Policies for a smoother transition from work to retirement

Japan has maintained a relatively high labor-force participation rate among older people. Although the rate had declined steadily until the mid-1980s, the trend has since reversed and the participation rate is expected to rise in the future. In contrast, the labor-force participation of older people has sharply declined in the United States and European countries, especially since the 1970s. This article explores why Japan's experience differs markedly from other advanced countries. Improved pensions have a strong influence toward early retirement, even in Japan. However, other factors such as a low replacement ratio, improved health, and several loopholes in the income test of the pension systems push up the participation rate of older people. The government also encourages active labor-force participation of senior citizens by introducing reformed partial working pensions and wage subsidies for workers in their second and third careers.