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Monday, May 10, 2010

Let 'elderly' get new start as firms force retirement

Japan's population is forecast to dwindle to less than 90 million by 2055 and the percentage of elderly (people at least 65 years old) will rise to 40.5 percent, according to median forecasts by the National Institute of Population and Social Security Research.

The proportion of those in the productive age bracket of 15 to 64 will fall to 51.1 percent of the total population, nearly equal to those in the nonproductive age brackets — namely, children up to 14 and the "elderly" (those 65 or older).

As recently as 2005, the elderly accounted for 20.2 percent of the total population while those of productive age, 66.1 percent. This means that one elderly person was supported by two of productive age. In 2055, however, everybody of productive age may have to support one elderly person.

Furthermore, recent statistics show that the proportion of those in the productive age bracket who are willing to work has fallen to slightly more than 60 percent — around 70 percent for men and slightly less than 50 percent for women. All these changes are bound to present a number of serious problems.

First of all, spending for medical services and nursing care will skyrocket as a percentage of household expenditure. I don't think such spending will stay below 25 percent. It will reduce household disposable income because money paid for medical and nursing care services constitutes "necessary expenses" just like income tax and other burdens.

As a result, the average household will spend less on goods and services and more on items related to medical and nursing care services, presenting an utterly gloomy future for nearly all industry segments — except hospitals, homes for the elderly and pharmaceutical manufacturers.

The second problem is that many people are forced to stop working at the "retirement" age of 60 by most corporations, even when they are willing to keep working. It has been demonstrated that people in their 60s are often in the prime of their career, making it all the more desirable to raise the corporate retirement age.

The trouble is that the retirement age cannot be abolished as long as the lifetime employment system is retained. A complementary relationship exists between lifetime employment and the corporate retirement age.

As long as a large majority of Japanese workers favor continuing the lifetime employment system, efforts must be directed toward providing employment opportunities to elderly people with the willingness, abilities and physical capacity to continue working.

If the corporate retirement age must be retained, some measures must be adopted to enable workers to reset their lives at 60. This may be done by improving vocational training for people past that age, sending elderly people with high skills to developing countries, or assigning experienced workers to workplaces where their skills are needed.

Third, more women must enter the labor market, although this could be a double-edged sword. An increase in the number of working women will reduce the per capita burden for supporting the elderly, but it will also require "outsourcing" of child care and nursing care, which in turn could cause a large financial burden on the household budget. It is impractical to expect most women to be able to move into high-paying jobs that will more than offset such expenditures.

Old-age homes will thrive as representative "silver businesses" that look after the elderly. To be accommodated at such a facility, one will have to pay a large deposit up front. Such a payment will require converting to cash many of the assets that an ordinary wage earner has accumulated in the form of savings, retirement allowances and residence. One may have to depend on one's children for part of the monthly payments after finding accommodations. One can choose to be looked after at one's home by visiting nurses, but this, too, will cost a lot of money.

A majority of elderly people living alone will have to sacrifice all of their savings and property in order to be accommodated in a full-care facility. Their children are likely to recommend this choice to reduce the risk of their having an accident at home when caregivers are away.

A probable scenario is that all the assets that an elderly person has accumulated between the ages of 20 and 60 — savings, residence, retirement allowances — will have to be diverted to pay for the deposit money required to be accommodated at a facility for the elderly. And virtually all of one's pensions will go toward food and other daily expenses at such a facility.

Demographic statistics released by the welfare ministry show that, in 2007, average life expectancy for 75-year-olds was 11.3 years for men and 15.2 years for women. This means that for the average worker, all the money earned during 40 years of hard work will have to be spent for accommodations in a home for the elderly during the final 10-plus years of his or her life.

In the not-too-distant future, stem cell and other advanced medical technologies are likely to extend life expectancy at least five years, which will only increase the amount of upfront money needed to get into a home for the elderly.

Is it fair that the quality of postretirement life should depend on individual wealth?

It is inevitable for remuneration to vary according to an individual workers' abilities and efforts. But I believe it's unfair to link the quality of an elderly person's life to the assets that he or she was able to accumulate from career wages.

During the days of high birthrates, the government spent huge sums of money on scholarships and other programs to give children equal opportunities for an advanced education. As an antithesis to equal opportunity, there is the concept of "making the result equal."

Neoclassical economists argue that levying too large a progressive income tax on the wealthy to transfer tax revenue to households on welfare will cause the rich as well as the poor to lose their motivation to work. They say such a policy is driven by a wrong idea of "making the result equal."

I'll go along with this argument when applied to those in the productive age range of 15 to 64. I cannot accept it, either logically or morally, for those 65 or over, because the concept of receiving remuneration according to one's individual skills and efforts cannot be applied to those no longer working.

Very few will dispute that disparity in parents' wealth and income creates inequality in their children's opportunities for higher education. In the United States, a number of steps have been taken to redress such inequality.

One reason the U.S. has been able to produce so many Nobel laureates is that it has provided Jewish immigrants from poverty-stricken Eastern European countries with opportunities to get a higher education free of charge and then enabled them to use their skills to the fullest extent possible in a society that values competence.

I don't have detailed knowledge of the discussions going on in the U.S. or Europe about providing equal opportunities for the elderly. I do know for sure, though, that Japanese society is aging at an extraordinary pace.

Japan is the very place where an urgent need exists for convincing programs that can provide the elderly with equal opportunities.

Takamitsu Sawa is president of Shiga University, Japan.

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