Gudrun Biffl

The economic policy challenge of an ageing society: The case of Austria and Japan

Ageing in Japan and Austria, Seminar of the Universities of Vienna and Kyoto, Kyoto

17-24 September 2005

18.04.23

Demographic Ageing more pronounced in Japan than

Austria

Japan has one of the oldest populations in the world, while Austria has a more intermediate position

However, demographic ageing (proportion of 65+ in total population, life expectancy at birth) is no reliable indicator of the economic burden of ageing, i.e., impact on economic growth

The economic burden and the dynamics over time depend on the employment rate of the population, productivity growth and the public transfer system, in particular old age pensions

18.04.23

Economic burden of ageing in Japan not higher than in

Austria Because of higher employment rate of older workers

Better prospects of productivity growth due to more investment in higher education and a healthier older work force

Lower pension outlays than in Austria – Austria‘s public pension outlays are amongst the highest in the OECD (14.5% of GDP in 2001, including administrative costs), while Japan holds an intermediate position (8% of GDP in 2001)

Japan is projected to experience a similar rise in expenditures on public old-age pensions as Austria, namely 3 percentage points in terms of GDP between 2000 and 2050.

18.04.23

Facts and Figures

Life expectancy Public pension outlays in % of GDP Labour force participation by age and gender

Unemployment rates Education level of older workers (50-64) between 2000 and 2025

Average effective versus official age of retirement

Age-earnings profile Average job tenure Relative hiring intensity by age

18.04.23

Life Expectancy at Birth

65

67

69

71

73

75

77

79

81

83

Yea

rs

Austria Japan Germany Sweden USAS:OECD

18.04.23

Public Old Age Pension Expenditures in % of GDP

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

In %

Austria Japan Germany Sweden USAS: OECD

18.04.23

Significantly lower labour force participation of mature workers in

Austria Activity rates of mature workers are at opposite ends in Austria and Japan – limited scope for further increase in Japan

The activity rate of prime age women in Japan significantly lower than in Austria – scope for further increase

Low activity rate of mature workers in Austria in the main the result of sharp drop of labour force participation of workers with low skills - one of the highest in the OECD while Japan has one of the lowest declines

Because: Austria has fewer low wage/low productivity job opportunities for older workers and more generous retirement regulations

18.04.23

Participation rates of men by age in OECD countries, 2003

Men aged 25-49

80 85 90 95 100

HUN

AUS

SWE

TUR

NOR

POL

NZL

FIN

USA

IRL

GBR

KOR

BEL

DNK

CAN

ITA

ESP

DEU

PRT

NLD

FRA

SVK

GRC

AUT

CZE

CHE

LUX

J PN

MEX

ISL

Men aged 50-64

0 20 40 60 80 100

HUN

TUR

POL

BEL

LUX

AUT

ITA

FRA

DEU

SVK

FIN

GRC

NLD

AUS

CZE

ESP

PRT

IRL

GBR

CAN

USA

DNK

KOR

NOR

SWE

NZL

CHE

MEX

J PN

ISL

Men aged 65-74

0 20 40 60 80

FRA

SVK

BEL

LUX

HUN

ESP

AUT

DEU

FIN

ITA

NLD

CZE

POL

SWE

GRC

DNK

GBR

AUS

CAN

IRL

CHE

NOR

NZL

USA

PRT

TUR

J PN

KOR

MEX

ISL

a) 2002 data for Iceland and LuxembourgS.: European Labour Force Survey and national labour force surveys.EULFS for Austria, Netherlands and Switzerland

18.04.23

Participation rates of women by age in OECD countries,

2003Women aged 25-49

0 20 40 60 80 100

TUR

MEX

KOR

ITA

GRC

J PN

LUX

ESP

IRL

HUN

AUS

NZL

USA

BEL

GBR

NLD

DEU

POL

CZE

CHE

FRA

AUT

CAN

PRT

NOR

DNK

FIN

SWE

SVK

ISL

Women aged 50-64

0 20 40 60 80 100

TUR

ITA

LUX

BEL

ESP

MEX

GRC

AUT

POL

SVK

HUN

IRL

NLD

DEU

KOR

CZE

FRA

PRT

AUS

J PN

GBR

CAN

USA

CHE

FIN

NZL

DNK

NOR

SWE

ISL

Women aged 65-74

0 10 20 30 40 50

FRA

BEL

LUX

SVK

ESP

HUN

ITA

AUT

FIN

DEU

NLD

CZE

GRC

IRL

AUS

POL

CAN

SWE

GBR

DNK

CHE

NZL

TUR

NOR

MEX

PRT

USA

J PN

KOR

ISL

a) 2002 data for Iceland and LuxembourgS.: European Labour Force Survey and national labour force surveys.EULFS for Austria, Netherlands and Switzerland

18.04.23

Higher unemployment of unskilled older workers in Austria in addition to lower labour force participation

rate

While total unemployment is equally high in Austria and Japan (5.4% in 2003), highly skilled workers have lower unemployment rates in Austria than Japan and unskilled ones higher rates, particularly older workers.

Low-skilled older workers have a significantly higher unemployment rate than high skilled workers in Austria, i.e., plus 5.6 percentage points compared to 2 percentage points in Japan.

18.04.23

Unemployment rates by educational attainment level, age

and gender, 2002

Men Women Total

25-49 50-64 25-49 50-64 25-49 50-64

JPN L 7,9 6,3 5,9 3,6 7,2 5,2

M 4,6 5,2 5,3 3,6 4,9 4,6

H 2,5 3,9 4,0 1,5 3,1 3,2

AUT L 8,0 9,1 5,8 5,4 6,8 7,2

M 3,0 5,4 3,1 5,0 3,0 5,2

H 1,8 1,6 2,0 1,7 1,9 1,6

18.04.23

Job opportunities for unskilled workers decline in Austria and

Japan due to:

Skill-biased technical change and unskilled labour saving industrial restructuring

Outsourcing and off-shoring: Austria relocated a large proportion of low to medium skill labour-intensive production lines to Central and Eastern European countries, and Japan to Asia.

High-skill labour-intensive and capital intensive production expands in the home country, often feeding outsourced/off-shored suppliers into the value added chain

Results in economic and productivity growth but little employment growth, particularly of low skilled workers.

18.04.23

Japan invests heavily in higher education; Austria is late in developing a learning society,

migrants continue to be low skilled (50-64 by education)

17,122,4

28,3 28,8 28,736,4

22,1

46,8

21,424,8

57,1

64,9 54,459,6

42,0

51,9

49,4

47,2

59,7

68,7

25,8

12,717,3

11,6

29,2

11,7

28,4

6

19,0

6,5

0%

20%

40%

60%

80%

100%

Austria(2000)

Austria(2025)

Germany(2000)

Germany(2025)

Sweden(2000)

Sweden(2025)

Japan(2000) Japan(2025) UK (2000) UK (2025)

Tertiary Upper secondary Less than upper secondary

Sources: For 2000, OECD, Education at a Glance; for 2025, OECD estimates based on the data for 2000 and obtained by applying participation rates by educational attainment, gender and 5-year age group for the population aged 50-64 to the corresponding pop

18.04.23

Pension regimes; exit versus move out of career jobs into secondary

jobs Japanese workers continue to work beyond the effective retirement age while Austrians exit well beforehand because of

the higher pension replacement rates in Austria (more than 70% versus some 30% in Japan) as well as more generous welfare benefits.

In Japan, a large proportion of older workers continues to work after losing their ‘career’ jobs; they tend to move into jobs with somewhat lower wages and working conditions, often combining work and retirement pay or welfare benefits .

18.04.23

Average effective age of retirement versus the official age,

OECD, 1997-2002 - Men

50

55

60

65

70

75

Mexic

o

Japan

Icela

nd

Kore

a

Switze

rland

Portugal

Denm

ark

Irela

nd

United S

tate

s

New

Zeala

nd

Norw

ay

Sweden

Aust

ralia

Canada

United K

ingdom

Turk

ey

Gre

ece

Cze

ch R

epublic

Spain

Italy

Neth

erlands

Germ

any

Pola

nd

Finla

nd

Luxem

bourg

Aust

ria

Slovak R

epublic

France

Belg

ium

Hungary

Effective Official

a) The average effective age of retirement is derived from the observed decline in participation rates over a 5-year period for successive cohorts of workers (by 5-year age groups) aged 40 and over.S.: OECD estimates derived from the European and national labour force surveys.

OECD Average

18.04.23

Average effective age of retirement versus the official age,

OECD, 1997-2002 - Women

50

55

60

65

70

75

Icela

nd

Mexic

o

Kore

a

Irela

nd

Japan

Portugal

Switze

rland

United S

tate

s

Norw

ay

Denm

ark

Sweden

Turk

ey

Canada

Spain

New

Zeala

nd

United K

ingdom

Gre

ece

Aust

ralia

Italy

Germ

any

Luxem

bourg

Finla

nd

France

Neth

erlands

Aust

ria

Pola

nd

Cze

ch R

epublic

Belg

ium

Slovak R

epublic

Hungary

Effective Official

a) The average effective age of retirement is derived from the observed decline in participation rates over a 5-year period for successive cohorts of workers (by 5-year age groups) aged 40 and over.S.: OECD estimates derived from the European and national labour force surveys.

OECD Average

18.04.23

Steep age-earnings profile in Austria and Japan (men)

Pronounced age-earnings profiles are incentive for firms to early retirement

Age-earnings curve declines sharply for men after the age of 55. Japanese women have a much flatter age-earnings curve than men, i.e., the concept of lifetime employment and seniority wages does not really apply to them.

Age earnings profiles in Austria continue to rise with age for men and women alike, thus effectively forcing the less productive out of employment.

18.04.23

Average job tenure of employees (years) in selected OECD countries,

2000

0

5

10

15

20

25

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Austria Germany Sweden Japan UK

0

5

10

15

20

25

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Men Women

18.04.23

Age-earnings profiles in selected OECD countries, 2000

90

110

130

150

170

190

210

230

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Austria Germany Sweden Japan UK

90

110

130

150

170

190

210

230

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Men Women

18.04.23

Japanese labour market of mature workers is more flexible than the

Austrian

Japan has: more part-time work particularly of older

workersA significantly higher hiring intensity of

older workers - ratio of hiring rate (proportion of employees with tenure less than one year in current job) by age group relative to hiring rate of all ages

a larger proportion of older workers are self-employed (32% versus 22% in Austria)

18.04.23

Part-time work by age and gender, 2003 Percentage of total

employment

Both Men Women

25-49 50-64 25-49 50-64 25-49 50-64Netherlands 26,6 31,6 4,5 11,7 53,7 63,7

Australia 23,5 27,5 7,7 12,8 42,8 47,9

Germany 21,6 23,5 4,4 6,3 42,4 46,6

Iceland 21,4 18,8 6,1 4,4 38,8 34,3

Norway 21,2 25,0 7,0 8,5 37,2 43,7

Japan 21,1 27,3 8,5 14,8 39,8 45,8

United Kingdom 20,6 28,6 4,0 11,6 41,2 49,8

Belgium 19,9 23,4 4,1 10,1 39,5 45,7

Austria 19,6 17,6 3,5 4,0 39,7 38,6

New Zealand 19,1 21,9 5,9 9,9 34,4 36,8

Sweden 18,3 21,5 7,0 10,5 30,6 33,1

18.04.23

Relative hiring intensity by age, 2000

15 - 24 25 - 49 50 - 64

Australia 1,8 0,9 0,5

Austria 4,7 0,4 0,1

Belgium 3,6 0,8 0,2

Denmark 2,2 0,9 0,4

Finland 2,9 0,8 0,4

France 3,4 0,9 0,3

Germany 2,5 0,9 0,4

Japan 3,6 0,7 0,5

Korea 2,3 0,8 0,8

Netherlands 1,9 0,9 0,4

Norway 2,7 0,9 0,3

Sweden 3,0 1,0 0,3

Switzerland 2,5 0,9 0,3

United Kingdom 2,4 0,9 0,5

United States 2,4 0,8 0,4

Unweighted average 2,7 0,8 0,4

18.04.23

Employment by industry and occupation

A larger proportion of mature workers is in farming and fisheries in Japan than Austria.

A larger proportion of Austrians remains in their original industry/occupation at older ages than in Japan

More pronounced gender segmentation of jobs in Japan.

In Japan even more than in Austria older workers are overrepresented in SMEs

18.04.23

Health issues

The relationship between health and economic growth deserves particular attention in the context of an ageing society.

The challenges are to prolong the work ability and actual employment rate of older workers and in so doing to reduce the pressure on public pension funds and public spending on health care

Judging by the life expectancy at birth, absenteeism due to illness/accidents, the health of the Japanese population is somewhat better than the Austrian

Accident rate in Japan is similar to the EU average – may rise again due to increasing stress of older workers in subcontracting firms, the major employers of older workers

18.04.23

Figure 6: Compensated absence from work due to illness in 2001

0

5

10

15

20

25

30

35

Num

ber

of d

ays

lost

/per

son/

year

S: OECD 2003, Health at a Glance.

18.04.23

Policy conclusion

Coping with ageing is a greater socio-economic and political challenge in Austria, due to more generous welfare payments and pensions and because the Austrian labour market of older workers is less flexible than the Japanese.

The need to raise the employment rate of older workers is more pronounced in Austria.

A coordinated policy action is warranted to implement a system of life long learning, to expand Occupational Health and Safety systems, to adapt the social security system such that the inducements to work are carefully balanced against an adequate level of social protection.