Japan’s senior employment challenge
Rapid population aging and labour shortages are common challenges among developed countries. Japan stands out in this regard, with a particularly high and steadily rising labour force participation rate among older adults. The proportion of employed individuals aged 65 and over has increased for 20 consecutive years since 2004, placing Japan above the OECD average.
As of 2022, 25.2 per cent of Japanese people aged 65 and over were employed — the second-highest rate among major economies, following South Korea’s 37.3 per cent. The United States (18.7 per cent), Canada (14.4 per cent), United Kingdom (11.3 per cent), Germany (8.9 per cent), Italy (5.3 per cent) and France (4.2 per cent) all reported significantly lower rates.
A major institutional driver behind this trend is Japan’s employment policy. With the 2025 revision of the Act on Stabilisation of Employment of Elderly Persons, companies are now legally obligated to secure employment opportunities for workers up to 65 years old. This type of mandatory employment guarantee is rarely seen outside of Japan and South Korea. In most countries, employment rates decline sharply before individuals reach the age of 60.
This expansion in senior employment may seem like a policy success. Yet a closer look reveals that many older adults are working out of necessity, not choice. The rise in senior employment is driven less by a desire to stay healthy or socially connected but more by low public pension benefits and acute labour shortages.
Government survey data underscore this trend. More than half of older Japanese workers cited ‘wanting income’ as their main reason for staying employed, while only 15.8 per cent reported working because they find it interesting or fulfilling. This stands in stark contrast to countries like France, Germany and Sweden, where intrinsic motivation is a more common factor.
Japan faces many serious challenges in expanding senior employment, especially regarding the quality of employment. High-quality employment entails fair wages aligned with work performance, flexible working conditions in non-discriminatory environments and settings that promote physical and mental health. But Japan falls short on all of these fronts.
One of the most pressing issues is wage structure. Unlike many OECD countries where wages are more closely tied to productivity, in Japan, wages often decline with old age regardless of performance. This automatic post-retirement wage reduction discourages continued engagement. As Japan’s working-age population shrinks and productivity gains become more crucial, this issue must be addressed to keep older workers motivated.
Closely related is the mismatch between seniors’ experience and the roles they are given. As demand for certain occupations declines past age 60, many seniors are forced into low-skill jobs that fail to utilise their expertise. Addressing both inadequate compensation and the underuse of skills is essential.
Another important issue is the lack of diversity in working arrangements. Employment systems have not evolved to meet the varied needs of senior workers, whose preferences and circumstances often require flexibility. Options like flextime, alternate-day schedules and telework must be expanded.
Particular attention must also be paid to raising the employment rate of older women. Japan has the highest proportion of part-time female workers among G7 nations — around 40 per cent — reflecting persistent barriers to balancing full-time work with family responsibilities. Plus, the share of women in non-regular employment increases with age. It is critical to enable women to remain in regular employment throughout their 30s and 40s without being forced to interrupt their careers for childbirth or caregiving.
Addressing these challenges will require a fundamental rethinking of the structure and financing of Japan’s social security system. One key condition is to ensure that older adults work not out of financial necessity but out of a desire to stay active and socially engaged.
Being able to continue in a desired job can bring a sense of purpose in life. But many older individuals may find it challenging to work in the same way they did during their younger years. Even among the elderly, health conditions and living situations vary widely. The highest priority must be placed on respecting the individual’s wishes, and seniors should never be pressured to work or denied access to essential medical and welfare services.
Reforming the Earnings-Related Pension for Working Seniors system is a good starting point. This system reduces or suspends a portion of pension benefits for those earning above a certain threshold past age 65. Abolishing this system could increase benefit payouts and strain pension finances. But it would also support elderly labour participation — an essential factor in promoting long-term economic growth, which could help sustain the pension system itself.
Ultimately, Japan must continuously recalibrate the balance between benefits and burdens in its social security system, adapting to societal changes while also supporting the labour supply of older adults. This is a particularly complex task, as reforms must integrate both fiscal sustainability and employment incentives for seniors.
In a society facing demographic decline, longer working lives will be not only more common but also increasingly necessary. To make this shift sustainable and equitable, Japan must design more inclusive and flexible employment systems, alongside wage structures that value the contributions of its seniors.
Yasuo Takao is Adjunct Senior Research Fellow at the School of Media, Creative Arts and Social Inquiry at Curtin University.