Addressing the Institutional Disincentives to Elderly Employment in Japan

         
Author Name OSHIO Takashi (Faculty Fellow, RIETI) / SHIMIZUTANI Satoshi (Nakasone Yasuhiro Peace Institute) / OISHI Akiko (Chiba University)
Creation Date/NO. October 2019 19-E-080
Research Project Study on the Medium- to Long-term Social Security System
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Abstract

This study examines how the decisions of the elderly regarding work/retirement and hours worked are related to the public pension and other related programs by constructing a single index of implicit tax (ITAX) that incorporates various factors related to institutional disincentives to working in Japan. Our regression model underscores that public pension and other related programs, taken together, discourage the elderly from working. Based on the regression results, we conduct simulations to show the extent to which three policy reforms, that is, (1) abolishing the earnings test for pension benefits; (2) raising the age of eligibility for pension benefits; and (3) extending the wage subsidy for the elderly, can encourage the elderly to stay in the labor force longer and work longer hours. The simulation results highlight the relative effectiveness of raising the age of eligibility.