Intergenerational Conflict in Japan: The Duality of the Labour Market

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ILC-UK at the Japan Foundation

Recently, ILC-UK attended a seminar at the Japan Foundation entitled, ‘Challenges of an Ageing Society.’ The Foundation invited speakers from Kobe University to discuss the economic impacts of ageing and the ways in which Japan is tackling these challenges.

Japan was labelled a ‘Star of Ageing’ by the chair, Dr. George Leeson from the Oxford Institute of Population Ageing. The country has had to adjust to a rapidly ageing population in a fraction of the time in which Europe experienced its demographic transition. It has the highest average life expectancy in the world and surpassed Italy in 2005 to become the world’s oldest nation. The primary reason for this dramatic ageing is the declining number of births; the total fertility rate went from 4.3 in the late 1940s to well below replacement level (1.39) by 2010. To compound these demographic issues, Japan experienced a dramatic decline in economic growth between 1992 and 2002 (a period referred to as the ‘lost decade’) which has led to a ‘dual’ labour market.

In terms of current rates of economic activity for older workers, Japan has some of the highest in the OECD. 62.1 per cent of all 55-64 year olds are employed, whilst the EU average is only 42.3 per cent [1]. Professor Naoki Mitani argued that this is because the country did not adopt the early retirement policies which European countries implemented in the 1980’s to combat youth unemployment. Furthermore, Japan’s ‘Elderly Employment Stabilisation Act’ encourages employment after state pension age by requiring private companies to secure job opportunities for their older workforce until age 65. After this point many firms continue to offer work to older employees at a lower rate of pay, which is a popular option as it enables workers to simultaneously earn and collect their pensions [2].

Surprisingly, Japan has been slower than many European countries in implementing increases in state pensionable age. State pension age (SPA) is set to increase gradually from its current level of 60 to 65 by 2025. One of the main obstacles to raising SPA is related to the wage system; postponing retirement leads to larger wage bills.

The ‘dual’ nature of Japan’s labour market is striking. The practice of lifetime employment practice (shushin koyō), combined with the age-linked wage system [3] and an increased reliance on part-time workers means that whilst permanent jobs are strongly protected, a new pool of young part-time workers (hiseiki roudousha)and young unmarried women are struggling to find job security. Part-time workers are usually given fewer benefits, lower pay and have less job security.

At the same time, re-entrance to the labour market is notoriously difficult and age-based discrimination is reflected in job advertisements which overtly stipulate the upper age limits of the applicant.

The deterioration of the youth labour market from the early 2000s has led to an increase in numbers of ‘NEETS’ [4] and ‘friitaas’. The government classifies NEETS as completely outside the labour force whilst ‘friitaas’ are engaged in temporary or part-time employment [5]. These employees are poorly paid and receive very little training. This leads to reduced ability to marry and start a family (which in turn further depresses fertility). The pay gap in the labour market contributes to rising inequality in the country; many part-time employees do not work enough hours to be included in the pension system and the lack of training bodes ill for the future skill set of this sector of Japan’s labour force.

Whilst a Japanese study has found that firms with higher proportions of older workers are less likely to employ new graduates [6], a recent analysis from the Institute for Fiscal Studies has found that there is no evidence of ‘crowding-out’ of younger individuals from the labour market by older workers in the UK [7].

Problems of economic stagnation, unemployment, and underemployment are compounded by new social security challenges posed by the need to finance the pension, medical and social care of an ageing population. To cope with the increasing duality of Japan’s labour market, the seminar concluded that employment of the old must not disadvantage employment of the young and that the burden of economic difficulties facing Japan in 2012 must be shared between generations. When it comes to the labour market then, perhaps the UK is doing something right!

Florence Vojak

[1] The Japanese Employment System: Adapting to a New Economic Environment. Marcus Rebick
[2] The Japanese Employment System: Adapting to a New Economic Environment. Marcus Rebick
[3] The age-linked wage system means that pay increases steeply for both white and blue collar workers until age 45 and is then maintained until retirement.
[4] NEETS are those ‘not in employment, education or training’.
[5] Aging, Economic Growth, and old age security in Asia
[6] Nita, M. (2003). Henka no naka no koyō shisutemu (The Employment System in a Changing Japanese Society). Tokyo: Tokyo University Press.
[7] Releasing Jobs for the Young? Early Retirement and Youth Unemployment in the UK

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