Labor Force Participation Rates of Older Workers in Japan: Impacts of Retirement Policy, Steep Age-Wage Profile, and Unionization

The Organization for Economic Cooperation and Development (2006) analysis confirms a negative relationship across countries between the steepness of the age-wage profile and older workers' labor participation. However, Japan is exceptional in that it has a steep age-wage profile and, yet, its older workers' still have high labor force participation. This study examines why that is so. In Japan, mandatory retirement rules are prevalent but employers have discretion in substantially reducing the wages for postretirement-age workers. Among various findings, this study first confirms the presence of a negative relationship between steepness of the age-wage profile and the employment of older workers in Japan. The study also finds a negative relationship between unionization and employment rates among older workers, and between the extension of mandatory retirement ages and the employment of older workers.