Japan is frequently remarked upon for its very high level of labour force participation among older workers and particularly older men. In the year 2000, nearly 95% of men aged 55-59, nearly three quarters of those aged 60-64 and a third of those aged over 65 were still economically active. Almost all of the economically active were working rather than being unemployed: the relevant employment rates were 90%, 63% and 33%, respectively. A brief comparison with other countries is given in Figure 4.1.

The high employment rates exist alongside a relatively low mandatory retirement age operated in many sectors of the economy – 60, having risen from 55 over the past 30 years. They also exist alongside a payment system that makes older workers relatively more expensive. The ‘lifetime employment’ system sets pay according to seniority and thus, effectively, in accordance with age. This chapter asks why, under these circumstances, and given the relatively poor performance of the Japanese economy over the past decade, such high rates of employment have been maintained. It then goes on to ask whether they are likely to be maintained in the future.

Some conventional, and some less conventional, Explanations

The lifetime employment system has its roots in a mixture of culture and late industrialisation. According to some commentators, it resulted from industrial workers being recruited from rural communities and moved from being the dependent members of one closed community to the dependent members of another. The firm replicated many of the practices of the village, particularly in having no concept of an individual job – and so of individual pay – but rather a concept of cooperative work – and so of pay, according to the type of worker. The concept is associated with a high degree of job flexibility, which, in turn, has been used to explain high levels of productivity (Koike, 1997). Within the firm, wage differentials between men and women were perpetuated, but pay also reflected assumed responsibilities, and these were recognised as rising with age (Sano, 1997). According to other commentators, the lifetime employment system was a rational response to labour shortages in periods of rapid growth, and it was a way by which firms sought to reduce turnover among skilled workers.