Aging Population with Fewer Children and the Labor Force in Japan

Mr. Takeo Naruse
Director, The Tokyo Employers' Association
 

1. Issues and Responses for the Low Birth Late and the Aging Population in Japan

As you know, most developed countries have low birth rate problems.
The number of children a woman bears in her lifetime (total fertility rate) declines gradually.
It used to be a big problem in somewhere like France and Sweden in the past; however, this tendency has been spread through Asia these days.
It is said that the population does not decline if the total fertility rate is 2.1. While the world average (2013) is 2.46, the country with the lowest rate is Taiwan whose rate is 1.07. Also, it is 1.19 for Korea/Singapore, 1.32 for Spain, 1.38 for Germany and 1.43 for Japan and Italy.
Even the rate in Japan shrank down up to 1.26 in 2005, and the government estimates that 45 years later in 2060, the population will be approximately 86 million, decreasing from the current 126 million. In addition, they estimate 4 out of 10 people will be elderly people aged 65 or older.
Main issues are how such demographic changes affect the Japanese economy and society, and whether Japan will be able to overcome those impacts successfully or not.
If the population drops this much, the labor force will also decrease, and consequently the GDP in Japan will decline inevitably. That is, it means the Japanese economy will stop growing.
In case that the number of elderly people who cannot work increases while the percentage of young people shrinks, the GDP will reduce at a faster pace than the falling population. Also, if the number of elderly people who are sickly and unable to work rises, the social security system such as pension, health insurance or nursing care insurance will collapse as more people will receive those money even though the number of young people who contribute to such systems comes down.
Actually, the social security expenses in the national budget have been expanding at a much faster rate than the economic grow already.
In such situation, all the Japanese government, companies and nationals are seriously working on how to deal with the "aging society with a declining birthrate".
The cause of falling birth rate is extremely complicated and hard to be captured even for experts.
It would be easier to work out the countermeasures if the cause is clear. However, every possible means have to be considered for the countermeasures in reality because the cause is complicated and uncertain.
From now on, I'd like to examine the Japanese efforts from some aspects.

2. Even Elderly People Work Vigorously

The measure they are devoting most effort is enabling elderly people to work energetically.
Seen from the statistics such as ILO, the labor participation rate for Japanese elderly people has been one of the highest in the world.
Moreover, the opinion they work for their motivation in life is traditionally more than the one they work for the income.
It has been understood this is because the Asian diligent attitude is established in Japan.
It is the most important policy to have more elderly people work utilizing this tradition.
To achieve this, it is necessary that companies extend the retirement age. Even though the retirement age for Japanese companies used to be 55 years old, the government decided to make it 60 years old by law first, and now they require companies to employ workers who wish to work until the age of 65.
Both the government and companies put their efforts into the nation's healthcare and the number of healthy elderly people has been increasing.
Nevertheless, individual difference such as their physical performance gets bigger as people age.
Therefore, companies have to give detailed responses considering those things in regard to employment or work for older people.
While some of the elderly can work in the same way as young people even over 60, some would prefer to work on relatively light duty reducing working days or time, and others would be difficult to do hard work for health reasons. Thus, it is necessary to broaden the options and the wage should be based on the condition.
It is also one of the important policies for people who have superior proficient skills even if their physical strength has declined to take a post as an instructor for passing on the skills.
The pension system has been also changing in response to such utilization of older workers.
In Japan, the pension eligibility age has been the age of 60 originally and the system is that the basic pension is paid to all citizens, in addition, the earnings-related component which contributed when they were working is added to it for employees. However, the pension eligibility age is under application for extension at the moment, and it will be the age of 65 for all of them (5 years behind for female) by 2025.
But there are some opinions saying it is necessary to review the employment and the pension eligibility age towards the age of 70 depending on the trend towards having fewer children.

3. Promotion of Utilizing Women's Potential

It seems like rather common to be recognized that Japan is lagging behind other countries in regard to the use of women's potential.
This is probably because the tradition which men work outside while women keep home in their traditional family system is strong and the influence is still remaining.
However, the wives generally control the family purse strings in Japan. They manage their husbands' salary deposited into their bank account and the husbands live on a monthly allowance received from their wives in general. It means the wives are the behind-the-scenes central player at home.
It might be due such circumstances that the curve of the female employment rate in Japan draws M-shaped line which shows the rate is high when they are young, and it gets low during the period of child-rearing and then gets higher again after that.
But their jobs are likely to be a non-regular employment such as part-time jobs when they get back to work after child-rearing.
While it is true that the valley part of the M shape has been getting shallower, the government is also very keen to utilize the women's potential as they are always criticized for the low number of female members of Parliament or the low rate of female managers in Japan.
Even though the Equal Employment Opportunity Law was enacted 30 years ago, it seems that it takes time for the society to change.
It is no wonder that it is a waste of labor force not to use women's power when we face a shortage of workers due to the falling birth rate. Whereas women might be physically weaker than men, it is common knowledge that women have better grades than men at any university in Japan.
Therefore, Japanese enterprises are now working on the utilization of women workers on a full scale.
Whether a woman or a man is supposed to be unconcerned, because companies are profit-oriented organizations. They should make a choice which gives them the best cost performance regardless of gender or even robot, but some people say (male) management people's awareness is behindhand.
Even though some say the birth rate declines if more women get ahead in society, an international study shows the birth rate is not related to the women's participation in the workforce.
In order to reduce the burden of women with small children, the government, local governments and companies are working hard to support use of female workers and increase of the birth rate at the same time, for example, expansion of childcare facilities, promoting the acquisition of parental leave (both men and women), diversified working forms such as working at home, and so on.

4. The Task of Utilizing Foreign Workers

It was probably Germany (West Germany at that time) who took the first step toward the employment of foreign workers from early on among the developed countries whose trend in declining birthrates had been getting worse.
Germany made arrangements with many countries and took in a number of foreign workers, but among them, the most were from Turkey.
One time after that, Germany whose growing period had finished encouraged the Turkish workers to go back to their country providing lump-sum payments.
Europe has now become the EU and has been facing new immigration problems.
The issues concerned with the utilization of foreign workers always have a light and a dark side.
Japan has been an island nation for ten thousand and some years, therefore, it is a nation that the unique culture and the tradition is widespread homogeneously. For this reason, the country seems to have the both sides which are worshiping foreign culture and difficult to assimilate from the perspective of foreign people.
Nevertheless, Japan is also considering the agenda for utilization of foreign workers seriously in the context of demographic aging with low birth rate.
The basic policy is whereas they accept professional labor force positively, simple labor force is prohibited in principle; moreover, they are willing to support the development of partner countries by accepting trainees for technical internship in a positive manner.
It is possible for the foreigners to get employed in Japan if they graduate from Japanese high school or university after they come to study in Japan.
Regarding this issue, Japanese companies have difficult personnel system problems.
I think many of you already know but the "seniority criterion" still remains strong in Japanese companies. The criterion includes age, length of service and performance, and of there, the part of age and length of service still have a great meaning.
The basic personnel system is that people start from simple tasks in a field and learn the working system of the company from the basics even if they join a company after graduating from university or graduate school.
Naturally it takes time to get promoted and the same is true on pay rise. Hence, the system is unpopular among foreign workers.
There is an anecdote that the late Singapore Prime Minister Lee Kuan Yew told his citizens, "In Japan, even Eisaku Sato who became the Prime Minister later had started from a ticket puncher when he had joined the Japan national railways."
Each country has their own culture and each company also has their own corporate culture. Within that context, it seems to be very important things for the foreign worker issues to understand each other's differences and to find a better way with each other.

5. Think About the Relationship Between the Birthrate and Ways of Working

As I mentioned at the beginning of this series, it is considered that the issue of declining birthrate is peculiar to developed countries.
However, the countries like France or Sweden who used to suffer from the low birth rate are now in their stable period with the number of the rate around 2.0. Instead, the problem is most severe among developed countries in Asia.
In this manner, it is possible to think that the lower birthrate develops at the stage of the rapid growth toward a developed nation whereas the birthrate gets back to normal (around 2 children) in mature developed countries.
In terms of the experience of Japan, it seems like there are tendencies to decrease the birth rate as the participation of women in society moves on and also when the economic situation gets worse.
The birth rate seems to shrink if the social participation of women increases under the situation where the social system is inadequate to balance work with child-rearing. Furthermore, hardships of life appear to make the rate even lower.
Another opinion is, even though it cannot be said it is demonstrated, the birth rate can be sustained in the society where people have hope for their future while the rate declines in the society where people cannot hope better life for their children and grandchildren.
In the case of Japan, they had kept the level of 2.0 until mid-1970's, but the economic growth rate dropped by the two oil shocks, and then the housing prices soared by the economic bubble. And after its burst, the birth rate dropped as low as 1.26 in the 20 years of severe economic downturn and the high-yen recession.
However, the birth rate has been making a recovery with the level of 1.4 along with the progress of the policy for balancing work and child-rearing by the government and local governments in the last 10 years, such as construction of childcare facilities, thoroughness of parental leave, introduction of stay-home work, improvement of personnel systems and so on.
Though it is still far from the level of 2.0, it may be possible to improve the low birth rate problem if the atmosphere of the Japanese society as a whole is getting brighter and positive because of the existence of children.
Having said that, it takes 20 years for children to get work even if they are born this year. Therefore, the problem of aging is still very serious.
As a result, the population issues need more and more efforts for each country as an extremely severe problem.

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