ERI Discussion Paper Series No.70
The Impact of Mandatory Retirement and
the Public Pension System on Human Capital Loss

March 1997
Atsushi Seike
(Professor of Labor Economics, Faculty of Business and Commerce, Keio University;
Visiting Senior Research Officer, Economic Research Institute, Economic Planning Agency)
Atsuhiro Yamada
(Graduate School of Economics, Keio University;
Visiting Researcher, Economic Research Institute, Economic Planning Agency)

(Abstract)

In order to cope with the growing cost of the aging society, it is important for our society to utilize the potential human capital of older people. Institutional factors such as the public pension system or mandatory retirement practices however have negative effects on the degree of utilization of human capital.

Both the public pension system and mandatory retirement encourage older people to retire or reduce their labor supply, and those who have high public pension benefits or mandatory retirement experience tend to have high human capital.

In this paper we found the following:

  1. (1) Retired people with public pension and mandatory retirement experience have higher human capital. Therefore, there is more potential human capital loss from the labor market associated with public pension coverage and mandatory retirement systems.
  2. (2) The public pension system and the mandatory retirement experience reduces the degree of human capital utilization of working older people by restricting their working hours or by decreasing the probability of their working in the same occupation as they did during the body of their career.
  3. (3) The public pension and the mandatory retirement experience reduces the degree of human capital utilization in terms of reducing the return of human capital investment.

These results suggest two policy implications.

First, the scheme of the public pension, in which coverage and benefit level are determined based upon work experience and therefore upon human capital accumulation, should be redesigned to avoid the loss of the higher human capital of older people.

Second, abolishment of the mandatory retirement practice would be appropriate not only from the point of view of the workers' welfare, but also from the point of view of the utilization of the higher human capital of older people.


Structure of the whole text

  1. Abstract別ウィンドウで開きます。(PDF-Format 929 KB)
  2. page1
    I. Introduction
  3. page4
    II. Overview of Retirement Patterns of Japanese Elderly and A Descriptive Analysis
  4. page7
    III. Design of Experiment
  5. page12
    IV. Empirical Results
  6. page17
    V. Discussions
  7. page18
    VI. Conclusions
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