DETERMINANTS OF EMPLOYING OLDER PEOPLE: A COMPARATIVE ANALYSIS FROM ASIA.

• Author: Lee, Yoonseock

1. Introduction

   Population aging and its associated issues are one of the major concerns in our modern society. The paper written by Kim and Lee (2007) is an excellent study that analyzed demographic changes, savings, and current account in East Asia. It shows that the rapidly aging population and subsequent rise in the dependency rates in East Asia over the next decade might cause substantial deterioration in saving rates and current accounts; therefore, national governments could make in anticipation of the demographic changes, for example, extension of retirement age. It took France 115 years for the rate of aging of its population to reach 14%; for Sweden, it took 85 years; for Germany, it took 40 years; and it took the UK 47 years. Japan, on the other hand, required only 24 years for the rate of aging to increase. In 1970, the rate surpassed 7% and then in 1994, the rate reached 14%. The rate of aging of Japan's population is fast comparatively to the western countries (Statistics Bureau of the Ministry of Internal Affairs and Communications, undated). South Korea is also expected to transition from an aging society to an aged society in only 26 years, and beyond that, South Korea to become one of the highest aged societies, almost at the same level as Japan. This rapid aging of the labor force will result in different policy outcomes for South Korea and Japan.

   As population aging progresses, the labor supply will decrease and unless there is an increase in labor productivity to offset the difference, it will lead to a slowdown in economic growth. In addition, the burden of social support provided to older people will increase as the number of productive individuals supporting each older person decreases; it then increases the cost of social security that includes pension and healthcare costs, resulting in various social problems such as burdens on state finances. In this context, it is useful to understand elderly employment policies in Japan (the country with the highest aged population in the modern world) and South Korea (the country with historical and institutional similarities to Japan and currently experiencing the highest ever speed of population aging). In addition, it is important to consider how employers (corporations or public institutions) and workers are reacting to the conditions under the current policies.

   This paper examines employment policies for older workers in Japan and South Korea. Ultimately, this paper shows that both companies and governments should work together to support the employment of the elderly and, in turn, the development of a sustainable aging society in each country. The analysis focuses on survey data from Japan and South Korea and examines the similarities and differences related to the employment of older people in both countries. For example, in South Korea, there is a growing population of baby boomers leaving the workplace and they are expected to experience many hardships. Thus, companies are preparing measures to minimize the social impact associated with this large-scale retirement wave, which is already ongoing and expected to continue for nearly ten more years. On the other hand, the Japanese government has enacted the law concerning stabilization of employment of older persons, which stipulates that a company cannot set the retirement age below the age of 60; in recent years, the law has been expanded to encourage companies to continue employing workers until the age of 65. The situation is different in South Korea where the baby boomer generation extends over a longer period and the average life expectancy is 80 years. The retirement age has remained at 53 and, as a result, South Koreans experience at least 30 years of life after retirement. Furthermore, since the Asian financial crisis, older people have been forced to take early retirement: viewing older people as high-cost, low-productive workers, corporations take advantage of the fact that the retirement age is voluntary at the time of corporate restructuring. The aging population problems in South Korea are serious and demand attention (Hyundai Research Institute, 2010). Japan, on the other hand, has a different situation, as Japanese are eligible for benefits starting at the age of 65, provided they are enrolled in the national pension program. Therefore, as the population aging progresses, the number of pensioners will also increase; meanwhile, because the productive population shrinks, the national pension could collapse (National Pension Service, undated).

   Determining the employment situation among older people is difficult because of the influence of various factors, including the country's employment practices and overall system as well as pension plans that affect the companies and workers. In addition, because South Korea is still on the verge of becoming a full-fledged aged society (1), it is difficult to determine what type of policy will produce what effect. The employment situation with the elderly population of South Korea can be usefully compared with the situation in Japan. Japan shares a common employment system and set of practices as well as cultural aspects with South Korea. Moreover, Japan has already become a super-aged society at the rapid rate South Korea is currently experiencing, and conducting a comparative analysis provides a window into understanding the factors affecting the situation in South Korea.

   Moreover, there was comparison of the two specific terms from 1980s to mid-2000 in Japan and from mid-1990 to mid-2000 in Korea. The first basis of such comparison is that aging ratio and the policies regarding the aging society are very similar in the two countries. For example, the ratio of 65 year old or older population to the total has been over 7% in both countries, which means that Japan and Korea are already aging societies, and their laws clearly have been indicating 60 year old as the retirement age since 1986 (Japan) and 1991 (Korea). Second, since senior citizens' employment status can be easily affected by the countries' business cycle or economic crisis, I could deduct general and reasonable conclusion with consideration for variable economic situation.

   Japan has experienced economic boom in 1980s, so called the bubble economy followed by the economic recession starting from early 1990s also known as the lost decade. On the other hand, Korea went through the economic boom until mid-1990s and the severe economic crisis in late 1990s. I tried to compare the data from both countries considering the economic boom and recession.

2. Conceptual and cultural background

   2.1. Literature review

   In terms of the effects of the system and the law that influence the employment of older people, several previous studies analyzed the effect of the Age Discrimination in Employment Act (ADEA) of 1967 implemented in the United States. Adams (2004) examined the effect of the ADEA by reviewing the employment rate among older people and questioned the effectiveness of regulatory law in improving the employment rate. Johnson and Neumark (1996) indicates that, at least for some workers, age discrimination in the workplace may be (or may have been) a serious problem that provides a basis for legislation restricting discrimination against older workers. Chan and Stevens (2001) analyzed job loss and employment patterns of older workers and found large and long-term effects of job loss on the future employment probabilities of older workers. Manning (1996) also analyzed the relationship between unemployment rate and income by using two-phase GMM estimate and showed the seriousness of the age discrimination toward older people. Robert (1988) demonstrated through his analysis of industries and occupations that the opportunity for older people to become employed is limited; however, he did not investigate the limitation of employment opportunities for females and disabled people.

   Chan and Stevens (1999) examined the effects of late-career job loss of older persons on wages, assets, employment expectations, and actual employment, demonstrating that there are differences in reemployment patterns between older males and older females. The internal labor market theory that has supported the existing Japanese retirement system on theoretical grounds was based on deferred compensation (Lazear, 1979); however, Daniel and Heywood (2007) explained that delayed compensation more effectively deters shirking among young workers than among older workers. In addition, Daniel and Heywood (2007) presented somewhat weaker evidence that firms, which require greater specific human capital, also hire a smaller share of older workers. Furthermore, more recent studies by Heywood, Jirjahn and Tsertsvardze (2010) presented strong evidence for the role of deferred compensation and internal labor markets as a negative predictor of hiring older workers.

   A paper by Ho, Wei and Voon (2000) examined the impact of factors such as age on the unemployed length, expected wage, promotion and training opportunity in order to analyze the labor market in Hong Kong, and demonstrated that older people are disadvantaged compared to younger people in obtaining a job and older people require specific occupational training. However, the magnitude of the disadvantage found in this study shows that more research is required to assess the effectiveness of market competition in containing pure age discrimination.

   Moreover, only a few of the previous studies have included analyses of the...