Japan's Aging Workforce: Lessons for the US

Nearly 30% of Japan's population is aged 65 or older, the highest rate globally, with many continuing to work in roles ranging from agriculture to transportation. The Japanese government has implemented policies like the Act on Stabilization of Employment of Elderly Persons and funded reskilling efforts to support this demographic. Experts note that while Japan has mitigated some economic risks of hyper-aging, challenges remain, including low-wage jobs and rigid wage structures.

Comparatively, the US has a younger population but is aging rapidly, with Census Bureau projections indicating a shift by 2030. Researchers suggest the US can learn from Japan’s approach to extending employment and supporting older women, while also avoiding pitfalls like reliance on low-paying roles. Japan’s experience highlights the need for broader redesigns in pensions, work norms, and infrastructure to handle aging societies effectively.

Japan has experienced rapid aging over the last few decades. According to government data, nearly 30% of the population is 65 and older, the highest percentage of any country. Approximately one in four people in this demographic works, meaning about one in seven Japanese workers is 65 or older.

Observations from visits to areas like Fujikawaguchiko and Tokyo reveal a workforce active in various sectors. Older individuals are seen picking fruit on farms, working in udon shops, and serving as crossing guards, cleaners, gift shop owners, taxi drivers, and wholesale workers. While many older Americans also work in construction and education, Japan's older workforce is visible in manufacturing, retail, service roles, and medical-related services.

In contrast, the US population comprises about 18% aged 65 and older, with roughly one in five working. Although the US has not aged as rapidly as East Asia, increased longevity and lower birth rates are propelling a demographic shift. The Census Bureau projects that by 2030, there will be more Americans aged 65 and older than under 18.

To adapt to its hyper-aging population, the Japanese government has actively supported older worker employment, particularly among older women. Legislation plays a key role; the Act on Stabilization of Employment of Elderly Persons mandates that companies provide employment opportunities for workers aged 65 and above. Further legislation has encouraged companies to offer work until age 70.

Financial commitments have also been significant. Former Prime Minister Fumio Kishida committed one trillion yen over five years for reskilling efforts. The government has installed specific resources for older workers, including:

• Silver Human Resource Centers that provide part-time work and skills training.
• The government's Lifetime Employment Support Office.
• Subsidies from the Ministry of Health, Labour and Welfare for employers who convert older contract workers to permanent jobs.

Corporate culture in Japan also reflects this shift. The World Economic Forum notes that 80% of Japanese workers hope to continue working in some capacity after retirement. Some companies have implemented policies to extend retirement ages and offer promotions and salary increases beyond age 60.

Researchers studying aging workforces indicate that keeping older workers employed has helped Japan mitigate economic disaster and severe labor shortages. Jacob Funk Kierkegaard, a nonresident senior fellow with the Peterson Institute for International Economics, argued that Japan has alleviated many potentially disastrous economic outcomes of hyper-aging. He noted that the Japanese labor market is receptive to employing workers at high ages because they tend to be healthy and motivated for service-sector jobs.

Despite these successes, significant challenges remain. Many older Japanese workers are employed in low-wage jobs, as companies remain reluctant to hire them for higher-paid positions. Yasuo Takao, a political scientist at Curtin University, explained that Japan's wage structure is harsh for older workers. It is built on an aging seniority system that inflates wages in mid-career and then resets them sharply at retirement age to control labor costs.

Government survey data shows that over half of older Japanese workers are motivated by money, compared to under 16% who work to feel fulfilled. Companies are often incentivized to "retire" older workers and rehire them at lower pay, which discourages full engagement. Additionally, Haruki Seitani, an economist at the International Monetary Fund, found that as Japan's labor force ages, productivity growth at work falls.

Experts suggest the US can learn from Japan's policies on older workers, as well as its shortcomings. Yasuo Takao stated that the US can avoid the "Japan trap" of older workers needing to work out of necessity by acting earlier. Recommendations include expanding phased-retirement opportunities, protecting older workers' earnings, and investing in training and job redesign to match skill sets.

The US also faces specific demographic and structural differences. The desire to hire younger people is often stronger in the US than in Japan, and the US lacks a comprehensive healthcare system like Japan's, possessing worse general health metrics. However, the US workforce is unlikely to decline as much as Japan's due to comparatively higher fertility rates and immigration levels.

Regarding technology, Japan may serve as a cautionary tale. With relatively low exposure to AI compared to the US, Japan could use AI to help with labor shortages in transportation, construction, and clerical work. The US can promote technological education for older workers to improve outcomes. Ultimately, Takao warns that "aging societies require more than labor-supply fixes" and demand a broader redesign of pensions, work norms, care systems, and urban infrastructure.