Japan

Like other more developed countries, Japan is facing the prospect of increasing costs of its public pension and health systems, and it is considering what response, if any, is appropriate to the coming declines in population and work force.

There has been particular concern that the increased ratio of retirees to workers would require unbearably high contribution rates to maintain the fiscal viability of the public pension systems. At the same time, the government has recognized the importance of pensions to older people. The options for pension reform are basically to increase contributions, decrease benefits, or increase the age of eligibility for benefits, and the Japanese government used all three mechanisms in a series of reforms in the 1980s and 1990s.

In March 2000, the Japanese parliament passed legislation that is forecasted to limit the increase in premiums from 17.4 percent of monthly pay (shared equally by employee and employer) in 2000 to 25.2 percent in 2025, as opposed to 34.5 percent if the law had not been changed. To accomplish this goal, benefits for new retirees are being cut by 5 percent, and it is estimated that lifetime retirement benefits will be cut by about 20 percent for a typical worker who is forty years old in 2000. The age of eligibility is being gradually increased from sixty to sixty-five, semiannual bonuses received by workers will for the first time be included in the pay used to calculate their contributions, and the adjustment of benefits for inflation will be based on consumer prices instead of wages. Some critics have argued that even these significant changes are not enough and that the government forecasts of the viability of the system are based on fertility assumptions that are too high.

In 2000, the Japanese government also implemented a new long-term care insurance system that requires monthly contributions of roughly $20 to $30 from persons age forty and over. Those who are already retired pay at the upper end of that range. Also a copayment of 10 percent is paid by all but the lowest-income beneficiaries of services. In 2000, the government was also considering adjusting its broader medical insurance system and requiring older people to pay a percentage of their costs of care (up to a limit), as opposed to the current system of nominal fees.

Increasing the size of the working-age population relative to the retired population would help improve the fiscal health of the pension and medical insurance systems. Possible mechanisms include allowing more immigration, increasing the labor force participation of older people and women, and—over the long run—increasing fertility. Japanese society has not been nearly so open to newcomers as the United States, so unless there is major social change, immigration is unlikely to make much difference. Although Japan's older population is already relatively active in the labor force, improvements in health combined with financial need and job opportunities might well lead to even greater participation. Women are truly in the middle, since they are typically the caretakers of those in the older and younger generations who may need assistance, and many young women are choosing to opt out of this role or at least delay it. Making work more compatible with family responsibilities for both men and women will be a key element of accommodating the dramatic changes in age structure that are to come in Japan.