NTA and Population Aging Policies in Japan Naohiro Ogawa, Maliki, Rikiya Matsukura, Kazuro Nemoto and Katsuya Akasaka
2nd NTA Workshop Tokyo, August 2006
Outline of this presentation • Japan’s age structural change: unprecedented • NTA for Japan: preliminary results and some problems • Minister Inoguchi’s favorite arguments (The proportion of social security benefits allocated to children is minuscule): Is she right? • Japan NTA team’s next steps
2000 101
91
81
71
61
51
41
31
21
11
1
2050 100+
90
80
70
60
50
40
30
20
10
0
Age structural change: 1950-2025 80
70
60
Per cent
50
65+/15-64
40
30
20
0-14/15-64 10
0 1950
1955
1960
1965
1970
1975
1980
1985
1990 Year
1995
2000
2005
2010
2015
2020
2025
In 2005, Japan became No.1 in the world in terms of the proportion 65 and over and the proportion 0-14
Per Capita PRIVATE Consumption, Nominal Yen, 1989, 1994, 1999, 2004
300,000
250,000
200,000
150,000
100,000
1989
50,000
1994
1999
2004
88
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
20
16
12
8
4
0
-
Per Capita TOTAL Consumption, Nominal Yen, 1989, 1994, 1999, 2004
350,000
300,000
250,000
200,000
150,000
100,000 1989
1994
1999
2004
50,000
88
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
20
16
12
8
4
0
-
Monthly Per Capita Production, Nominal Yen, 1989, 1994, 1999, 2004 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
1989
1994
1999
2004
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
5 10
0
-
Per Capita Production and Consumption, Nominal Yen
500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
C 89
Y 89
C 94
Y 94
Y 99
C 99
C 04
88
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
20
16
12
8
4
0
-
Y 04
Crossing Ages Country
Crossing ages for consumption and labor income Y(x) > C(x) Younger Age
Older Age
Japan (1989)
25
59
Japan (1994)
26
59
Japan (1999)
27
59
Japan (2004)
28
59
US (2000)
26
56
Taiwan (1998)
24
56
Indonesia (1996)
28
58
Thailand (1996)
26
59
Costa Rica (2004)
24
56
Production dynamics • Freeters and Neeters • Changes in tenure over time • Changes in average mandatory retirement
Number of Freeter and Neets 300
250
Ten thousand
200
Men
150
Women
100
50
0 1982
1987
1992 Year
1997
2002
30%, 50%, 70% within 3 years after graduation
Average tenure (Men) 25.0
20.0
40-44
15.0 Years
45-49 50-54 55-59 10.0
60-64
5.0
0.0 1973
1978
1983
1988
1993 Year
1998
2003
Average age of mandatory retirement in large firms Age 61.0
60.0
59.0
58.0
57.0
56.0
55.0
54.0
53.0
1965
1971
1977
1983 Year
1989
1995
2001
Percent of firms having mandatory retirement age ％ 100.0 90.0 80.0 70.0 60.0 55
50.0
60
40.0 30.0 20.0 10.0 0.0 1983
1987
1992 Year
1997
2002
67.0
65.0
63.0
61.0
59.0 Year 57.0
55.0
53.0
51.0
49.0 1965
1970
1975
1980
1985
1990
1995
2000
Year
Retirement age
Male life expectacy at age 20
Female life expectancy at age 20
New Law in 2006
Retirement age raised to 65
Social Security System • Universal coverage in 1961 • Occupation-specific,fragmented. Integration problem • Inter-scheme inequality
Social Security System • Pension Schemes (multi-tiered system) – Basic pension (BP) :Flat • Basic pension is universal coverage that is proportional with their years of contribution regardless of their income level.
– Employees’ pension insurance (EPI): • Employees’ pension insurance (EPI) is a public pension system for employees in the private sector.
• Health Insurance Plans • Long-term Care Insurance Scheme (2000) • Employment Insurance Program
Structure of Pension System (insured persons or members in million) March 31, 2000 Qualified Employees' retirement pension Pension (10) Fund (12)
National Pension Fund (0.8)
Mutual Aid Associations (5)
Portion Paid by the Fund Employees' Pension Insurance (32)
National Pension (Basic Pension) Self-employed Workers and others
Dependent spouses of Category 2 insured persons
(Category 1 insured persons) (Category 3 insured persons)
(21)
(12)
Government employees, etc.
Employees of private sector
Wage or Salary earners (Category 2 insured persons) (38)
(Note) All residents in Japan from 20 to 59 years old are covered by National Pension. Persons who are neither salary earners nor their dependent spouses are Classified as Category 1 insured persons.
Japan’s two major crises in 2007 Baby boomers will be retiring. Women’s pension rights.
More than 5,000 insurers in Japan National Health Insurance Scheme, LTCI Regional differences are substantial
Japan’s social security policies have been very dynamic … (in response to age structural shifts)
Change in composition of the Japanese social security system 500000 450000 400000
2003 Copayment raised from 20% to 30%
350000 10 million yen
1997 Copayment raised from 10% to 20% 300000
1990 10-year Gold Plan implemented
250000 200000 150000
1973 Provision of free medical care services for the elderly aged 70+ 100000
1983 Abolition of free medical care services for the elderly aged 70+ 1984 10 % copayment introduced
50000
2000 Long-term Care Insurance 0 1970
1975
1980
1985
1990 Year
Pension
Medical care
Others
1995
2000
Minister Inoguchi’s favorite assertion: • Only 3.6% of social security benefits is children-specific; while • 70.4% of social security benefits is for the elderly (60+)
Change in the social security benefit compostion 100
90
80
70
Trillion yen
60
50
40
30
20
10
0 1975
1980
1985
Others
Elderly health
Child support allowances
Child welfare service
1990 Elderly pension Year Child care leave
1995 Elderly others Delivering
2000 Child allowances
Percentage of Social Security Benefits for Children and Elderly 80% 70%
c
Children without education Elderly Children with education
1991
50%
1989
60%
40% 30% 20% 10%
2003
2001
1999
1997
1995
1993
1987
1985
1983
1981
1979
1977
1975
0%
Annual Per Capita Social Security Benefits (and Education) Paid Out (in Thousand Yen) 2,000
Children without education
1,800 1,600
Elderly Children with education
1,400 1,200 1,000 800 600 400
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
200 0
Ratio of Transfers Received by Elderly/Children Based upon NTA 1989
Public transfers on health, education, and pension
Total transfers, both intervivos and public on health, education, and pension
1994
1999
2004
Aggregates
0.96
1.55
2.07
2.92
Percapita
1.62
1.95
2.01
2.27
Aggregates
0.7
1.16
1.55
2.23
Percapita
1.18
1.46
1.51
1.73
Looking at the issues from the NTA window
Per Capita Lifecycle Deficits, Nominal Thousand Yen 400 300 200 100
(200) 1989 (300)
1994
1999
2004
90 +
80 -8 4
70 -7 4
60 -6 4
50 -5 4
40 -4 4
30 -3 4
20 -2 4
(100)
10 -1 4
04
-
Population-weighted Lifecycle Deficits, Trillion Yen (Nominal Value)
30
20
10
0 0-4
5-9
10-14
15-19 20-24
25-29
30-34 35-39
40-44
45-49 50-54
55-59 60-64
-10
-20
1989 -30
1994
1999
2004
65-69
70-74 75-79
80-84
85-89
90+
Population-weighted Net Transfers Flow in Trillion Yen, 1989 8 6 4 2
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -2 -4 -6 -8 Public Transfers
Private Transfers
Public Education, Health, and Pension
Population-weighted Net Transfers Flow in Trillion Yen, 1994 8 6 4 2
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -2 -4 -6 -8 Public Transfers
Private Transfers
Public Education, Health, and Pension
Population-weighted Net Transfers Flow in Trillion Yen, 1999 8 6 4 2
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -2 -4 -6 -8 Public Transfers
Private Transfers
Public Education, Health, and Pension
Population-weighted Net Transfer Flow in Trillion Yen, 2004 8 6 4 2
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -2 -4 -6 -8 Public Transfers
Private Transfers
Public Education, Health, and Pension
Net Transfer Flow, by Sector, Trillion Yen, 1989 4000 3000 2000 1000
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -1000 -2000 -3000 -4000 Public Education
Private Education
Public Health
Private Health
Public Pension
Net Transfer Flow, by Sector, Trillion Yen, 1994 4000 3000 2000 1000
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -1000 -2000 -3000 -4000 Public Education
Private Education
Public Health
Private Health
Public Pension
Net Transfer Flow, by Sector, Trillion Yen, 1999 4000 3000 2000 1000
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -1000 -2000 -3000 -4000 Public Education
Private Education
Public Health
Private Health
Public Pension
Net Transfer Flow, by Sector, Trillion Yen, 2004 4000 3000 2000 1000
86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
0 -1000 -2000 -3000 -4000 Public Education
Private Education
Public Health
Private Health
Public Pension
Per Capita Net Transfer Flow, by Sector, Yen, 1989 250,000 200,000 150,000 100,000 50,000 86
81
76
71
66
61
56
51
46
41
36
31
26
21
16
11
6
1
(50,000) (100,000) (150,000) (200,000) (250,000) Public Education
Private Education
Public Health
Private Health
Public Pension
Per Capita Net Transfer Flow, by Sector, Yen, 1994 250,000 200,000 150,000 100,000 50,000 91
85
79
73
67
61
55
49
43
37
31
25
19
13
7
1
(50,000) (100,000) (150,000) (200,000) (250,000) Public Education
Private Education
Public Health
Private Health
Public Pension
Per Capita Net Transfer Flow, by Sector, Yen, 1999 250,000 200,000 150,000 100,000 50,000 91
85
79
73
67
61
55
49
43
37
31
25
19
13
(50,000)
7
1
-
(100,000) (150,000) (200,000) (250,000) Public Education
Private Education
Public Health
Private Health
Public Pension
Per Capita Net Transfer Flow, by Sector, Yen, 2004 250,000 200,000 150,000 100,000 50,000 91
85
79
73
67
61
55
49
43
37
31
25
19
13
7
1
(50,000) (100,000) (150,000) (200,000) (250,000) Public Education
Private Education
Public Health
Private Health
Public Pension
Private Education Transfers Underestimated?
Household education expenditure
200,000 180,000 160,000 140,000
Yen
120,000 100,000 80,000 60,000 40,000 20,000 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Statiscal Burea, Familiy income and expenditure survey.
Year
Living cost for university student by type of household, Japan, 2002.
Ten thousands yen
250 200 150 100 50 0 Living with parents
Living alone
Household type Tuition, textbook, and others
Living expenditure
Reasons for working among married women aged 20-49, Japan, 1988-2004
2004
1998
Y ear
1996
1994
1992
1990
1988
0
20
40
60
80
100
120
140
160
percent (multiple answer) To pay for my child/children’s education
To pay back our housing loan
To work for the family business
To make use of my abilities
To have financial independence
Now my child/children are older I have some free time
My husband's income is low
To lead a useful life
To give me a wider social perspective
Others
180
Rural Areas vs. Urban Areas ↓ ↓ Full-time vs. Part-time
Finance of consumption, old dependents (age 65+) of selected countries 100%
80%
60%
40%
20%
0%
Japan, 1999
US, 2000
Taiwan, 1998 Thailand, 1998
-20% Asset Reallocation
Work
Intervivos
Public
Indonesia, 1996
Bequest
Finance of Consumption 1989 100% 80% 60% 40% 20% 0% -20%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-40% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Finance of Consumption 1994 100% 80% 60% 40% 20% 0% -20%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-40% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Finance of Consumption 1999 100% 80% 60% 40% 20% 0% -20%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-40% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Finance of Consumption 2004 100% 80% 60% 40% 20% 0% -20%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-40% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Per Capita Finance of Consumption 1989
250% 200% 150% 100% 50% 0% -50%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-100% -150% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Per Capita Finance of Consumption 1994 250% 200% 150% 100% 50% 0% -50%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-100% -150% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Per Capita Finance of Consumption 1999
250% 200% 150% 100% 50% 0% -50%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-100% -150% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
Per Capita Finance of Consumption 2004
250% 200% 150% 100% 50% 0% -50%
0-4 5-9 10- 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65- 70- 75- 80- 85- 90+ 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89
-100% -150% Labor Income
Asset Reallocations
Public Transfers
Intervivos Transfers
The Japanese Elderly have been increasingly public goods!
What will they be able to st contribute to 21 -century Japan?
Japan’s Policy Options • Raising fertility and facilitating higher labor force participation of women, • Better utilization of aged workers and extension of the retirement age, • Introduction of labor-saving technology and more efficient usage of young workers, • International migration, • Direct foreign investment, • Social security reform and limits to family support, • Effective utilization of the financial and non-financial wealth of the elderly (“Second Dividend”)
Age profile of assets and pension wealth in Japan, 1999 60
50
Million yen
40
30
20
10
0 18 20
25
30
35
40
45
50
55
60
65
70
75
Age Financial assets
Real assets
Present value of future pension benefits
80
85
90
95
Trend in First Dividend in Japan, 1920 - 2025 0.015
0.01
0.005
0
-0.005
19 21 19 27 19 33 19 39 19 45 19 51 19 57 19 63 19 69 19 75 19 81 19 87 19 93 19 99 20 05 20 11 20 17 20 23
-0.01
Profile 1989
Profile 1994
The Second Dividend of Japan, 1950 - 2050 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5%
Consumption and production profile 1989 Consumption and production 1999
-1.0%
19 50 19 56 19 62 19 68 19 74 19 80 19 86 19 92 19 98 20 04 20 10 20 16 20 22 20 28 20 34 20 40 20 46
-1.5%
●Simulation
approach
●Constant-fertility-and-
mortality approach
Next Step (another challenge!) Estimation on familial transfers in kind Data: Survey on time use and leisure activities Available Variables: Age, Education, Marital status, Activity of caring, Place where own child lives, Normal economic activity, Employment Status, Size of firm, Occupation, Normal working hours per week, Normal commuting time (one-way), etc.
Time Use Activities: “sleep”, “eating”, “personal care”, “work (for pay or profit)”, “schoolwork”, “housework”, “caring or nursing”, “child care” and “shopping”, “study”, “time for hobbies and amusements”, “sports” and “volunteer and social activities” and etc.
4
Average hours of main activities per day by sex 3.5
3
Housework and child care, female
2.5
Working, male
2
Working, female
1.5
1
0.5
Housework and child care, male
0 15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85+
Calculate hours of in-kind transfers such as “housework”, “caring or nursing” and “child care” Predict the opportunity cost, by using an hourly wage function estimated from the Employment Status Survey in Japan
●Forecasting,
using NUPRI’s long-term simulation model ●Backcasting,
drawing upon historical data
Thank you
