One in Three Japanese Aged 70 to 74 Still in Employment
A 2021 white paper from Japan’s Cabinet Office showed that 71.0% of people aged 60 to 64 were in employment in 2020. This ratio was 49.6% for people aged 65–69 and 32.5% for those aged 70–74. Compared to 10 years ago, all these rates have increased significantly by more than 10 points.
The employment rate for men in the age range 55–59 rose to 91.3%, while it was up to 82.6% for those aged 60–64 and 60.0% for ages 65–69. This large number of people over 60 who are still employed seems to indicate their strong desire to work. The employment rate for women aged 55–59 was 72.8%, 59.7% for those aged 60–64, and 39.9% in the 65–69 age range. Within the 70–74 age range, the rate was 41.3% for men and 24.7% for women.
Out of the 2020 total labor force of 68.7 million (total number of workers and unemployed people seeking work aged over 15), 4.2 million were aged 65–69 and 5.0 million were over 70. People aged 65 or over accounted for 13.4% of the total labor force. While 25 years ago, that ratio was 6.7%, the rapid aging of the population has seen it double.
As of September 2020, the number of seniors aged 65 and over in Japan was estimated as 36.2 million, equivalent to 28.7% of the total population of 125.9 million.
Included in the white paper on aging society were the results of a 2020 international comparative survey on the lives and attitudes of people aged over 60. The survey showed that 40.2% of people in this age group in Japan said that they wanted to work for an income, compared to 29.9% in the United States, 28.1% in Germany, and 26.6% in Sweden. This demonstrates the comparatively strong motivation of older Japanese people to keep working.
How Does Japan’s Aging Society Affect Its Economy?
The aging crisis will have major impacts on Japan’s economy. What can the Abe government do to mitigate the damage?
Japan, the world’s third largest economy, has been experiencing the issue of population aging to an unprecedented degree. More than 20 percent of Japan’s population is over 65 years old, the highest proportion in the world. By 2030, one in every three people will be 65 or older, and one in five people 75-plus years old. The rapid aging process in Japan is striking because of the high rate of economic growth and changes in family and social structures in the post-war period.
The decline in Japan’s fertility rate has been attributed to several factors such as changing lifestyles, people marrying later in life or not marrying at all, and the economic insecurity of younger generation. Increasing life expectancy is another driving force behind the aging trend. Fifty years ago, life expectancy at birth was about 72 years; it has since climbed to 84 years.
There are two fundamental aspects behind Japan’s aging population. One aspect is the increase in the proportion of the elderly in the total population. The other is the slower growth of the population, arising directly from the declining fertility rate. The former affects Japan’s economic performance by increasing the social security burden and benefits. The latter has a direct impact on economic growth by reducing the labor force, which is a major factor in production. “A rapidly aging population and shrinking labour force are hampering growth,” warned the IMF in its latest country report on Japan. The IMF also calculated that the impact of aging could drag down Japan’s average annual GDP growth by 1 percentage point over the next three decades.
The causal effect of aging is leaving its mark on the macroeconomy of Japan, especially the labor force and capital accumulation. Due to the nation’s aging and shrinking population, there is an increased need to address the labor shortage. People eventually retire and leave the workforce as they start aging, and at present, there are not enough young people in Japan to fill this vacuum owing to the decline in the fertility rate as well. This further implies that some of Japan’s big industries — like motor vehicles and electronics — do not possess the manpower to continue at the current level of production. If Japan cannot maintain its levels of production, it may subsequently lose its spot as the third largest economy in the world.
The issue of aging is also likely to make untenable the seniority system among the labor force, in which wages increase in proportion to length of service with a company. This leads to fewer promotion opportunities and also damages workers’ morale. Due to a decrease in the working age population, Japan also hopes to see higher female labor force participation under tightening labor market conditions. Prime Minister Shinzo Abe is currently pursuing such a path, which has been called “Womenomics,” where companies are pressured and incentivized to hire more women and give more leadership positions to women.
As Japan’s population is aging, the Abe administration finds it difficult to balance its conservative views on immigration with the need for younger and skilled workers to boost the Japanese economy. Therefore, the nation came up with the idea of allowing more foreign workers in a controlled manner. A new regulation that came into effect in April 2019 created two residence/visa status types for foreign individuals working in sectors that are suffering from labor shortages. However, the impact of the 2019 amendment to the Immigration Act cannot be assessed easily. It is important to keep in mind that the countries targeted as possible sources of labor for Japan will also face their own labor shortages, especially in the caregiving sector, in the near future.
A study by the UN Population Division released in 2000 found that Japan would need to raise its retirement age to 77 to maintain its worker-to-retiree ratio. Currently, retirees are largely well off and are reaping the fruits of a long and laborious life. However, it is unlikely that the benefits they enjoy now can be sustained for future generations. Aggravating the growing labor force shortage are the rising expenses associated with aging, like caregiving needs for the ill and the fact that older people will require extra medication and hospitalization.
Abe’s administration has also vowed to tackle this crisis by taking steps to support young couples in raising children, for instance, making preschool education free. His government has set a target of increasing the fertility rate back to 1.8 by 2025 – a goal unlikely to be achieved so soon, given that the rate was just 1.43 in 2017.
The government should pursue structural and labor reforms, which will aim at increasing the nation’s productivity despite the declining labor force supply. More elderly people and women should be encouraged to play active roles in the labor force.
Healthier individuals are better able to work longer and with more energy, which suggests that protecting older individuals’ health will intensify their productivity and labor force participation. In addition to savings in healthcare costs, effective health promotion programs will therefore lead to gains in productive labor hours and output. A healthy population will also lead to higher savings rates, lower medical expenses, and increased foreign direct investment. The government has also come up with an idea of making Japan an “age-free society” in which people 65 and older will not be considered senior citizens and will rather be encouraged to stay healthy and keep working.
The 2019 Revision of World Population Prospects, released in June 2019, predicts the proportion of people aged 65 years and older in Japan will increase from the current level of 28 percent to 38 percent by 2050. Although the rapid aging of the population is a major challenge to the Japanese economy, its negative impacts on savings and investment can be largely reduced by stimulating labor-augmenting technological change and extending the working life of the elderly.
National Burden: Taxes and Social Security Contributions in Japan Exceed 40% of Income for Ninth Consecutive Year
The ratio of taxes and social security contributions like health insurance and pension premiums to income, commonly referred to as the “national burden rate,” in Japan is estimated to be 44.3% in fiscal 2021. This leaves households with less than 60% of their income at their disposal. Although Japan’s rate has been steadily ticking upward for nearly a decade, it is still below those of many European countries.
The national burden rate for the United States for 2018 was 31.8%, more than 10% lower than in Japan. This is largely due to the smaller scope of the US public health insurance scheme, which typically only covers the elderly and people with disabilities, and that social security contributions are less compared to Japan. There are benefits to having a larger national burden, however. Japan’s higher rate, for instance, guarantees that residents can easily access hospitals and other medical facilities when necessary. There are also many countries in Europe with far more expansive welfare systems than Japan that have even higher national burden rates.
Japan’s national burden rate, although expected to decrease by 1.8% in fiscal 2021, has exceeded 40% for the last nine years and has nearly double since 1970, when it was 24.3%. The breakdown of the rate shows that taxes and social security payments account for 6.5% and 13.5% of the burden, respectively, with costs like insurance premiums making up the rest, a clear indication of the growing financial strain from Japan’s aging society.
If the budget deficit is also taken into consideration, the latent national debt ratio for fiscal 2021 is forecast to be 56.5%, a year-on-year drop of 10%. The decrease is due to the massive expansion in government debt in fiscal 2020 through the issuance of government bonds in response to the COVID-19 pandemic. However, with no end to the pandemic in sight, some have been calling for a supplemental budget to be issued in fiscal 2021, which will likely push the rate upward again.
By fiscal 2025, a large segment of Japan’s baby boomers will be 75 or older, a situation that is expected to further tax the nation’s medical and nursing care systems. Any dire effects on the nation’s finances from the burgeoning elderly population can be mitigated if national income increases at a faster rate than the growing taxation and social security burden, but such a rosy scenario seems unlikely.
Japan’s Average Monthly Nursing-Care Insurance Premiums Reach ¥6,000
According to the Ministry of Health, Labor, and Welfare, the average national monthly nursing-care insurance premiums to be paid by Japanese seniors aged 65 and over for the 2021–23 fiscal years is ¥6,014, a ¥145 increase compared to ¥5,869 for the 2018–20 fiscal years. The increase is due to the aging of the population, a rise in the number of people using nursing-care services, and higher nursing-care fees. The average for the period between 2000 and 2002, when the nursing-care insurance system was launched, was ¥2,911, which means that premiums have more than doubled in 20 years.
Nursing-care insurance premiums are reviewed every three years by each of Japan’s 1,571 local governments and extended associations for nursing care. For the latest review, 48.6% of the municipalities raised their premiums, 36.2% left them unchanged, and 15.2% lowered them. The highest monthly premiums are ¥9,800 for Aogashima, Tokyo, ¥8,300 for Gojōme, Akita Prefecture, and ¥8,200 for Katsurao, Fukushima Prefecture. The lowest premiums are ¥3,300 in Otoineppu, Hokkaidō, and Kusatsu, Gunma Prefecture, and ¥3,374 in Ogasawara, Tokyo. Even though both Aogashima and Ogasawara are communities on remote islands administered by Tokyo, the annual nursing-care premiums of the former are ¥77,000 more than those of the latter.
As of the end of 2020, there were 35.7 million seniors aged 65 or older in Japan. Among them, 6.7 million, or 18.7%, are certified as requiring nursing care or other support. In addition, a large segment of the baby-boom generation in Japan will be entering the senior age bracket from fiscal 2022, which is expected to increase the need for nursing care and further drive up insurance premiums.