The Economics of Social Security in Japan

The Economics of Social Security in Japan

ESRI Studies Series on Ageing

Edited by Toshiaki Tachibanaki

This book provides a comprehensive appraisal of social security in Japan, where traditionally the burden of welfare provision has been the main responsibility of the family and employers, rather than the state. However, an ageing population, changes in family structure and continued recession has led to an urgent reappraisal of this situation.

Chapter 4: Alternative pension reform strategies for Japan

David Miles and Ales Cerny

Subjects: asian studies, asian social policy, economics and finance, welfare economics, social policy and sociology, comparative social policy, economics of social policy


David Miles and Ales Cerny 1. INTRODUCTION This chapter summarizes the research we have undertaken into the implications of various pension reform strategies in Japan. Reform is essential because ageing will generate extreme pressures on the public, unfunded pension system. We consider the macroeconomic, or aggregate, and the distributional implications of reforms that, to varying degrees, would increase reliance upon funded pensions. We also estimate the welfare implications of reforms by calculating the expected gains and losses to households of various generations. We take as a point of reference a scenario where unfunded pensions provide an income to the retired worth a high proportion of salaries at the end of their working life; we take that proportion to be 50 percent of gross (or around 70 percent of net) salaries. In earlier research we have described results from a range of models. In some models uncertainty was absent but asset prices and wages were endogenous and responded to movements in savings and in labor supply generated by demographic shifts and changing pension arrangements. In other versions of the model there were multiple sources of uncertainty, none of which could be fully insured against, but rates of return and real wages evolved exogenously. In some versions of the model we were able to allow for uncertainty and to endogenize asset prices, but only by focusing on steady states. That precludes analyzing transitional periods where demographics and pension systems are evolving. Computational diļ¬ƒculties made it hard to simultaneously allow for multiple...

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