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Nightmare 2040: Japan's lost generation

Grim future faces numerous elderly with little or no means of financial support

TOKYO -- Takeshi Erikawa, 72, has held many prominent positions in Japan's central government, earning him recognition as a "great bureaucrat."

One thing that bothers the retired civil servant lately is the problem of Japan's employment "ice age," when companies sharply reduced the number of high school and college graduates they recruited between 1993 and 2004 after the bubble economy collapsed.

This spawned the "lost generation" -- people now in their mid-30s to late 40s whose careers never had a chance to take off. Among this generation is an unusually high percentage of people who are either jobless or forced to work as temporary staff, or in other non-regular positions.

What has gone unnoticed until only recently is that these people, thanks to the country's long life expectancy, face a grim future with little means of financial support.

Erikawa noted the delay in recognizing the issue. "I think politicians, the administrations and companies have all been late [in becoming aware of the problem]," he said. Erikawa also admitted to realizing it "only several years ago."

When politicians hear "social security," most think of the elderly, as was the case in the July 21 upper house election during which both the ruling coalition and opposition tried to woo retirees.

Abe has nevertheless emphasized that social security reform should be inclusive of all generations. But the measures proposed so far focus mainly on working families raising children, not people too poor to have ever started a family.

Japanese Prime Minister Shinzo Abe wants to point social security reform in the direction of all generations, not just the elderly.   © Reuters

As for the lost generation, Abe's cabinet approved the Basic Policy on Economic and Fiscal Management and Reform before the July election. Among other goals, the policy looks to boost the number of permanent employees by 300,000 over three years to provide some form of relief to people left behind.

But there was little debate on specific measures to achieve this, and many policymakers remain unaware of the gravity of the situation. Examining the issue illustrates the problems members of the generation face in finding better jobs right now, let alone in the future.

There is no clear definition of the employment ice age. Yusuke Shimoda, senior economist at the Japan Research Institute, reckons that nearly 23 million people born between 1970 and 1982 lived through it, forming the core of the country's current demographics. Of these, it is estimated that 550,000 are unemployed and another 700,000 are involuntary non-regular workers.

In line with Japanese hiring practices at the time, they had been expected to join companies after graduating. Failing that, they are now forced to work as temporary employees, as escaping their circumstances is extremely difficult in the face of rigid Japanese employment practices.

And as they age, their problems mount.

Students attend a recruitment seminar in Tokyo. For decades, getting a good job in Japan has been about winning a position as a new grad.   © Reuters

The core of the lost generation is comprised of second-generation baby boomers born in the early 1970s. First-generation baby boomers -- who will be 75 or over by 2025 -- appear destined for a relatively secure future, as their social security benefits are assured. But the country's shrinking population means less people to support second-generation boomers when they are 65 or older in 2040.

Employee pensions are linked to after-tax income, with pensions paid after retirement. If the problems of the lost generation remain unaddressed, under- or unemployed second-generation baby boomers could end up receiving little or no pensions, forcing more people onto welfare and straining government coffers.

According to a joint government estimate last year, medical care benefits are expected to hit 68.5 trillion yen in fiscal 2040 from 39.2 trillion yen in fiscal 2018, while nursing care benefits are seen rising to 25.8 trillion yen from 10.7 trillion yen over the same period.

Both costs as a share of gross domestic product are expected to far exceed economic growth. Medical costs are projected to grow to 8.7% in fiscal 2040 from 7.0% in fiscal 2018, while nursing care costs will likely grow to 3.3% in 2040 from 1.9% in 2018.

But other costs, which include welfare payouts, are estimated to remain unchanged at 1.2% in fiscal 2040 compared with fiscal 2018. This is delusional, and proof that the government has not seriously considered who will -- or how to -- support the large numbers of elderly poor.

One solution might be the creation of a minimum guaranteed pension.

Japan Inc. should be held partly responsible for the problem, as it substantially curbed new hires after the bubble economy collapsed. But it is not easy to hire and train unemployed people in their 30s and 40s, hence it may be necessary to tap into the country's employment insurance reserves to support them.

Some may also need training in communication skills. Erikawa proposes that some work as quasi-public employees for corporations established by local governments. They could be employed in sectors hard hit by the labor shortage such as agriculture, forest preservation and tourism.

"The project could be funded by a local consumption tax," Erikawa said.

Japan should pull out all the stops to ensure the well-being of its elderly from 2040 and beyond. This includes, reversing the declining birthrate and accepting more young foreign workers.

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