Economic Studies about Ageing and Work in Japan: A Non-Economist Perspective

David Chiavacci

Fundamental demographic changes loom over all advanced economies. Population structures are increasingly ageing and total fertility rates are well below the reproduction rate of about 2.1 children per women. It seems only a question of time that population will start to shrink. Japan is clearly Nr. 1 in this trend and the forerunner of this new demographic age. Because of its relative late and very fast first demographic transition between 1920 and 1950, the world-wide highest life expectancy of its population and an even for an advanced economy very low total fertility rate of about 1.25 in recent years, Japan is faster ageing than any other advanced industrial economy. Actually, according to governmental statistics, its national population has already started to shrink since 2005. Moreover, calculations predict an increasingly fast population decrease in the coming years and that over a fourth of the national population will be over 65 years old in the year 2025.

No wonder that this demographic change and its social and economic consequences are hot topics in the public debate in Japan and that the Japanese government is studying policy measures in view of this demographic transformation. In April 2000, the Economic and Social Research Institute (ESRI), which is affiliated to the Cabinet Office of the Japanese government, initiated a two-year study entitled "A Study on Sustainable Economic and Social Structure in the Twenty-first Century" that was part of the comprehensive and interdisciplinary "Millennium Project" of the Japanese government. The collection of economies studies edited by Koichi Hamada and Hiromi Kato is one of four edited volumes of the "ESRI Studies Series on Ageing", in which the result of this research project have been published.[1] It addresses the questions what the consequences of ageing in the Japanese labor market are and which policy options do exist? This volume may be of high interest for economists interested in the effects of ageing in the labor market. Still, as a non-economist I have been rather disappointed by this book and I can hardly think that it will be of high interest for students and researchers without economics background interested in Japan's social and economic development because of ageing and its policy options to ageing.

The book includes six studies that analyses different aspects of the interrelation between ageing and work in Japan.[2] In the first study, a group of economists under the leadership of Yuji Genda address the question how ageing has influenced employment during the 1990s in Japan? Parallel to the economic stagnation of the 1990s, Japan experienced rising unemployment. The analysis of Genda et al. shows that ageing had overall only a minor influence in rising unemployment in Japan. However, on company-level, a graying workforce had a significant influence in diminishing labor demand, especially for young workers that had to bear the brunt of the negative effects of economic stagnation in the labor market during the 1990s.

Hirotsugu Sakai and Hitoshi Asaoka discuss how the labor force participation of elderly and females, which should be important labor sources in the future, can be increased in Japan. According to their study, more flexible working hours according to needs and wishes of aged workers, less discrimination against part-time and temporary staff in comparison to full-time core employees and more training programs suited to the needs of elderly workers are needed in order to increase work force participation of aged workers. In order to increase female work participation in the future, more family friendly policies and changes in tax and social security systems, which are currently discouraging female work participation, is needed.

Effects of ageing on economic growth are studied by Masaya Sakuragawa and Tatsuji Makino in their contribution. Because of ageing, younger workers will become scarce in the long-term. This will lead to favorable conditions in the labor market with relative high wages for younger workers and to flatter lifetime wage profiles. As a consequence, Sakuragawa and Makino argue, younger workers will have less incentive to invest in their self education and self training as the rate of return of these investments will diminish. This will result in an overall less skilled labor force, which, according to their calculations, will have a significant negative effect in lowering per capita consumption in Japan in the future.

In the next chapter Koichi Hamada and Lakshmi K. Raut develop a theoretical model of the provision of elderly care in the future in view of ageing. As care givers cannot be fully substituted by physical equipment, Japan will have to import foreign care workers. Another possibility will be to invest more abroad and import goods so that workers can be shifted from industrial production to providing care for elderly. Lakshmi K. Raut is taking up this model in the next study. He is addressing the question which of these two possibilities is more appropriate ease the care problem of ageing? According to his analysis importing foreign labor will be more effective than foreign investment. The question of immigration is also addressed by Junichi Goto in his contribution. However, his conclusions are contradicting Raut's study. According to Goto's analysis, freer trade, more foreign direct investment abroad as well as a fuller incorporation of female labor is better suited than importing foreign labor to address Japan's ageing society.

As a non-economist I am not in a position to appraise the contribution in this volume regarding their methodological soundness or their groundbreaking character as economic studies. Still, after a dry and highly technical reading, I was left rather unsatisfied with this book due to four main points. A first point is to which degree some of these studies are useful scenarios and not broad oversimplification? Of course every theoretical argument is a simplification, but let us take, for example, a closer look at the study by Sakuragawa and Makino about the influence of ageing on economic growth. Their analysis that ageing may change lifetime wage profiles and lead to a change in incentives for self education is an interesting argument. However, is a higher pay really the only incentive for training and education for workers? Workers have surely also others, including intrinsic, motivations for improving their qualifications. And even if ageing would lead to a tendency of an overall less skilled workforce, the scarcity of skilled workers should lead to increasing benefits for highly qualified workers and, hence, increase again pay incentives for more self training and self education.

Secondly, I was often also wondering why some potential developments and policy options are not incorporated into the models and discussions. For example, why is the retirement abroad of Japanese not included into the discussion of elderly care in the future? Although Japanese are still rather reluctant to move abroad in comparison to retirees of advanced economies in the West, this trend is clearly gaining momentum in recent years.[3] It is surely a valuable policy option in the future that should be incorporated into a long-term assessment.

A third doubt concerns the question if these studies take a realistic starting point in assessing future policy options for an ageing Japan. For example, the studies analyzing the potential benefits of foreign workers are discussing immigration as a potential future policy option for Japan. However, what is completely missing in these studies is a discussion of the fact that Japan is already today an (undeclared) immigration country. Although the foreign (or foreign born) population is still small in Japan in comparison to most other advanced economies, it has more than doubled in the last two decades. Despite a still very restrictive immigration policy, Japan is today in absolute numbers one of the major immigration destinations among OECD-economies.[4] Should a sound analysis of Japan's future options in foreign worker policy not be based on a comprehensive analysis of the recent trends and currents situation in immigration precisely because studies clearly document that crucial sectors of the Japanese economy, including consumer electronics and automobile industry, are already today structurally dependent on foreign workers?[5]

One final weakness of this book is that an extended discussion of the different contributions is missing. Koichi Hamada and Hiromi Kato give a short synopsis of each chapter in the introduction and nicely point out several contradicting findings between them. Still, the readership is left wondering how these contradictions can be explained and which argument may be more substantial. For example, Raut's and Goto's studies clearly contradict each other concerning the overall benefits and desirability of a more open Japanese foreign worker policy in the future. It would have been highly beneficial for the readership if both authors would have commented on each other papers. Hamada and Kato describe Goto's observations as "somewhat extreme views" (p. xxiii), but again the readership is left wondering why.[6]

Overall, this book makes for a non-economist a hard reading that is hardly compensated by its contents. The study of Genda and his colleagues about the influence of ageing in the Japanese labor market during the 1990s might be the most interesting for a general readership, but part of this argument has already been published by Genda in a more comprehensive, and for non-economist also more comprehensible, form elsewhere.[7]

David Chiavacci

Institute of East Asian Studies, Free University Berlin


[1] The other three published volumes are the following: Onofri, Paolo, ed. 2004. The Economics of an Ageing Population: Macroeconomic Issues. Cheltenham and Northampton: Edward Elgar. MacKellar, Landis, Tatiana Ermolieva, David Horlacher and Leslie Mayhew, eds. 2004. The Economic Impacts of Population Ageing in Japan. Cheltenham and Northampton: Edward Elgar. Tachibanaki, Toshiaki, ed. 2004. The Economics of Social Security in Japan. Cheltenham and Northampton: Edward Elgar.

[2] Furthermore, it includes also a study by Eric Hernæs, Zhiyang Jia and Steinar Strøm about cooperation or non-cooperation in families concerning retirement based on a Norwegian data sample.

[3] See e.g. Miki Tanikawa. 2004. "Bucking Tradition: A retirement home in the sun begins to appeal to Japanese". International Herald Tribune, May 29.

[4] OECD (Organisation for Economic Co-Operation and Development). 2007. International Migration Outlook: Annual Report 2007 Edition. Paris: OECD, p. 301.

[5] See, among others, Takamichi Kajita, Kiyoto Tanno and Naoto Higuchi. 2005. Kao no Mienai Teijûka: Nikkei Burajirujin to Kokka, Shijô, Imin Nettowâku [Invisible Residents: Japanese Brazilians vis-à-vis the State, the Market and the Immigrant Network]. Nagoya: The University of Nagoya Press.

[6] The only possible hint for this assessment of Goto's analysis is interestingly the remark by Hamada and Kato that "[i]n a neoclassical environment, his economic logic may hold theoretically" (p. xxii).

[7] See Yuji Genda. 2005. A Nagging Sense of Job Insecurity: The New Reality Facing Japanese Youth. Tôkyô: Inernational House of Japan.