Social Safety Nets in Japan <RIETI Featured Fellow> AKAISHI Koichi

RIETI is hosting a policy symposium on changes in corporate management and social safety net on November 19, 2002. Unfortunately, the event will only be in Japanese, but on this occasion, we would like to introduce the discussion about the social safety net in Japan. For that, RIETI Report interviewed Fellow Koichi Akaishi on the background and underlying contention on safety net issues in Japan, the world's most rapidly aging country.

AKAISHI Koichi
Koichi Akaishi became a fellow at RIETI in 2001. After receiving a B.A. in Law from University of Tokyo in 1985, he joined MITI. He dealt with Industrial Location Policy, Alternative Energy Policy, Science and Technology Policy, Commodity Exchange Policy, WTO, APEC, and Service Industries etc. His expertise is corporate governance, international economics, and safety nets.

His column"Safety net as a system"
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REITI Report: Please explain the background and basic debate regarding the social safety net?

Koichi Akaishi: The fact that Japan is one of the world's fastest aging societies lies behind the looming anxiety over a social safety net. A dwindling birthrate and rapidly aging population should not be taken as a mere social phenomenon. This is an issue plaguing the nation's political, economic and social systems as a whole. It is expected that China and other Asian countries will eventually face the problem of aging society. In this regard, Japan is in the vanguard of a "magnificent experiment" to create a sustainable society amid the aging of its population.

From the microeconomic point of view, the aging population poses a significant negative impact on Japan's industrial competitiveness by imposing greater welfare burdens on companies. In the macroeconomic aspect, the decreasing population itself is a major factor. In addition, changes in demographic composition - the growing proportion of a less consumption-oriented elderly population and the decreasing number of children - would further dampen overall demand, and the shrinking labor force will inhibit growth from the supply side.

The existing system has been built on the premise of high economic growth, heavily depending on companies and families for social welfare. But the high growth period has long gone and globalization is fast proceeding. Japanese companies can no longer afford any further burdens. Given such circumstances, some say that the state should take a greater role in social welfare. Others, however, oppose the idea, saying a greater role of the government would result in the"Olson Problem,"that is, the larger the size of the group of beneficiaries, the less likely the group goal is achieved. Specifically, they fear that an expansive social security system may create a moral hazard in which people, having little sense of belonging to the system, try to become a free rider. Thus, the opponents to a big government believe that reforms should be carried out while retaining the foundation of the existing social welfare system supported by companies.

The unfavorable environment surrounding working women has been blamed as the largest factor behind the falling birthrate in Japan. The work pattern of Japanese women remains typical of the M-Curve quit-and-return structure with the female employment ratio substantially down during the marriage and child-bearing years. Although many women return to the labor market after child-rearing years, most of them do so as an expendable part-time workforce. In this regard, Japan is far behind other countries in female participation. Furthermore, a failure to fully utilize the high-quality female workforce has a negative impact on Japan's industrial competitiveness. Rising ratios of divorce and unemployment mean higher risks for women, especially housewives, and this explains why many married working women hesitate to have children.

To change the situation, both the government and companies have been urged to enhance the support for working mothers, for instance, eliminating the upper age limit in recruiting and reinforcing child-care services. But some fear that such measures may backfire. Citing data showing that companies with a more expansive child-care leave system tend to hire fewer women aged 20 to 24, they say that women's job opportunities may be reduced if the cost of hiring women is boosted by forcing companies to reinforce such support systems. Thus, although a general consensus has been made on the need to increase female participation in the job market, how to achieve it remains controversial. This will be one of the focal points in the Nov. 19 symposium.

"An Econometric Analysis of Trade Diversion under NAFTA" (02-E-011)
by Kyoji Fukao,Toshihiro Okubo and Robert M. Stern
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