Gudrun Biffl The economic policy challenge of an ageing society: The case of Austria and Japan Ageing in Japan and Austria, Seminar of the Universities of Vienna and Kyoto, Kyoto September 2005

Demographic Ageing more pronounced in Japan than Austria Japan has one of the oldest populations in the world, while Austria has a more intermediate position However, demographic ageing (proportion of 65+ in total population, life expectancy at birth) is no reliable indicator of the economic burden of ageing, i.e., impact on economic growth The economic burden and the dynamics over time depend on the employment rate of the population, productivity growth and the public transfer system, in particular old age pensions

Economic burden of ageing in Japan not higher than in Austria Because of higher employment rate of older workers Better prospects of productivity growth due to more investment in higher education and a healthier older work force Lower pension outlays than in Austria – Austria‘s public pension outlays are amongst the highest in the OECD (14.5% of GDP in 2001, including administrative costs), while Japan holds an intermediate position (8% of GDP in 2001) Japan is projected to experience a similar rise in expenditures on public old-age pensions as Austria, namely 3 percentage points in terms of GDP between 2000 and 2050.

Facts and Figures Life expectancy Public pension outlays in % of GDP Labour force participation by age and gender Unemployment rates Education level of older workers (50-64) between 2000 and 2025 Average effective versus official age of retirement Age-earnings profile Average job tenure Relative hiring intensity by age

Life Expectancy at Birth

Public Old Age Pension Expenditures in % of GDP

Significantly lower labour force participation of mature workers in Austria Activity rates of mature workers are at opposite ends in Austria and Japan – limited scope for further increase in Japan The activity rate of prime age women in Japan significantly lower than in Austria – scope for further increase Low activity rate of mature workers in Austria in the main the result of sharp drop of labour force participation of workers with low skills - one of the highest in the OECD while Japan has one of the lowest declines Because: Austria has fewer low wage/low productivity job opportunities for older workers and more generous retirement regulations

Participation rates of men by age in OECD countries, 2003 a) 2002 data for Iceland and Luxembourg S.: European Labour Force Survey and national labour force surveys. EULFS for Austria, Netherlands and Switzerland

Participation rates of women by age in OECD countries, 2003 a) 2002 data for Iceland and Luxembourg S.: European Labour Force Survey and national labour force surveys. EULFS for Austria, Netherlands and Switzerland

Higher unemployment of unskilled older workers in Austria in addition to lower labour force participation rate While total unemployment is equally high in Austria and Japan (5.4% in 2003), highly skilled workers have lower unemployment rates in Austria than Japan and unskilled ones higher rates, particularly older workers. Low-skilled older workers have a significantly higher unemployment rate than high skilled workers in Austria, i.e., plus 5.6 percentage points compared to 2 percentage points in Japan.

Unemployment rates by educational attainment level, age and gender, 2002 MenWomenTotal JPNL 7,96,35,93,67,25,2 M 4,65,25,33,64,94,6 H 2,53,94,01,53,13,2 AUTL 8,09,15,85,46,87,2 M 3,05,43,15,03,05,2 H 1,81,62,01,71,91,6

Job opportunities for unskilled workers decline in Austria and Japan due to: Skill-biased technical change and unskilled labour saving industrial restructuring Outsourcing and off-shoring: Austria relocated a large proportion of low to medium skill labour-intensive production lines to Central and Eastern European countries, and Japan to Asia. High-skill labour-intensive and capital intensive production expands in the home country, often feeding outsourced/off-shored suppliers into the value added chain Results in economic and productivity growth but little employment growth, particularly of low skilled workers.

Japan invests heavily in higher education; Austria is late in developing a learning society, migrants continue to be low skilled (50-64 by education) Sources: For 2000, OECD, Education at a Glance; for 2025, OECD estimates based on the data for 2000 and obtained by applying participation rates by educational attainment, gender and 5-year age group for the population aged to the corresponding pop

Pension regimes; exit versus move out of career jobs into secondary jobs Japanese workers continue to work beyond the effective retirement age while Austrians exit well beforehand because of the higher pension replacement rates in Austria (more than 70% versus some 30% in Japan) as well as more generous welfare benefits. In Japan, a large proportion of older workers continues to work after losing their ‘career’ jobs; they tend to move into jobs with somewhat lower wages and working conditions, often combining work and retirement pay or welfare benefits.

Average effective age of retirement versus the official age, OECD, Men a) The average effective age of retirement is derived from the observed decline in participation rates over a 5-year period for successive cohorts of workers (by 5-year age groups) aged 40 and over. S.: OECD estimates derived from the European and national labour force surveys. OECD Average

Average effective age of retirement versus the official age, OECD, Women a) The average effective age of retirement is derived from the observed decline in participation rates over a 5-year period for successive cohorts of workers (by 5-year age groups) aged 40 and over. S.: OECD estimates derived from the European and national labour force surveys. OECD Average

Steep age-earnings profile in Austria and Japan (men) Pronounced age-earnings profiles are incentive for firms to early retirement Age-earnings curve declines sharply for men after the age of 55. Japanese women have a much flatter age-earnings curve than men, i.e., the concept of lifetime employment and seniority wages does not really apply to them. Age earnings profiles in Austria continue to rise with age for men and women alike, thus effectively forcing the less productive out of employment.

Average job tenure of employees (years) in selected OECD countries, 2000 MenWomen

Age-earnings profiles in selected OECD countries, 2000 MenWomen

Japanese labour market of mature workers is more flexible than the Austrian Japan has: more part-time work particularly of older workers A significantly higher hiring intensity of older workers - ratio of hiring rate (proportion of employees with tenure less than one year in current job) by age group relative to hiring rate of all ages a larger proportion of older workers are self- employed (32% versus 22% in Austria)

Part-time work by age and gender, 2003 Percentage of total employment BothMenWomen Netherlands26,631,64,511,753,763,7 Australia23,527,57,712,842,847,9 Germany21,623,54,46,342,446,6 Iceland21,418,86,14,438,834,3 Norway21,225,07,08,537,243,7 Japan21,127,38,514,839,845,8 United Kingdom20,628,64,011,641,249,8 Belgium19,923,44,110,139,545,7 Austria19,617,63,54,039,738,6 New Zealand19,121,95,99,934,436,8 Sweden18,321,57,010,530,633,1

Relative hiring intensity by age, Australia1,80,90,5 Austria4,70,40,1 Belgium3,60,80,2 Denmark2,20,90,4 Finland2,90,80,4 France3,40,90,3 Germany2,50,90,4 Japan3,60,70,5 Korea2,30,8 Netherlands1,90,90,4 Norway2,70,90,3 Sweden3,01,00,3 Switzerland2,50,90,3 United Kingdom2,40,90,5 United States2,40,80,4 Unweighted average2,70,80,4

Employment by industry and occupation A larger proportion of mature workers is in farming and fisheries in Japan than Austria. A larger proportion of Austrians remains in their original industry/occupation at older ages than in Japan More pronounced gender segmentation of jobs in Japan. In Japan even more than in Austria older workers are overrepresented in SMEs

Health issues The relationship between health and economic growth deserves particular attention in the context of an ageing society. The challenges are to prolong the work ability and actual employment rate of older workers and in so doing to reduce the pressure on public pension funds and public spending on health care Judging by the life expectancy at birth, absenteeism due to illness/accidents, the health of the Japanese population is somewhat better than the Austrian Accident rate in Japan is similar to the EU average – may rise again due to increasing stress of older workers in subcontracting firms, the major employers of older workers

Policy conclusion Coping with ageing is a greater socio- economic and political challenge in Austria, due to more generous welfare payments and pensions and because the Austrian labour market of older workers is less flexible than the Japanese. The need to raise the employment rate of older workers is more pronounced in Austria. A coordinated policy action is warranted to implement a system of life long learning, to expand Occupational Health and Safety systems, to adapt the social security system such that the inducements to work are carefully balanced against an adequate level of social protection.