What if no-benefit ‘retirement’ age is set at 40?

Scholar sees strict cutoff as fueling job mobility till workers hit age 75

by Minoru Matsutani

Staff Writer

When a government panel’s proposal that companies set their “retirement” age at 40 was released in early July, it made headlines and triggered hot debate on the Internet.

Many opinions posted were against the proposal, which effectively means initial-career employers would be able to jettison workers who hit that age, casting them off under a euphemism of retirement, and those people would have to find other work, undoubtedly mostly at much lower pay, until that day comes decades down the road when they start to receive actual retirement benefits.

The opponents argued that the unemployment rate would surge in a society where vestiges of lifetime employment remain and where company employees in their 40s have a hard time changing jobs.

Catching public attention and steering criticism was exactly the aim of Noriyuki Yanagawa, an economics professor at the University of Tokyo who came up with the proposal.

“I knew many people would misunderstand. Sensationalized headlines grab a lot of attention, and so did my proposal,” said Yanagawa, who chaired a government panel that on July 6 submitted to the Cabinet Office a report that included his proposal.

Contrary to the criticism, the 49-year-old Yanagawa says the goal behind his proposal is to give the job market more flexibility so people can easily change their line of work.

“It does not have to be exactly 40. The ideal society is that people aged 38, 35 or whatever, can change jobs or receive job training to change jobs. But in Japan, nothing will happen unless there is a clear rule,” he said.

The Cabinet Office panel was assigned to discuss human resources strategy goals that could help the nation prosper by 2050, when, because of the declining birthrate, seniors will outnumber the working-age population.

In its report, the panel said Japan should focus on training people to give them skills and an entrepreneurial sense, and offer safety nets for those who experience failure. People, it said, should be able to study and receive training for careers and not have to truly retire until they turn 75.

These recommendations were not unlike those made by experts in the past. But what sets the latest one apart is that the panel said it is essential to set a “retirement” age without state benefits at 40 to achieve these goals. This would force companies to shed human resources who are in their 40s — losing their talent but gaining the chance to hire new talent.

“I chose age 40 because, if companies lose employees aged 40 or older, they cannot function, and thus they will definitely hire. If the retirement age is higher than 40,” Yanagawa said, “companies may hire fewer” and take advantage of the age cutoff as a way to pare human resources costs.

Setting the cutoff age at 40 would lower the hurdle for companies to turn temporary staff into full-time employees, Yanagawa said, adding this tack would help resolve the income gap between the two types of employment.

He also stresses the importance of people age 40 and over receiving job training and re-education so they have the skills necessary for their next career, whatever that may be.

For example, people age 40 and over with retail sales experience could learn hotel management and pursue a concierge job, or they could train in care for the elderly and seek employment as a nurse.

There are some occupations people over 40 are not necessarily cut out for, such as electronic game programmers, Yanagawa said, noting such people may feel secure if there is social infrastructure established to offer job training or re-education. Universities can offer such training and can also hire elderly people as teachers, he said.

According to Yanagawa, the proposal would also give university students wider career choices.

University juniors and seniors typically start looking for a job at large corporations. But in times of recession, fewer can go down that path because large employers cut back on hiring fresh graduates. And once fresh-grad status is lost, there are few second chances to hire out with Japan Inc.

But under Yanagawa’s proposal, students would start working at small venture companies or nonprofit organizations and eventually hunt for jobs at large companies — and have an easier time of it because there would be more positions open, at least until they reach 40.

Although Yanagawa’s proposal drew much criticism, including some he believed misrepresented his intent, he also received voices of support.

Shigeyuki Jo, a human resources consultant, said in a recent email newsletter that large, global Japanese companies are already moving in this direction.

Jo said that if age 40 was the career cutoff, or “retirement,” age, employment would still be secured because middle-aged workers lacking high levels of competency could be rehired at lower salaries. However, the peak of the wage curve is currently around 40 and thus very few people will feel their wage change, he argues.

But a dramatic change would be felt in how companies hire, he said. Companies would see this as a chance to hire skilled middle-aged people at lower salaries. New grads would have to compete with them in the job market, and the advantage of being young would be smaller than now, Jo said.

He cited Recruit Co., a major publisher of job-search and other information magazines, and Canon Inc. as model companies.

For decades, Recruit has encouraged its employees who turn 30 or older to quit and start their own business. And Canon since 2005 has based its pay on merit and ability instead of seniority, and thus salaries have seen ups and downs, Jo said, adding that Canon’s employment system still keeps the door open for lifetime employment.

Jo also said Japan will have to accept the change because for other countries, this is the reality.

South Korea transformed its system when the financial crisis hit in 1997, even though the government did not lead the nation in this direction and nobody in the country wanted the change, he said.

Although the Cabinet Office asked Yanagawa’s panel to engage in deliberations and come up with creative human resource ideas, a spokeswoman said the report isn’t likely to reflect official policy anytime soon.

In reality, the idea would require the cooperation of Keidanren and the Japanese Trade Union Confederation (Rengo). The largest groups representing employers and unions declined comment on the proposal because they have not been asked to consider it seriously.

Yanagawa has not approached these groups himself but said he hopes they take the proposal to heart. “Government ministries and agencies should start implementing (the age 40 cutoff). Corporations will probably follow,” he said.