The effectiveness of new job security measure for the older employees in Japan

In this paper, we examine the amended Law for the Stabilization of Employment of Older Persons (LSEOP) that was enforced in 2006. The LSEOP requires enterprises to take one of three job security measures for their employees in line with the upward revision of the pensionable age: a) any increase in the mandatory retirement age that exceeds the current pensionable age; b) the introduction of continuing employment systems; or c) the complete abolition of mandatory retirement systems. Our results suggest that a wage reduction after the mandatory retirement age is a key determinant of continued employment in an enterprise. Because the LSEOP does not regulate wage reductions, the effect of the LSEOP is limited. However, our results also imply this would be appropriate for avoiding the distortion of labour demand, particularly the increase of young recruits.