Atsushi Seike

Professor, Faculty of Business and Commerce,

Keio University

　

As the birthrate continues to decline and the population ages, the outlay for social security-pensions, health care, and nursing care-will inevitably rise. Under the system that sets the retirement age at 60 today, the cost of supporting retirees is borne mainly by the working population under 60, making the per person total tax and social security burden very high. Cutting back radically on pension, health care, and nursing care benefits, on the other hand, runs counter to pursuit of affluence toward which society aspires.

In such a scenario, policies are needed that would allow seniors willing and able to work to do so as long as possible. If the older population remains active, they will also pay social security premiums and taxes, thus broadening the base for contributing to social security expenses, which are increasing as the population ages. But the current social system impedes the promotion of employment for older persons, which is the best case scenario over the long term, and the mandatory retirement system is a typical barrier.

　This system, where individuals are forced to retire at a specific age regardless of their willingness to work and ability to perform, runs counter to the nature of the society of the future. In fact, empirical studies of labor economics show that the mandatory retirement system lowers the labor force participation rate among older people. And even if individuals do find a post-mandatory retirement job, the possibility of working in a post where they will be able to use their accumulated experience is lower than if they have not been through mandatory retirement. In the future, a society where people are active throughout their lifetimes will be necessary, and to achieve this the mandatory retirement system, which discourages older people from using their abilities, should be abolished.

Another factor that discourages seniors from continuing to work is the public pension system itself. Since the government policy of promoting the employment of older individuals is aimed partly at broadening the taxpayer base in order to foot social security expenses, a pension system impeding employment in the later years is incompatible in terms of policy. The public pension system, in particular the government-managed pension plan for corporate employees, must be changed to encourage elders to work and use their abilities to the full.

　Again, labor economics studies show that the employee pension system saps motivation to work among seniors and that if they do work, they have fewer chances of utilizing their abilities on the job. This occurs in two ways. First, since most retirees feel their pension benefits are sufficient for meeting their living expenses, they feel less need to work. Retirement is a positive development in that it gives individuals more freedom, and pensions are good insofar as they allow people who want to retire to have that freedom.

　Second is the restriction on earnings concurrent with receiving employee pension benefits. Under the current employee pension system, retirees have the right to receive a pension, but if they continue to work their pension benefits are reduced in proportion to their earnings. In other words, the system imposes a de facto penalty on older people who work.

　As a result, elders who want to work may give up on the idea, or if they do work, they may be tempted to take a job that pays on a level that will not unduly affect their pension benefits rather than a position where they can exercise their capacities to the full. In fact, it has been demonstrated that older workers tend to work only up to the maximum level of work-related income so that their pension benefits are cut by no more than 20 percent.

　The United States, too, had formerly imposed earnings tests where social security benefits are concerned. The detrimental effect of this policy on retirees taking post-retirement jobs became an issue and the earnings test was abolished in January 2001 . Japan should also undertake a fundamental reevaluation of its earnings test system, which impedes older people from using their job-related abilities.

　Some may question why older people earning high incomes through work should receive pension benefits at all. In such cases, income can be redistributed by taxing these individuals on their total income from pension benefits and employment. To achieve this, preferential measures, such as treating pension benefits as temporary income and deductions granted for pensions, should be abolished simultaneously and taxed in the same way as employment income.

The mandatory retirement adopted by corporations and the public pension system should be reformed to allow willing and able seniors to work as fully as they can. The prerequisite for this, however, is that individuals have abilities that make it worthwhile for companies to hire them. This means that individuals should invest in personal development from a young age, endeavoring to acquire work skills that are in demand.

　Labor economic studies also suggest that individuals can achieve a longer working life by acquiring higher levels of ability through higher education and (in other respects, such as) devoting time and resources to maintaining good health. People need to invest in themselves so that they are able to work to the best of their ability when they are older.

　Until now, employee education and training has been undertaken mainly by enterprises, and skill-development programs tend to focus on younger people. With careers growing longer on the one hand and periods of secure employment becoming shorter, however, individuals need to keep themselves employable when enterprises trim their work forces and they reenter the labor market looking for a new job. This means acquiring useful skills, even if they must learn through programs outside the company. Given that current employers are not willing to provide and pay for skill development training that would benefit other companies, individuals must pay at least part of the cost themselves. They may have to enroll in outside training programs to take advantage of chances to acquire new skills and knowledge.

　Accordingly, it is important to create an environment that will allow public vocational training facilities to offer a wider range of programs and (to)make it easier for private sector training organizations to operate. Another vital aspect is providing public funds to assist individuals paying for training out of their own pockets, but, since skill development is a form of personal investment, assistance should take the form of loans rather than subsidies. Today, steps must be taken to provide more opportunities for individuals to invest in personal development throughout their lives.