Retirement Transitions in Japan

Robert L. ClarkNorth Carolina State University

Retirement Transitions: Challenges, Anomalies, and SolutionsDemographic Realities

Career Jobs, Mandatory Retirement, Government Policies

Employee Preferences and Bridge Jobs

National Need for Later Retirement

Demographic RealitiesLife expectancy

Has risen rapidly over the past four decades1970: men 69.3 women 74.72013: men 80.2 women 86.6 Highest in the world

Low FertilityRapid decline to among the lowest in the world1970 2.13; 1990 1.54; 2005 1.26Slight increase to 1.43 in 2013

Life Expectancy at Birth by Country

Demographic RealitiesLittle immigration

National preference for low rates of immigrationSuper Aging

Declining number of youthsIncreasing number of elderlyDeclines in absolute size of the population;

projected decline from 128 million to 117 million in 2030

Rapid increase in the proportion of the population age 65 and over from 23 percent to 33.4 percent in 2035

Changes in the Population Pyramid

Trends in the proportion of major three age groups: Medium-fertility (medium-mortality) projections

Population Trends and Age Structure Changes: 1920 to 2060

Population Statistics for Japan: 1950-2013

Career Jobs, Mandatory Retirement, Government PoliciesTraditional Employment System: Career Jobs

and Lifetime EmploymentHire high school and college graduates Low turnover rates Invest in human capitalSeniority based pay Lazear type contract must have an end point

Career Jobs, Mandatory Retirement, Government PoliciesExtensive use of mandatory retirement at

relative young ages - change from 55 to 60Increase in LFP for persons age 55 to 59Flattening of age earnings profilesMandatory retirement a binding constraint on

employment of older personsHitachi ends seniority based salary system,

Sony to follow next yearGovernment policies to promote later

retirement – encouraging increase to 65

Distribution of Mandatory Retirement Age in Japanese Firms

Distribution of Mandatory Retirement Age in Japanese Firms

Employee Preferences and Bridge JobsExplaining an anomaly

Widespread use of mandatory retirement at age 60

Highest LFP in the developed worldBridge jobs and preference for work by older

Japanese, especially men

Labor Force Participation Rates of Older Men by Age

Female LFPR

0

10

20

30

40

50

60

70

80

90

100

50-54

55-59

Year

%

Employee Preferences and Bridge JobsOlder Japanese have high preference to

remain in labor forceVery high LFP rates until mandatory rate age

of 60Rates remain high up to age 70Average age of retirement (age at which 50

percent are out of LF) is 69.5 for men and 66.5 for women

Much higher average of retirement compared to other developed countries – Sweden is next but average age is almost 4 years younger

Employee Preferences and Bridge Jobs• Retirement transition takes several forms:

1. Re-employment is common. Workers are required to retire at mandatory retirement age but are then re-employed at lower wages and lower status jobs

2. Komatsu rehires 90% of its retirees but at 40% lower wages

3. Rising incidence of self-employment; 20.8 percent of workers 55 to 64 are self-employed while 51.9 percent for those 65 and over

Employee Preferences and Bridge Jobs3. Move to related firms or subsidiaries

a. more common for higher level management employeesb. more common for those with greater job tenure

4. Bridge Jobs – typically smaller firmsa. older workers often plan retirement transitionsb. invest in retrainingc. those with more financial literacy are more likely to plan and invest

Japanese Study of Aging and RetirementLongitudinal study of portions of JapanNot nationally representativeChanging geographical coverageExamine the change in employment between

survey years (2007, 2009, 2011)Consider workers 50 to 59 in 2007 and

workers in new cohort who were 50 to 59 in 2009

Japanese Study of Aging and Retirement255 individuals left career jobs between the

survey years32 percent left labor force27 percent were re-hired by career firm41 percent moved to bridge jobs

Japanese Study of Aging and RetirementSince retirement rates are very small until

workers reach the age of mandatory retirement, a better picture of the transition can be shown by focusing only on workers age 58 and 59 in a survey year so by the next survey they have passed the age of mandatory retirement

Japanese Study of Aging and RetirementWork status in next survey of employees aged

58-59 in survey year 48.5% Not retired, same employer16.4% Retired but rehired by career

employer17.6% Bridge job17.6% Not working

National Need for Later RetirementSuper aging of population composed of few

younger persons entering the labor force and low mortality among the elderly

Absolute decline in populationIncreased LFP of older persons one method

of maintaining national economic growth