Hiroshi Suzuki had a fulfilling career in which he traveled the world as an engineer. Then, at age 65, he retired. That didn’t last long. For the past seven years Suzuki, 72, has been a nursing aide in the Tokyo area, and says he’s years away from true retirement.
Economists say if Japan wants to alleviate its worsening labor shortage, it needs a whole lot more people like Suzuki, who is atypical by working into his 70s. Though it boasts the world’s oldest population, the country does an inadequate job of employing healthy seniors, they say. The reasons: Company policies, work culture and a history of rigid seniority rules that work against older employees, providing a cautionary tale to aging economies including those in Europe and the U.S.
“People in their 70s can still work. There are still so many things you can do as long as you are healthy,” said Suzuki, who was a designer and engineer for an electric-furnace manufacturer and now works at a nursing home run by Care 21 Co., one of the few Japanese companies that have abolished a mandatory retirement age. “There’s no need to think about retiring until you turn 80.”
Suzuki is part of the largest group of people age 65-and-older in the world; numbering more than 33 million, they represent more than a quarter of Japan’s population. With the world’s longest life expectancy — by 2050 women in the country on average will live past 90 — and a low birth rate, the working-age population is shrinking.
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Japan’s demographic reality is so extreme that even though it has the highest proportion of working seniors among developed countries, according to the Organization for Economic Cooperation and Development, it’s not nearly enough to stem the labor shortage. The number of workers older than 65 rose to 7.3 million in 2015, or 21.7 percent of the population for that age group, according to data from the statistics bureau.
Japan’s worsening worker shortage also is stark: the number of workers is projected to decline to 56 million in 2030 from 64 million in 2014. This forecast by the Japan Institute for Labor Policy and Training, a government-related group, is based on conditions that the economy and the labor force participation rate won’t change. To avoid such a shortage, the country needs to come up with more innovative policies to pull seniors into the workforce.
Yet Japan’s corporate structure is still stacked against widespread employment of older workers. Though some companies have introduced merit-based pay, moving away from a seniority system, age remains an important factor and the career ladder ends for many employees at 60 or before. Mandatory retirement is still in effect in many companies, though there is no official retirement age in Japan.
“People in Japan have long, healthy lives, and laws and company policies in the country have not kept up in terms of making use of their longevity,” said Florian Kohlbacher, an adjunct professor at Temple University’s Tokyo campus and director of the Economist Corporate Network for North Asia. “Age 60 is still very, very young in Japan. If you want to tackle this issue you can’t just have people work longer, you need to rethink the whole HR system in Japan.”
And even recent advances won’t do much to alleviate the labor shortage as the percentage of seniors in the workforce declines markedly as they age, said Robert Feldman, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo. He calculates that labor force participation in Japan for men ages 65 to 69 is 54 percent and for women it’s 32 percent — good figures compared with other major economies. Yet for men 70 and older it falls to 20.3 percent and for women in that age group plummets to 9.3 percent.
“You’d need a lot more” older workers taking jobs to make a dent in the labor crunch, Feldman said. “The increase in participation rates is offset by shifting shares of population,” meaning Japan’s population is aging so rapidly that more people are leaving the labor force even as a higher percentage of seniors take jobs.
The government in April 2013 changed rules to require employers to keep on all workers who want to stay until age 65. Under that system, most companies basically have workers retire at 60 and return under a “continuous employment” policy at a lower wage — often a much lower wage. This is less costly than raising the retirement age or abolishing a mandatory retirement system, the other two choices that companies have.
“Japan is going into the phase that needs to utilize a silver workforce more as the nation’s population is growing older,” said Ryuichi Okumura, a research fellow at Mitsubishi Research Institute Inc. in Tokyo. “Japan could offer a hint of solution to other nations as a test bed for utilizing more senior people in the workplace and making them more active in various fields in the society.”
Many of those who’ve found jobs after mandatory retirement want to keep working not only to stay active — they need the money. Japan’s government is gradually raising the age at which people become eligible for pensions to 65 from 60, leaving many with a gap. Also, pensioners on fixed incomes are more vulnerable to swings in the economy and many were hit hard by the last sales tax increase in April 2014.
Sonoe Kudo, 65, who works at a nursing home in Tokyo run by Care 21, said she wants to work into her 70s as long as she’s healthy. With her living costs and a premium for nursing-care insurance, it can be tough to make ends meet on a reduced pension. “Elderly people can’t really live only by pensions,” she said.
About 81 percent of Japanese companies still set the retirement age at 60. The latest survey by Japan’s labor ministry showed that only 3 percent of companies abolished their retirement system and about 16 percent raised their retirement age, while more than 80 percent opted for the continuous employment system.
Among employees who work at companies requiring they retire at 60, more than 80 percent were rehired or extended their employment, according to the survey. Yet that continued employment often means a big pay cut. Average annual income, including pension payments, for re-employed full-time workers in their early 60s was 3.8 million yen ($38,000) according to a survey by the Japan Institute for Labor Policy and Training. The survey showed that the average worker’s salary at age 61 was about 27 percent less than it was just before the employee turned 60.