opportunities for young people. However, if the elderly and young people have different skills as workers and are complementary in the production process, companies may be able to keep the older workers to teach skills to the young workers, and, at the same time, increase the employment of young workers.
If there are more opportunities to work for both the elderly and the young, it may bring worries that production may grow excessively, leading to an oversupply in the economy. However, people who earn income through work can increase their spending, thus both elderly and young workers can increase consumption to absorb the extra production. In such scenario, both elderly and young workers can achieve higher living standards.
If increasing consumption becomes unnecessary, elderly and young workers can reduce both their working hours and income, thus increasing their leisure time and making life more enjoyable.
If we seek to create a society where both the elderly and young people can work efficiently by removing the barriers which prevent workers from working if desired, the adjustment function of the market will operate effectively to make life more enjoyable. However, the government occasionally needs to support this market function by revising laws to make it work effectively.
We also need to look at individual policy measures objectively, checking whether they are hindering the adjustment function or if they are based on a utopian view that sets impossible goals. In addition, we must evaluate whether the measures are achieving their goals through empirical analysis.
* Translated by RIETI from the original Japanese "Yasashii Keizaigaku" column in the October 30, 2013 issue of Nihon Keizai Shimbun.
