Japan shows what businesses with more elderly workers will be like

Japan passed the revised Act for Stabilization of Employment of Older Persons on March 31, allowing workers to stay on the payroll until the age of 70. Starting from next April, the law will take effect to guarantee the retirement age of 70 for Japanese workers.

In response, Japanese businesses are ramping up their efforts to make a better use of elderly workers. The average age of Japanese workers has grown over time. Tokyo Commerce Research says that the average age of employees in 1,841 businesses publicly listed as of March in Japan continued to rise from 39.5 in 2010 to 41.4 last year. By 2024, more than half the Japanese population will be in their 50s and above for the first time in history. This implies that Japanese businesses may find it hard to maintain their competitive edge unless they are nimble enough to build a new management system to work better with a growing number of older employees.

Meanwhile, South Korean companies have been recently showing an increasing interest in finding ways to better react to an ever aging workforce. With population aging being already a chronic social issue in Japan, Japanese businesses may give South Korea a hint of what should be done.

Some Japanese companies have attempted to change conventional compensation systems to ensure regular pay raises and promotions into new schemes that bring about flexibility and convenience in hiring qualified workers and determining their pays according to their job details and merits. Such a shift in Japan’s hiring culture is more focused on what workers do at work rather than on merely giving them a kind of membership. The so-called membership-based hiring system is associated with too wide a range of job duties, high rotation frequency and vague codes on occupational descriptions. Added to this, as pays are calculated based on working hours and seniority, it is hard to eval‎uate workers both quantitatively and qualitatively.

By contrast, the hiring system, for example, in place across the United States and Europe focuses on job duties and details specifies roles and responsibilities and determines workers’ pays accordingly. Workers find it easy to get a new job while businesses have great hiring flexibility. As long as workers’ roles and responsibilities do not change, their real pays, in effect, remain in the same range, meaning that Japanese workers feel less burdened to constantly hire elderly but experienced workers.

In the wake of the COVID-19 pandemic, a growing number of Japanese businesses are shifting to merit-based hiring schemes. One of the examples is Japanese cosmetics brand Shiseido’s new employment system implemented in January for hiring managing-level employees where labor performance is assessed based on achievement levels with job details specifically defined in R&R statements. By January in 2021, eight thousand rank-and-file employees will be subject to the identical system. More importantly, such a skill-based recruitment system can prosper further only when the labor market ensures greater flexibility and more mature working conditions for experienced employees to find it easy to move to a new company.

Japanese brewing and distilling company Suntory is another example of successfully promoting elderly employment by increasing the retirement age to 65 in 2013 and allowing workers at 65 and above to work extra years starting from April. It has long made a great effort to systematically introduce a series of regimes for nurturing, assessing and qualifying workers. To their eyes, workers, young and old, are not seen as a burden to take on but rather as a pool of talents that can grow to create value. This also allows elderly employees to get paid for their skills and performance.

However, some Japanese businesses weaken workers’ morale as they cut back on pay levels while adopting an employment system to guarantee longer working years for elderly workers. This discouraging measure leads many older workers to feel demotivated and only kill time at work. In that sense, Suntory takes the lead in showing how to overcome the negatives of allowing older workers to work additional years and react preemptively.


jplee@lgeri.com