Low Fertility and Population Aging in Japan and the Republic of Korea: Interactions among Labor, Social Security, and Support for Self-Help (KIM Myoung-Jung)
Effects of Reduced Working Hours on Mothers’ Continued Employment During Childrearing (USUI Emiko, HIRAKAWA Marie)
A Survey of the Retirement Savings Puzzle: A Japan–U.S. Comparison of Bequest Motives and Precautionary Saving (HAMAAKI Junya)
Household Wealth Accumulation and Institutional Complementarity in Japan: Interplay of the Pension System, Employment Practices, and Human Capita (IWAISAKO Tokuo)
| By WANG Xinmei | (Center of Social Welfare and Governance, Zhejiang University, China) |
A widespread misperception holds in China that the replacement rate of the earnings-related public pension has fallen sharply from around 70 percent in 2000 to about 40 percent in 2020 due to the population aging. This perception arises because the replacement rate has been evaluated using the benefit ratio rather than its proper definition. As a result, some have argued that a large-scale expansion of funded private pensions is urgently necessary. This paper corrects these misunderstandings regarding replacement-rate trends, clarifies the true challenges facing China’s pension system, and proposes appropriate policy responses. The paper’s conclusions are as follows. First, “replacement rate” and “benefit ratio” cannot be used interchangeably. Second, the true gross replacement rate has remained stable at roughly 60 percent and has been on an upward trend since October 2014. Third, the decline in the benefit ratio is unrelated to population aging; rather, it reflects overlooked structural changes in the pension system and its coverage, as well as overestimation of average wages. Fourth, China’s total fertility rate has fallen substantially in recent years, and, given the rapid rise in the indexed old-age dependency ratio used for more equitable cross-country comparison, resources should be directed not toward expanding funded private pensions but toward raising the birth rate.
Keywords: pensions, replacement rate, benefit ratio, population aging, old-age dependency ratio, fertility rate
JEL Classification:H55, J18
| By KIM Myoung-Jung | (Research fellow, Social Improvement and Life Design Research Department, NLI Research Institute) |
This paper compares low fertility, population aging, and policies for older adults in Japan and the Republic of Korea. Both countries face the shared challenges of declining birth rates and population aging, but differ substantially in the historical development and effectiveness of their institutional responses. In the Republic of Korea, the pension system remains underdeveloped and benefit levels are low, the old-age poverty rate is among the highest in the OECD, and a substantial income gap persists between retirement and the start of pension benefits. In contrast, Japan has developed its safety net through measures including gradual increases in the mandatory retirement age, continued employment systems, and the Act on Self-reliance Support for Needy Persons. Regarding the causes of low fertility, both countries share structural factors such as growing employment instability, the burden of education costs, and the high financial costs associated with marriage and childbearing. However, Japan maintains a higher birth rate than the Republic of Korea, supported by relatively strong employment outcomes, strengthened vocational school education, and policies promoting women’s participation in the workforce. In the Republic of Korea, excessive emphasis on university education, strong preferences for large firms, and heavy private education expenditures contribute to delayed or foregone childbearing, making reforms to education and labor-market structures essential. For old-age income security, both countries require a three-pillar structure consisting of public income support such as public pensions, labor income through continued employment, and private pensions and asset accumulation. To build a sustainable society, both must balance public support and self-help while strengthening frameworks for mutual learning, experience sharing, and cooperation.
Keywords: low fertility and population aging, old-age income, public pensions, public assistance, retirement benefits, financial assets, labor income, employment policy for older adults, extension of mandatory retirement age
JEL Classification: G51, H55, J11
| By USUI Emiko HIRAKAWA Marie |
(Professor, Institute of Economic Research, Hitotsubashi University) (Senior Assistant Professor, College of Economics, Nihon University) |
Following the 2009 revision of Japan’s “Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members” (implemented in 2010), employers were required to introduce measures allowing employees with children under age three to work shorter prescribed hours and to be exempt from overtime. The mandate applied first to large firms with 101 or more employees (from June 30, 2010) and was later extended to small and medium-sized firms with 100 or fewer employees (from July 1, 2012). Using data from the Labor Force Survey, this study examines how the mandatory, phased introduction of these reduced-hours measures affected the employment and job-type outcomes of mothers with young children. The findings are as follows: (i) Among women with at least a junior-college education, both overall employment and retention in regular employment increased when the policy became binding for their firm’s size: outcomes improved for women employed at large firms after the 2010 mandate and improved again for women employed at small and medium-sized firms after the 2012 expansion. (ii) In contrast, among women with a high-school education or less, retention in regular employment increased only after the policy was extended to firms of all sizes, with limited effects for less-educated women during the initial large-firm phase. These results suggest that the 2009 revision helped stabilize mothers’ employment, although its effects for less-educated women became evident only under universal coverage. Looking ahead, an important issue for policy effectiveness is uptake. While our results indicate that reduced-hours provisions can promote continued employment among eligible women, we also find evidence that the legal enactment of these provisions does not necessarily translate into their actual utilization by eligible women, highlighting the need for future research on barriers to uptake by the targeted population.
Keywords: Act on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members, Labor Force Survey, women’s employment; Japan.
JEL Classification:J08, J13
| By HAMAAKI Junya | (Associate Professor, Faculty of Economics, Department of Economics, Hosei University) |
Standard life-cycle theory, when it abstracts from bequest motives and uncertainty about lifespan, predicts that individuals will draw down their assets after retirement. In practice, however, many empirical studies find that asset decumulation proceeds more slowly than the theory predicts, a phenomenon known as the retirement savings puzzle. Two explanations have received particular attention: bequest motives and precautionary saving. Evidence from the United States indicates that both factors slow asset drawdown and that their interaction reinforces this effect. In particular, because the United States lacks universal public long-term care insurance, older individuals face the risk of substantial out-of-pocket long-term care costs, including nursing home expenses, which strengthens precautionary saving. These findings, however, do not necessarily generalize to countries with different institutional arrangements. Drawing on institutional comparison and survey evidence for Japan and the United States, this paper argues that in Japan, where public medical and long-term care insurance systems are well developed, precautionary saving plays a relatively smaller role, while bequest motives, including exchange motives, are the main factor restraining asset decumulation.
Keywords: retirement savings puzzle, life-cycle hypothesis, bequest motive, precautionary saving, survey; Japan; United States
JEL Classification: D14, D15, E21, H75, J14
| By IWAISAKO Tokuo | (Professor, Institute of Economic Research, Hitotsubashi University) |
This paper examines recent Japanese policy initiatives aimed at promoting household wealth accumulation for retirement. It takes a cross-institutional approach, focusing on the interplay of the pension system, employment practices, and human capital formation. First, we outline the public pension reforms since the 1990s and identify the structural characteristics of the current system. We demonstrate that multilayered inequalities --- stratified by occupation, gender, employment status, and generation --- persist within the system’s architecture. Next, we present a theoretical framework for analyzing the interactions between financial wealth, human capital, and pension assets over the life cycle. We argue that traditional Japanese employment practices, characterized by the accumulation of firm-specific human capital, have historically constrained individuals’ wealth accumulation behavior. Furthermore, our analysis explores how improved pension portability and the rise of nonregular employment are reshaping the relationship between employment systems and households’ wealth accumulation. These analyses suggest that policies promoting self-help efforts in wealth accumulation cannot succeed in isolation. An integrated policy approach combining wealth-building incentives, a reinforced social safety net, and institutional reforms to enhance labor market liquidity and facilitate labor mobility is desirable.
Keywords: life-cycle model, pension system, lump-sum retirement benefits, human capital
JEL Classification: G51, H55, J11
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