The Effectiveness of Demand-Side Government Intervention to Promote Elderly Employment: Evidence from Japan

Abstract

In this article, the authors examine the effect of a demand-side government intervention on employment of the elderly. The growing gap between the increasing pension eligibility age and the mandatory retirement age has emerged as a serious social concern in Japan. Starting in 2006, the government legally mandated employers to offer continuous employment up to the increased pension eligibility age. By comparing cohorts affected and unaffected by the policy, the authors find that such legal enforcement increases the employment rate of men in their early 60s. Furthermore, the effect is concentrated on employees at large-sized firms, where mandatory retirement was applied more strictly in the past. The authors then examine potential complementarity between pension reform—the conventional supply-side intervention—and the demand-side intervention. Evidence suggests that the impact of an increase in pension eligibility age on elderly employment is slightly larger when combined with legal demand-side enforcement.