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A silver-lining for graying Japan

There is no better time than now to ride the waves of the demographic tsunami

by

Special To The Japan Times

Sept. 18 is Respect for the Aged Day in Japan. When the half-century-old national holiday first started, senior citizens 65 or older were a mere 6 percent of Japan’s total population. Fast forward to today and approximately one out of four Japanese citizens fall into this demographic segment. By 2060, a startling 40 percent of Japanese citizens will be afforded respect and put atop a pedestal on the third Monday of every September. By then, we might as well designate a Respect for the Young Day, as young Japanese will be such a rare commodity. It is truly uncharted territory for any country to experience such a sea change in broad, societal demographics.

The notion of recognizing our elderly for their contributions is indeed a noble one. After all, we were all children at one point in our lives and we were nurtured, loved and protected by our parents and grandparents. We owe our elderly a great debt of gratitude. However, the demographic strains imposed on our broader society, due to caring for the elderly, is no longer a simple matter of generational obligation. The problems are multifaceted: A snowballing deficit due to funding social welfare for seniors, a severe shortage of nursing and medical professionals, growing physical and emotional burdens imposed on our caregivers, a shrinking younger population, a tightening labor market, increased traffic accidents involving senile drivers …the list of daunting challenges goes on and on for a graying Japan. Who can blame our younger generations for feeling they got the “short end of the stick?”

In fact, “rōgai,” literally meaning troubles caused by elderly people, has recently emerged as one of the most frequently used words in Japan. A few decades ago, rōgai did not exist in our standard vocabulary. With rōgai becoming more commonly heard, uneasy feelings directed at the elderly have begun to creep into the psyche of younger Japanese.

Younger generations now consider our older generations a liability instead of an asset. In the eyes of a 20- or 30-year-old, senior citizens consume a hugely disproportionate amount of available — and limited — resources of this country and at this rate, the social stock for future generations will be depleted soon. Furthermore, an immediate change is unlikely as the elderly are such a large constituency, and subsequent voting power, that politicians are loathe to cut programs aimed at assisting them. Younger and overworked salarymen and women struggle to challenge the voting power of a deeply rooted “silver democracy” in Japan.

Economic inequity is not a unique conundrum for Japan. The gap between rich and poor is at its highest level in the past half century for most countries. Among multiple causes linked to growing inequality, globalization, technological change as well as a concentration of financial asset ownership are most commonly cited by economists in the United States and Europe. In Western countries, intergenerational inequality is often discussed in the context of the younger generations benefitting disproportionally from globalization and technological advancement.

Japan commands a different type of discussion on widening generational discrepancies. The poverty rate among the elderly is 19 percent and the Japanese government devotes almost 80 percent of social welfare spending to support them. Child poverty is worse than the average of developed economies and children in a single parent household are especially vulnerable to poverty, at a 56 percent rate, the highest among OECD countries. If no action is taken, social cohesion in Japan will quickly worsen with an increasing number of young people trapped in an unrelenting “poverty chain.” The overall impact on the economy will be inevitably felt by all, including retirees who depend on a pension that may not be supported in the future because of dwindling tax revenues.

A well-balanced social welfare budget can address the intergenerational inequality to some extent. A more fundamental, effective and long-lasting change, however, lies in real structural reform to make the labor market more dynamic and inclusive.

Seniority-based lifetime employment served Japan Inc. well when top-line growth was guaranteed, supported by a booming manufacturing sector. Japanese salarymen could expect senior titles with higher pay corresponding to their age and years of service. With the absence of economic growth over the past two decades, however, this traditional human resource management started to face severe limitations.

Seniority is no longer a defining factor for success in a world where knowledge-based service sector is the main driver of growth. Social and income mobility as well as equal opportunities for all workers, regardless of age and gender, is the most impactful remedy to close the generational divide. This involves a paradigm shift to merit-based hiring, flexible employment contracts, unlearning old skills and acquiring new skills.

If this sounds like a lousy proposition to older workers, they should be reminded that social and income mobility is not a zero-sum game. Promoting upward mobility for the younger generation does not necessarily involve a corresponding downward mobility for older workers. It simply means a dynamic labor market should provide diverse opportunities for a diverse talent pool, young and old, and promote innovation and higher productivity. Most importantly, it can help pay much needed pension checks.

As every cloud has a silver lining, there is a very bright silver lining in this country filled with the silver-haired. A severe labor shortage is driving digitization and automation without causing a negative impact on the job market. Corporations are sitting on record levels of cash searching for investment opportunities.

Last but not least, Japanese workers — particularly senior citizens over the age of 55 — possess the highest levels of literacy and numeric skills in the world — a critical component for “reskilling” for the 21st century. There is no better time than now to take advantage of these tailwinds and ride the waves of a demographic tsunami. This is no easy task but it is achievable with the wisdom and guidance of older people. For that, there will be plenty of respect for Japan’s aged.

Yumiko Murakami is head of the OECD Tokyo Centre, in which position she has engaged in policy discussions between the OECD and governments, businesses and academia in Japan and Asia, covering a wide range of economic policy issues.