2019 OECD ECONOMIC SURVEY OF JAPAN Meeting the challenges of population ageing and high government debt Tokyo, 15 April 2019
www.oecd.org/eco/surveys/economic-survey-japan.htm
OECD Economics OECD
Growth has been more robust but major challenges remain ď ą Japan has achieved faster growth during the past six years: o Real GDP growth in per capita terms has been close to the OECD area.
o Job creation has been strong, particularly among women.
ď ą Japan faces the intertwined challenges of rapid population ageing and high government debt. o A declining working-age population is creating labour shortages.
o The rising number of elderly puts upward pressure on public spending. o The government’s fiscal position remains in deficit. o Labour productivity and per capita income are well below leading OECD economies.
2
Per capita output growth has accelerated 1.8 1.6
Japan
OECD
1.4 1.2 1.0 0.8
0.6 0.4 0.2 0.0
1997-2012
2012-18
Note: Annual average percentage change in real GDP on a per capita basis. Source: OECD Economic Outlook (database).
3
Japan’s population will still be the oldest in the OECD in 2050 Per cent 90 80 70 60 50 40 30 20 10 0 KOR
2017
USA
CAN OECD GBR
2050
FRA
DEU
ITA
JPN
Note: Population aged 65 and older as a share of the population aged 20 to 64. Source: OECD Demography and Population database.
4
The labour force will decrease Millions 70
Millions 70 65
65
60
60
55
55
50 45 40
Observed Constant entry/exit rates Delayed retirement Closing the gender gap Delayed retirement and closing the gender gap 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
50 45 40
Note: The baseline assumes constant labour market entry and exit rates by gender for each five-year age group. In the “delayed retirement scenario”, exit rates are reduced for both men and women by 10% for each five-year age group between the ages 55 and 74. In the “closing the gender gap” scenario, the participation rates for women converge to those for men in each five-year age group. Source: OECD projections based on data from the OECD Population and Labour Force Projections database.
5
Elderly-related spending will rise further
Per cent of GDP 25
Per cent of population 50
Elderly-related social spending (left scale) Share of the population age 65 and older (right scale) 20
40
15
30
10
20
5
10
0
2020
2025
2030
2035
2040
2045
2050
2055
2060
0
Source: Cabinet Secretariat et al. (2018); Fiscal System Council (2018); Ministry of Internal Affairs and Communications; and OECD calculations.
6
The government debt ratio is the highest in the OECD
B. G
A.Gross government debt
Per cent of GDP 250 Japan 200
United States
OECD
Greece
150
100
50
0 1990
1995
2000
2005
2010
2015
19
1990
Note: Gross government as a percentage of GDP. OECD estimates for 2018. Source: OECD Economic Outlook database.
7
The Bank of Japan’s holdings of government bonds are large As a per cent of GDP, at the end of 2018¹ 100 80 60 40
0
LUX LVA LTU SWE IRL USA SVK FIN NLD AUT DEU BEL SVN FRA PRT GBR ITA ESP JPN
20
1. March 2019 for Japan, January 2019 for the United States and November 2018 for Sweden. Source: OECD Economic Outlook database.
8
Fiscal consolidation beyond 2025 is necessary to stabilise government debt Per cent of GDP
Per cent of GDP
600
600
No improvement in the fiscal balance Primary balance is achieved in 2025 but no further consolidation follows Primary balance is achieved in 2025 and further consolidation of 5.0% of GDP over 2026-35
500
500
400
400
300
300
200
200
100
100
0
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
0
Source: OECD calculations based on OECD Economic Outlook No. 104 through 2020, Cabinet Office projections through 2027 (using the “Economic Growth Achieved Case�, which implies real growth of more than 2% and nominal growth of more than 3% a year in the first half of the 2020s) and government assumptions for growth, spending and interest rates through 2060.
9
Living standards and productivity are well below leading OECD countries Japan relative to the top half of OECD countriesยน Top half of OECD = 100 120
Top half of OECD = 100 120
Labour inputs
110
110
100
100
90
90
Per capita income 80
80 Labour productivity
70
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
70
1. Per capita GDP using 2010 prices and PPP exchange rates. Labour productivity equals GDP per hour of labour input. Source: OECD Economic Outlook database.
10
Sustaining labour inputs in the face of rapid population ageing
11
Fundamental reform of Japan’s traditional labour market practices is needed • Around 80% of firms set a mandatory retirement age of 60: abolish the right of firms to set mandatory retirement. • Wages are closely linked to seniority: increase the importance of job position and performance in wage setting. • Lifetime (or long-term) employment is still prevalent: facilitate mid-career mobility. In sum, a shift to more flexible employment and wage systems based on performance rather than age would enable Japan to better utilise its human capital, including women and older persons.
12
Most firms have kept their mandatory retirement age at 60 The mandatory retirement age set by companies Per cent 100
Per cent 100
80
80
60
60
61 to 64
60
65 and over
40
40
20
20
0
0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Ministry of Health, Labour and Welfare, General Survey on Working Conditions, 2017.
13
Japan’s wage system remains closely linked to seniority Wage profile for male lifetime employees, 20-24 age group = 100 A. Large firms
B. Medium firms
C. Small firms
300
280
280
260
260
260
240
240
240
220
220
220
200
200
200
180
180
180
160
160
160
140
140
140
120
120
120
100
100
100
300 2016
280
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64
2006
20-24 25-29 30-34 35-39 40-44 50-54 55-59 60-64
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64
300
Source: Japanese Ministry of Health, Labour and Welfare, Basic Survey on Wage Structure (2006, 2016).
14
Raising the pension eligibility age would increase pension benefits and reduce poverty among the elderly Per cent
Future pension benefits as a percentage of pre-retirement income
100
Per cent 100
80
60
60
40
40
20
20
0
0
GBR MEX POL AUS CHL IRL JPN SVN DEU USA KOR NZL CAN CHE NOR CZE BEL LVA EST OECD GRC SWE FIN HUN FRA SVK ISR ISL TUR ESP PRT LUX AUT ITA DNK NLD
80
Note: For full-career average-workers under current legislation. Source: OECD (2017), Pensions at a Glance 2017: OECD and G20 Indicators.
15
Skills of older workers are well below those of younger workers Index of literacy skills (30-34 age group = 100)
Index 105 Japan
Germany
OECD
United States
Index 105 United Kingdom
100
100
95
95
90
90
85
85
30-34
35-39
40-44
45-49
50-54
55-59
60-65
Source: OECD (2018), Working Better with Age.
16
30 20
0
TUR GRC MEX ITA CHL ESP KOR OECD POL SVK BEL FRA HUN LUX IRL USA ISR PRT SVN CZE AUT AUS JPN GBR FIN LVA CAN EST DEU DNK NOR NLD NZL SWE CHE ISL
10
The gender employment gap is close to the OECD average
B. The gender gap in employment rates in Japan has narrowed to the OECD average Male employment minus female employment rate in 2018Q3ยน Male employment raterate minus female employment rate in 2018
Percentage points 40
Percentage points
35 30 25 20 15 10
0
SWE FIN NOR LVA ISL ISR EST CAN DNK PRT BEL FRA LUX SVN DEU CHE NLD NZL GBR AUT AUS USA IRL ESP POL SVK CZE HUN JPN OECD ITA KOR CHL GRC MEX TUR
5
C. The share of women working part-time in Japan is relatively high
Source: OECD Gender database.
Per cent 60
Percentage of women 15-64 in labour force in 2017 17
50
The gender wage gap is the third highest in the OECD Difference between median earnings of men and women divided by median earnings of men who are full-time employees Per cent 35
30 25 20 15 10
0
LUX BEL GRC SVN ITA DNK TUR NOR NZL HUN POL FRA ISL IRL MEX ESP LTU SWE OECD NLD AUS PRT CHE SVK DEU CZE AUT FIN GBR CAN USA ISR CHL LVA JPN EST KOR
5
Source: OECD Gender database.
18
Japanese women are under-represented in leadership positions and certain professions Per cent 50
A. Female share of managerial employment All ages, 2019
B. The share of doctors who are women in Japan is the lowest in the OECD 2017 or latest year available
Per cent 80
45
70
40
60
35 30
50
25
40
20
30
15
20
10
10 0 JPN KOR USA LUX TUR ISL AUS CHL CHE ISR BEL ITA CAN GRC IRL MEX NZL FRA DEU AUT GBR OECD SWE NOR DNK NLD ESP CZE PRT HUN POL SVK FIN SVN LTU EST LVA
0
KOR JPN TUR LUX CZE CHL DNK NLD ITA DEU GRC FIN ESP AUT ISL OECD FRA SVK BEL ISR PRT CHE CAN IRL GBR AUS MEX EST NOR HUN LTU SWE NZL POL SVN USA LVA
5
Source: OECD Gender database.
19
10
10
5
5
Japanese women spend much more time in household work than men
LTU LVA EST HUN NOR SWE SVK LUX CHE DNK SVN FIN NLD DEU CZE ESP CAN USA ITA PRT AUT POL FRA GBR BEL IRL ISR AUS OECD NZL CHL ISL JPN KOR GRC MEX TUR
0
0
B. Japanese women spend much more time in household work than men Gender gap in minutes spent per day on unpaid work, female minus male, 15-64 year-olds
Gender gap in minutes spent per day on unpaid work, female minus male, 15-64 year-olds Difference in minutes spent Difference in minutes spent 250 250 200
150
150
100
100
50
50
0
0
SWE DNK NOR CAN FIN BEL EST FRA DEU USA GBR SVN NLD NZL LVA POL OECD AUT AUS HUN ESP GRC IRL ITA KOR JPN TUR PRT MEX
200
C. The share of Japanese men taking parental leave is lowยน
Source: OECD Gender database.
Per cent 90 80 70
Per cent 90 Women
80 70
20
Non-regular employment is concentrated among women B. Per cent of women aged 15 and above
A. Per cent of men aged 15 and above 100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0 15-24
25-34
35-44
45-54
55-64
65 and above
Regular Non-regular Self-employed and other
0
15-24
25-34
35-44
45-54
55-64
65 and above
Source: Ministry of Internal Affairs and Communications, Labour Force Survey, Basic Tabulation, 2017.
21
Japan needs to make greater use of foreign workers % of total population 50
Share of the foreign-born population
40
30
20
10
0
Source: OECD (2018), Education Policy in Japan: Building Bridges towards 2030.
22
Policy recommendations to make the most of Japan’s human resources •
Abolish the right of firms to set a mandatory retirement age and reinforce legislation against age discrimination.
•
Break down dualism through a comprehensive strategy to reduce employment protection for regular workers, in part by setting clear rules on dismissal of workers, and expanding social insurance coverage and training for non-regular workers.
•
Flatten the seniority wage curve by enforcing the equal pay for equal work provision in the work style reform.
•
Raise the pension eligibility age above 65 and expand employment opportunities for older persons to reduce elderly poverty.
•
Improve lifelong learning by making it more relevant, including for older workers, and addressing the time and financial constraints that limit participation.
•
Strictly enforce the new 360-hour annual limit on overtime hours and raise penalties on firms that exceed it to improve work-life balance.
•
Focus on reducing the waiting list for childcare so that mothers are not forced to leave the work force.
•
Strengthen measures to prevent discrimination against women in education and employment.
•
Reform tax-benefit systems so that both parents have broadly similar financial incentives to work.
•
Provide programmes to help foreign nationals adjust to Japan, including through education.
23
Policies to ensure fiscal sustainability in the face of a shrinking and ageing population
24
A primary deficit is projected to continue through FY 2025 under current polices Per cent of GDP 1.0 Baseline (around 1½ per cent annual nominal growth rate) 0.5 High growth (more than 3% annual nominal growth rate)
Per cent of GDP 1.0 0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
-2.0
-2.0
-2.5
-2.5
-3.0
-3.0
-3.5
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
-3.5
Note: Government projections in January 2019. It assumes that the hike in the consumption tax rate from 8% to 10% is implemented as planned in 2019. The primary balance is central and local governments, as a percentage of GDP on a fiscal year basis. Source: Cabinet Office (2019).
25
Health and long-term care spending has increased Health and long-term care spending increase between FY 2000 and FY 2016 Trillion yen 16
Trillion yen 16 14 12 10
14
Total
12
Ageing
10
8
Total
6 4
6 Increase in cost per person
2 0 -2
-4
8
Revision in medical fees
Increase in recipients
4
Increase in cost per recipient
0
2
-2 Healthcare
-4 Long-term care
Source: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; and OECD calculations.
Long-term care spending increase between FY 2000 and FY 2016
26
There is room for healthcare cost savings In 2017 or latest year available Number of doctor consultations per capita per year
Share of private expenditure on outpatient care (%)
Average total hospital stay1
Average hospital stay for acute care1
Total number of hospital beds2
Number of acute-care beds2,3
Number of long-term care beds2,3
Number of beds in long-term care facilities2
Japan
12.8
16.9
28.5
16.3
13.1
7.8
2.7
6.5
OECD average
7.4
31.7
8.4
6.6
4.9
3.7
0.7
7.6
Highest country
17.0
59.7
28.5
16.3
13.1
7.8
4.8
12.9
Lowest country
2.8
12.4
3.8
4.0
1.5
1.5
0.0
0.7
1. In days. 2. Per 1 000 population. 3. In hospitals. Source: OECD Health Statistics database.
27
Excess hospital beds leads to higher hospitalisation costs Per capita hospitalisation cost by prefecture, 2016ยน Thousand yen 12.4
Thousand yen 12.4
12.2
12.2
12.0
12.0
11.8
11.8
11.6
11.6
11.4 -20
-10
0
10
20
11.4 30 40 50 Hospital beds in excess of FY 2025 benchmark (%)
1. The vertical axis shows the natural log of a thousand yen. A gap of one unit corresponds to 100% difference. Source: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; and OECD calculations. .
28
The use of generic drugs is low Share of generics in 2017 or latest year available in volume terms1 Per cent of the total phamaceutical market 90
Per cent of the total pharmaceutical market 90
GBR²
CHL³
USA³
DEU²
NZL²
CAN
LVA
NLD
SVK
CZE
TUR
0
DNK³
0
AUT²
10
OECD
10
SVN³
20
NOR
20
ESP²
30
PRT
30
FIN
40
IRL²
40
JPN
50
EST³
50
BEL²
60
FRA²
60
GRC²
70
CHE
70
ITA
80
LUX²
80
1. Including medical non-durables. 2. Reimbursed pharmaceutical market. 3. Community pharmacy market. Source: OECD Health Statistics database.
29
The public capital stock is ageing rapidly Years 25
Years 25
20
20
15
15
10
10
5
1970
1975
1980
1985
1990
1995
2000
2005
2010
2014
5
Note: A weighted average of 18 sectors, such as water supply, flood control and agriculture. Source: Cabinet Office; Ministry of Internal Affairs and Communications; and OECD calculations.
30
Maintenance costs vary widely across regions In FY 2014
Per capita maintenance cost, thousand yen 3.5
Per capita maintenance cost, thousand yen 3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0 8.2
8.4
8.6
8.8
9.0
9.2
9.4 9.6 9.8 Per capita public capital stock, million yen
Source: Cabinet Office; Ministry of Internal Affairs and Communications; and OECD calculations.
31
The tax and social security burden is relatively low Total tax and social security revenue as a per cent of GDP in 2017 or latest year available Per cent 50
Per cent 50
40
30
30
20
20
10
10
0
0
MEX CHL IRL TUR KOR USA AUS CHE LTU LVA JPN NZL CAN ISR SVK EST GBR ESP POL OECD PRT CZE SVN DEU ISL HUN NOR LUX NLD GRC AUT ITA FIN SWE BEL DNK FRA
40
Source: OECD Revenue Statistics database.
32
The share of consumption and personal taxes in tax revenues is relatively low Per cent
As a per cent of total tax and social security revenue in 2017 or latest year available
Per cent
60
60
50
50
JPN
40
30
40
OECD
30 OECD OECD
20
JPN
20
JPN JPN OECD
10
0
Consumption tax
Personal income tax
Social security contribution
Corporate income tax
JPN OECD Property tax
10
0
Source: OECD Revenue Statistics database.
33
Japan’s consumption tax rate is one of the lowest in the OECD Per cent 30
Standard tax rate in 2018
Per cent 30 25
20
20
15
15
10
10
5
5
0
0
CAN¹ CHE JPN AUS KOR NZL MEX ISR LUX TUR CHL DEU OECD AUT EST FRA SVK GBR BEL CZE LVA NLD ESP ITA SVN IRL POL PRT FIN GRC ISL DNK NOR SWE HUN
25
1. In Canada, the provinces can levy a consumption tax on top of the federal tax, making it higher than Japan’s 8%. Source: OECD Consumption Tax Trends 2018.
34
There is scope to raise environmental taxes In 2016
Per cent of GDP 4.0
Per cent of GDP 4.0
3.5
3.5 Energy
Motor vehicles
Other
DNK
SVN
LVA
ITA
NLD
TUR
FIN
EST
AUT
HUN
PRT
GBR
NOR
SWE
BEL
CZE
POL
SVK
LTU
0.0
ISL
0.0
DEU
0.5 ESP
0.5 AUS
1.0
LUX
1.0
OECD
1.5
MEX
1.5
CHE
2.0
IRL
2.0
JPN
2.5
NZL
2.5
CHL
3.0
USA
3.0
Source: OECD (2018), Taxing Energy Use.
35
Policy recommendations to ensure fiscal sustainability •
Develop a comprehensive fiscal consolidation plan covering specific spending cuts and tax increases, including a further gradual rise of the consumption tax, to ensure fiscal sustainability.
•
Take long-term care out of hospitals and shift its focus to home-based care.
•
Reduce long-term care insurance coverage by focusing preventive care on effective programmes and removing unnecessary services for those with less severe care needs.
•
Promote greater use of generic drugs by making them the standard for reimbursement by health insurance.
•
Raise the co-payment rate of the elderly by establishing the ability-to-pay principle through an effective system for assessing income and assets.
•
Improve the effectiveness of health check-ups and health guidance to lengthen the healthy life span.
•
Promote the joint provision of local public services and infrastructure across jurisdictions and the development of compact cities.
•
Raise the pension eligibility age above 65 to maintain a sufficiently high replacement rate, while taking measures to expand the employment of older persons.
•
Shift the tax mix by reducing the share of social security contributions and increase the share of taxes on consumption and personal income.
•
Remove distortions in tax and social benefit systems, such as the spousal deduction, that discourage labour force participation.
•
Increase the coverage of firm-based social insurance and ensure better compliance with the public pension schemes.
•
Improve the fiscal framework, including taking measures to insulate assessment of macroeconomic and fiscal forecasts and the monitoring of fiscal plans from normative policy-making responsibility.
36
Narrowing the productivity gap with leading OECD countries 37
The productivity gap between large firms and SMEs is increasing Million yen 15
Large enterprises in manufacturing
Million yen 15
12
12
9
9 SMEs in manufacturing
6 3
0
6 3
2003
2005
2007
2009
2011
Source: Ministry of Finance, Financial Statement Statistics of Corporations by Industry.
2013
2015
2017 FY
0
38
The firm entry rate in Japan is rising, but remains below other major economies Rate
Rate
20
20 Japan United States Germany
18 16
France United Kingdom
18 16
14
14
12
12
10
10
8
8
6
6
4
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
4
Source: Ministry of Economy, Trade and Industry, 2017 White Paper on Small Enterprises in Japan.
39
The share of firms with two or more independent directors has risen sharply Per cent 100
Among companies listed in the first section of the Tokyo Stock Exchange
Per cent 100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
0
Source: Japan Exchange Group.
40
Improved corporate governance may help reduce the cash holdings of companies
Per cent
Per cent 90
A.Perception Perceptionofofcompanies companies and levels of cash onon hand andinvestors investorsabout aboutthe companies’ cash hand
80 70 Companies
60
Investors
50 40 30 20 10 0
Levels are excessive
Levels are appropriate
Levels are insufficient
No answer
Source: Japan Exchange Group.
Per cent 80
B. Different priorities of companies and investors 41
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