Review of Population and Social Policy, No. 9, 2000, 25–46

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers
Hiroshi OGAWA*

Abstract
This study is based on micro data from the Employment Status Surveyof the Elderly (1983, 1988, 1992). The findings are twofold. First, the pension paid
to elderly workers acts as a kind of employment subsidy. Firms are willing toemploy an elderly male if he is receiving a pension because they can lower his
wages by the pension amount. This means that the change in the payment
schedule of pensions offered to elderly workers has a substantial effect on
employment. Second, the structure of a household has a significant impact on
employment behavior. Between 1988 and 1993 changes in household structure hada significant effect on elderly males’ increased participation in the workforce. Thesechanges had an even greater effect on employment than changes in pension
benefits, which can explain almost all shifts in workforce participation before 1986.

1. Introduction
According to predictions made by the National Institution of Population andSocial Security Research, the elderly (i.e., people over age 65) will exceed 25% of
the total Japanese population by the year 2015. This implies a relative decline in
the younger workforce. Encouraging the elderly to participate in the labor market
is thus an important task of government.
Although the employment rate of Japanese males aged 60–64 had been
declining before 1988, it demonstrated moderate growth between 1988 and 1993
(Figure 1). Determining the reasons for this upswing and applying them to thecountry’s employment policy will increase the participation of this segment of the
population in the workforce.
Previous research on employment of the elderly has found that
• The public pension benefit has a negative effect on workforce participation.
• Health status has a positive effect (i.e., a person who is in good health is likely
to work).
• Wage rate has a positive effect.
Although these studies examined the effects of public pensions, most of them only
examined the periods of unvarying decrease in the employment rate andThis is the English version of an article originally published in Keizai Kenkyu (The Economic
Review), Vol. 49, No. 3, July 1998.
* Professor, Department of Economics, Kanto-Gakuen University[ 25 ]

26

Hiroshi OGAWA

100

Employment rate (%)

95

55–59
60–64

90

85

80

75

70
1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
Year
Source: Statistics Bureau, Management and Coordination Agency, Labor Force Survey.

Figure 1 Employment rate of men aged 55–59 and 60–64, 1968–1997
unvarying increase in the public pension benefit. This means that the effects ofother factors might be overridden by the effects of public pensions. Yashiro,
Ohishi, and Futagami (1995) investigated employment during the period 1988–93.
Using the Employment Status Survey of the Elderly (ESSE) of 1988 and 1992, they
concluded that increased employment was the result of changes in the preferencesof the elderly, not changes in external factors such as public pensions.
In this study, I have utilized the pooled micro data from the Employment
Status Survey of the Elderly 1983, 1988, and 1992. As this period includes 1986,
when the Japanese public pension system was totally reformed, it is possible todistinguish between the effects of trends over time and the impact of public
pensions. I have also incorporated household structure in the model to explain
the employment behavior of elderly males. Although previous studies on the
behavior of females used household structure as an explanatory variable, thisstudy seeks to determine the effects of household structure on elderly males.

2. Employment Behavior and Public Pension Plans in Japan
There are three major public pension plans in Japan: (1) Kosei-Nenkin, (2)Kokumin-Nenkin, and (3) Kyosai-Nenkin. Each plan has its own benefit andThe Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

27

payment reduction rule for eligible elderly workers.
Kosei-Nenkin (employees’ pension insurance) is for those who work in the private
sector. The benefit has two tiers: the first tier provides a flat rate based on theinsured period, whereas the second tier is earnings-related. The old-age benefit ofKosei-Nenkin is higher than that of Kokumin-Nenkin. If a person who is eligible toreceive Kosei-Nenkin works in the private sector and is under age 65, the pension
benefit is reduced by the rate defined by his or her wage income. And if the wage
income exceeds a certain level (250,000 yen per month in 1992), no pension ispaid. I will refer to this reduced pension benefit of Kosei-Nenkin as the RP.
Kokumin-Nenkin (national pension program) is for self-employed persons andspouses of employees. The single-tiered benefit of this plan is equal to KisoNenkin and is much lower than Kosei-Nenkin.1 The pension is not reduced if theperson works. As the eligible age for this pension is 65, relatively few people
aged 60–64 receive it.2
Kyosai-Nenkin is for employees in the public sector and private schools. The
benefit level of this plan is higher than Kosei-Nenkin’s because it contains a kindof occupational insurance. If a person who is eligible to receive Kyosai-Nenkinworks in the private sector, the pension is also reduced. But the reduction ismuch less than Kosei-Nenkin’s, and there is no income limit on the payment ofpension benefits.
Kosei-Nenkin is the focus of this paper for three reasons: (1) it is the biggest
public pension plan in Japan, (2) the relationship between employment behavior
and the pension benefits of males aged 60–64 who are receiving Kosei-Nenkin is
important, for the eligible age of Kosei-Nenkin is currently 60, and (3) the benefit
reduction rate based on wages earned is highly income-sensitive under this plan.
2.1. The Effects of Pension Reform

The pension reform in 1986 totally restructured pension plans in Japan. Thechanges in Kosei-Nenkin benefits were as follows:
1. To reduce the earnings-related benefit based on the average monthly income ofcohorts, the payment multiplier was decreased from 10/1,000 to 7.5/1,000. It was
expected that this change would fix the proportion of earnings-related benefit
to the average monthly income at about 30% and take 20 years to implement.
1

2

To prevent confusion, this paper refers to Kokumin-Nenkin as the pension of self-employedpersons and spouses of employees and Kiso-Nenkin as the common first tier of the Japanesepension scheme, though the pension reform in 1986 designated Kiso-Nenkin as the successorof Kokumin-Nenkin.
It is possible to receive Kokumin-Nenkin at age 60, though the benefit is permanently reduced
if it is paid before 65.

28

Hiroshi OGAWA

2. To adjust the flat-rate benefit to the level of Kiso-Nenkin’s benefit, the flat-rate
benefit has been gradually reduced.3
These benefit reductions are scheduled to keep the pension replacement rate at
the level of 1986 assuming that the average insured period will be longer.
Figure 2 shows the real effect of the pension reform through 1993. The top
line, representing the “old scheme,” depicts the model pension benefit based on
the average insured period and the average monthly income from 1988 to 1993.
The bottom line, representing the “new scheme,” gives the model pension benefit
using the same data. The model pension benefit under the new scheme declines
slightly over time, though it is intended to maintain the replacement rate at the1986 level. This is because the insured period is not getting longer, as anticipated.
The decline of the benefit after the pension reform of 1986 can partiallyexplain the increase in the employment rate during 1988–93, for a negative
relationship between pension and employment was found in the previous
studies. But the difference in this model pension between 1988 and 1992 was at
most about 4,000 yen per month. This estimated –2.7% difference is not enoughto account for the 3.9 point change in the employment rate, as the elasticity of
2,200,000
2,150,000

Model pension benefit(Yen/year)

2,100,000
2,050,000
Old scheme
New scheme

2,000,000
1,950,000
1,900,000
1,850,000
1,800,000
1,750,000
1,700,000
1,650,000

1988

1989

1990

1991

1992

1993

Year
Source: Social Insurance Agency, Annual Report of Social Insurance, 1992.
Note: Calculated from average standard monthly income and average insured period.

Figure 2 The effects of the 1986 pension reform on benefits, 1988–1993

3

Kiso-Nenkin is a virtual pension plan introduced by the pension reform in 1986. Although all
Japanese public pensions are based on Kiso-Nenkin in theory, the actual benefits provided by
Kosei-Nenkin and Kyosai-Nenkin are now independent of Kiso-Nenkin for historical reasons.

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

29

the employment rate in proportion to the public pension benefit estimated inprevious studies was no more than –0.9% (Table 1). I believe that the figureslisted in Table 1 are overestimated because these studies used the pension
benefit as the independent variable. As described above, the Kosei-Nenkin
benefit is reduced for ages 60–64 if the person is employed. Thus an employee’s
Kosei-Nenkin benefit is not independent of his or her work status but a functionof it. This inter-relatedness will produce a negative bias on the part of theestimator, as noted in Seike (1989). Taking into account this bias, the changes inthe employment rate explained by the pension benefit become smaller thanwould be expected based on Table 1.
Table 1 Overview of public pension variables and the elasticity
of employment, 1980–1992
Study

Public Pension
Variable

Shimono andReceived pension
Tachibanaki (1984) amount

Elasticity ofPensionYear–0.136

ESSE

1980–0.204

ESSE

1980–0.224

ESSE

1983

ESSE

1983

National Survey of Family
Income and Expenditures

1984–0.864

ESSE

1988–0.640

ESSE

1992

Seike (1986)

Received pension
amountSeike (1989)

Right to receive
Kosei-Nenkin

NA

Takayama (1992a)

Received pension
amount–0.841~0.224

Yashiro, Ohishi, and Received pension
Futagami (1995)
amountData Source

2.2. Employment and Pension Reduction

Because the Kosei-Nenkin benefit is reduced or stopped if an employee isbetween 60 and 64 years old, payments to elderly workers are less than thebenefits they would receive if they were unemployed. This means that thepension benefit and employment have bi-directional effects. The pension paid
will affect employment behavior and employment behavior will affect thepension paid under Kosei-Nenkin’s worker reduction system.
If the pension benefit is used as the explanatory variable of employment, thisdependency will cause the two mixed biases of the estimator as stated in Seike (1989):“paid” pension → employment = negative effect
employment → “paid” pension = negative effect30

Hiroshi OGAWA

The studies listed in Table 1 are classified according to how they treated these biases:
1. Ignore these biases by using the pension benefit as the explanatory variable(Shimono and Tachibanaki 1984; Seike 1986; Takayama 1992a; Yashiro, Ohishi,
and Futagami 1995)
2. Avoid these biases by using eligibility, rather than the pension benefit, as the
explanatory variable (Seike 1989)
The studies that ignored these biases (category 1) overestimated the results. Only
Seike (1989) (category 2) explicitly dealt with these biases. But Seike’s research
had two limitations: (1) only the 1983 ESSE included a question on eligibility,
making it is impossible to make this determination for other years, and (2)because it treated eligibility as a dummy variable, this method could not examine
the changes in benefits caused by the pension reform of 1986.
2.3. Definition of the Principal Pension

To avoid the biases described above, I have introduced the concept of the
Principal Pension (PP). The PP is the virtual pension a person under age 64 who
is eligible for Kosei-Nenkin benefits will receive when he or she is no longer
employed. When a person decides whether to work or not, I think it more naturalthat he or she will use the Principal Pension as a benchmark, not the pension
benefits examined in ESSE. As the PP is independent of working status, the biases
will not occur if it is used as the explanatory variable in analyzing employment.
2.4. Estimation of the Principal Pension

Since there is an upper limit for wages when no Kosei-Nenkin benefits are paid,
the PP can be estimated in one of two ways: Case 1, Estimating a positive RP,
and Case 2, Estimating a zero benefit.
Case 1: “Paid” pension benefit > 0. As the reduction rate table is based on a
person’s average monthly income, this rate can be estimated using the monthly
income found in ESSE as the wage income. It is easy to calculate the PP as afunction of the working reduction rate using this formula:
PP = (“paid” pension benefit)/(1 – reduction rate)
Case 2: “Paid” pension benefit = 0. Here, estimation of the PP requires two steps:(1) determining why no Kosei-Nenkin benefit was paid, and (2) estimating the PP
benefit for the person who was eligible to receive it. Regarding the first step, there
are two possibilities: (a) the person was ineligible to receive the benefit, and (b) theThe Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

31

benefit was reduced to zero because the person’s wages exceeded the upper limit.
The 1983 survey asks whether the subject was “eligible to receive the benefit,” sothe data are straightforward. But as this question did not appear in the 1988 and1992 surveys, I assigned a positive PP if the subject met all of these conditions:• Had been employed in the private sector at age 55.
• Was currently employed in the private sector.
• Worked more than 32 hours per week in the current job.
• Was paid a wage that exceeded the upper limit of the particular survey year.
Use of this approach is not foolproof: there will be errors when, for instance, theinsured period is insufficient and the person is ineligible to receive the pension. This
reflects the limitation of data from surveys that did not include questions on thesubjects’ previous occupation and the type of firm that employed them. I tried tocontrol by the number of employees, but this did not improve the 1983 data.
I tested for fit using the 1983 data as a benchmark. The method describedabove determines eligibility or ineligibility at a 90% level of accuracy for men
who are aged 60–64 and receive no benefit.
In the second step of Case 2, since the PP is based on the insured period andthe average monthly income, I assume that the persons who were working in thesame occupation and in the same type of company as at age 55 were receiving thesame PP. Under this assumption, I can estimate the PP benefit by looking up thetable giving the average pension paid to people who are not currently working.
2.5. Changes in the Principal Pension and Employment Rate over Time

Here I consider changes in the relationship between the PP and the employment
rate over time. Figure 3 shows the PP and employment rate in 1983, 1988, and1992 calculated from ESSE data. The rates were similar in 1988 and 1992, and therate for 1983 was almost the same in cases where the pension shares were high(100,000–220,000 yen per month). This means that the relationship between the
PP and the employment rate was stable from 1983 to 1992, and it is appropriate
to pool the data from the three surveys.

3. Household Structure and Employment Behavior
As noted in section 2.1, the impact of the 1986 reform on public pension benefits
was insufficient to explain the increased participation of males aged 60–64 in theworkforce during 1988–93. More important, I will show, were the changes inhousehold structure.

Hiroshi OGAWA

100

0.5

90

0.45

80

0.4

70

0.35

60

0.3

50
40
30
20

0.25

Employment rate (1983)
Employment rate (1988)
Employment rate (1992)
Share (1983)
Share (1988)
Share (1992)

Share

Employment rate (%)

32

0.2
0.15
0.1

10

0.05

0

0
2–4

6–8

10–12

14–16

18–20

22–24

26–28

30–

Principal pensions (10,000 Yen/month)
Source: Ministry of Labor, Employment Status Survey of the Elderly, 1983, 1988, 1992.
Notes: Males, age 60–64, who have a positive PP and receive no Kokumin-Nenkin or Kyosai-Nenkin.
The line of the employment rate is omitted if the share of the PP bracket is less that 0.5%.

Figure 3 Changes in the relationship between the PP and the labor participation rate,
1983, 1988, and 1992

3.1. Review of Previous ResearchHousehold structure has commonly been used to account for the employment
behavior of married females. For example, Shimono and Tachibanaki (1984) used
ESSE micro data of 1980 to estimate the effects of household structure and degreeof dependency on elderly females. But they did not analyze the influence of
these factors on the behavior of elderly males because their dependency status
was consistent with that of their age group—i.e., in the 1980 survey about 70%of the respondents indicated that they were “mainly supported by my own
income” at any age. Accordingly, Shimono and Tachibanaki assumed that all
dependent elderly males had the same employment preferences. I think that thisassumption is too strong.
Table 2, quoted from Takayama and Arita (1996), shows the income status ofelderly males by household structure. The values listed in the first row are forsingle men and those in the second row are for married men. According to thistable, the income status of an elderly male will vary depending on whether or
not he has a spouse. Shimono and Tachibanaki (1984) used the responses fromthe ESSE question “What is your main source of support?” as the variable fordependency status. In response to this question in the 1992 survey, about 80% of
single elderly males said that they were “mainly supported by my own income.”

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

33

Table 2 Annual income of elderly males, by household structure
Share of Annual
Income (%)
Household Structure

Share (%)

Annual Income(10,000 Yen)

Zero

Over
4,800,000
Yen

Average

MedianSingles

4.4

NA

8.5

233

182

Couples

37.1

0.3

21.1

394

295

With unmarried (Type A) children

38.0

27.8

10.6

209

124

With married (Type B) children

16.3

2.5

28.4

430

321

Others

4.2

1.7

25.5

400

315

Total

100.0

11.1

17.9

323

250

Source: Takayama and Arita (1996), 166, Table 7-4.

Takayama and Arita (1996) also tell us that when the husband was receiving apublic pension, he provided about 80% of a couple’s total income. Thesefindings imply that the dependency status of single elderly males and marriedelderly males was the same. Yet the distribution of their income was not thesame, although it should have been if Shimono and Tachibanaki’s assumptions
were correct. Thus it is worth examining the effects of household structure on
the employment of elderly males.
3.2. Estimating Household Structure from ESSE Data

The Employment Status Survey of the Elderly is a survey of people; few items on
the questionnaires relate explicitly to household structure. The 1992 survey
sought only four types of data on this subject: (1) the number of persons livingwith the respondent, (2) the number of persons living with the respondent who
received an income, (3) the person on whose income the respondent depends(not the source of income), and (4) total income of the persons living in thehousehold. The ESSE gives no information about the relationship of the persons
living with the respondent, and thus it is impossible to determine the structure of
the household directly from the limited survey data.
On the basis of certain assumptions, however, I have divided households into
five categories (as described above the categories in Table 2 and Section 3.2 is
not the same):
1. Singles (single men)
2. Couples (husband and wife only)
3. Couples with Dependent Children—Type A

34

Hiroshi OGAWA

4. Couples with Independent Children—Type B
5. Others
As there is no information on the relationship of the other persons living in thehousehold, such as married or unmarried children, my assumptions may beincorrect. Nevertheless, the economic status of the categories I describe fit wellwith the ones identified by Takayama and Arita.
3.2.1. Singles

Estimation of single households is straightforward inasmuch as they contained
only the survey respondents.
3.2.2. Couples

Selecting households containing a two persons is insufficient, for such ahousehold might also have included friends or a parent and a child. Therefore, I
added another condition: that the respondent or his spouse was the household’s
main source of support.
3.2.3. Couples with Dependent Children—Type A

This category refers to households that (1) contained three or more persons—the
respondent, his spouse, and his dependent children, and (2) whose main sourceof support was the respondent or his spouse. Here the term “Couples” refers to
the elderly parents canvassed by ESSE, though parents of “parents” might havebeen part of the household. I suspect that this category corresponds to “Parents
with unmarried children” in Takayama and Arita (1996), though the survey does
not provide the marital status of household members.
3.2.4. Couples with Independent Children—Type B

This category includes households in which (1) the respondent was living with
two or more persons, and (2) his child or children were his main source of
support. Although these conditions would also match the households of couples
who were not living with their children but were supported by them, such cases
were probably rare, since the proportion of couples receiving income from theirchildren was, according to Takayama and Arita (1996), less than 5%. Moreover,some households may have been misclassified due to the lack of data in ESSE, as
stated for Type A.
3.2.5. Others

This category includes all other households. Their support was unknown, and there
was no direct correspondence between them and the categories listed in Table 2.

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

35

3.3. Overview of Household Status by Structure

Figures 4 and 5 show the employment rate and changes in household structure overtime. In both figures the data are for males aged 60–64 whose Principal Pension was
greater than zero. The employment rate of Couples was higher than that of Singles(Figure 4). This finding is consistent with Table 2 and indicates that the analytic
method used here—drawing on ESSE to estimate household structure—is reliable.
The proportionate increase in Couples and Couples with Dependent Children—
Type A is shown in Figure 5. The household structural change, which was not taken
into account in their work that Yashiro, Ohishi, and Futagami (1995) left as residuals.
3.4. The Causality of Household Structure and Employment

In considering the causality of household structure and employment, I
formulated this hypothesis:
Hypothesis H: A change in working status will directly cause a change
in household structure.
Let us suppose that there are no such things as pensions or savings. In such aworld, elderly males in Singles, Couples, and Type A households would have towork to support themselves. Thus their status would be either “Singles,
Working,” “Couples, Working,” or “Type A, Working.”4 If for some reason aperson should become unable to work, his household structure would change to“Type B, Not working,” for this is the only household category in which he canbe a dependent. If I observe this transition in the data, it means that Hypothesis
H is supported and that using household structure to explain the employment
rate will produce reverse causality.
On the other hand, suppose a world where pension benefits are large enoughto permit elderly men to be self-supporting. Here, “Singles, Not working,”“Couples, Not working,” or “Type A, Not working” are feasible categories even if
the person becomes unable to work and Hypothesis H is rejected. I therefore canuse household structure to explain the change in working status.
Table 3 shows the proportionate changes in three household structure/working
status combinations over time. I have used the combination in the [Couples, Type A,
Type B] × [Working, Not working] matrix to calculate the proportionate changes.5
45

The abbreviation denotes household structure and working status.
“Singles” are omitted because their share of household structure is so small. “Others” areomitted because I could not evaluate their household structure and could not predict changes
in their composition.

36

Hiroshi OGAWA

80

Employment rate (%)

70
60
50

1983

40

1988
1992

30
20
10
0
Unknown

Singles

Couples

Type A

Type B

Household structure
Source: Ministry of Labor, Employment Status Survey of the Elderly, 1983, 1988, 1992.
Note: Males, age 60–64, who have a positive PP.

Figure 4 Employment rate by household structure, 1983, 1988, and 1992

100
Unknown
Type B
Singles
Couples
Type A

Share (%)

80

60

40

20

0
1983

1988

1992

Year
Source: Ministry of Labor, Employment Status Survey of the Elderly, 1983, 1988, 1992.
Note: Males, age 60–64, who have a positive PP.

Figure 5 Changes in household structure, 1983, 1988, and 1992

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

37

From 1983 to 1988 both the employment rate and the percentage of “Couples,Working,” “Type A, Working,” and “Type B, Not working” decreased. An increasein the “Type B, Not working” proportion, which should be observed if
Hypothesis H holds, was not found.
From 1988 to 1992 the employment rate increased whereas the share of “TypeB, Not working” decreased (–1.84 points), as would be expected based on
Hypothesis H. The share of “Type B, Working” also decreased but to a greater
extent (–2.18 points). H cannot explain this decrease in “Type B, Working.”
Based on these findings, Hypothesis H is rejected for the period covered in thispaper. That is, using household structure to explain the changes in employment
rates will not bring the violation of causality.
Table 3 Percentage of changes in household
structure, by work status, 1983–1988
and 1988–1992
1983–1988

Couples

Type A

Type B

Working
Not working

–0.06
2.42

–3.07
1.93

1.11
–2.33

1988–1992

Couples

Type A

Type B

Working
Not working

2.55
–0.82

3.85
–1.55

–2.18
–1.84

Source: Calculated by the Author from ESSE 1983, 1988, 1992.

4. Analysis of Employment Behavior Using Principal Pension
and Household Structure
4.1. Framework of the Analysis

Here I have used the simple working–not working binary selection model. In
most studies this model of employment has been based on a comparison of themarket wage (Wm) and the reservation wage (Wr). That is,
Working
Not working

if Wm > Wr
if Wm < Wr

The binary selection model can explain the behavior of people who receive an
income only while working, but it does not fully account for the employment
behavior of elderly males in Japan. Takayama (1992b) and Tachibanaki and
Shimono (1994) pointed out that it was common to pay elderly males a lower

38

Hiroshi OGAWA

wage so they could receive as much public pension as possible. As the reduced
Kosei-Nenkin pension benefit (RP) is sensitive to market wages, it is better to
add RP to Wm to account for this wage control. That is,
Working
Not working

if Wm + RP > Wr
if Wm + RP < Wr

If I use the willingness to work as a dependent variable, there is no reason to
add Wm and RP to the estimation model separately, for both variables have thesame effect on the supply side. On the other hand, if I use the dependent
variable whether the person was working or not, the effects on labor demand
would not be the same. Under normal conditions Wm and labor demand are
negatively related, but the RP will increase the labor demand because it has theeffect of lowering wages, as described in Tachibanaki and Shimono (1994). If I
use Wm + RP as the explanatory variable, these effects, which will reverse theemployment rate, will result in an inadequate estimation of the model.6
4.2. Data Source and Independent Variables

As indicated earlier, this analysis draws on the data provided by the Employment
Status Survey of the Elderly for 1983, 1988, and 1992. The sample includes
observations of men aged 60–64 that have been extracted from each ESSE data
set and pooled. The relationship between the employment rate and the PP wasstable over time, as indicated in section 2.5, so pooling the data will not change
the result. I used the reply to the question “Are you doing work for which you
are paid?” as the dependent variable. If the respondent was working, this wascoded as 1; if not, it was coded as 0. The independent variables are listed inTable 4. I can retrieve most variables in this table directly from the ESSE data
except the virtual monthly wage and the RP for nonworking individuals (i.e., thewage and the RP that they would receive if they worked).
4.2.1. Estimating the Monthly Wage

It is well known that assigning a virtual wage to an individual who does notwork using the actual wage observed in the labor market will cause sample
selection bias (Heckman 1979; Seike 1989). This bias is inevitable if I use wages
to explain participation in the workforce.
Table 5 shows the methods for virtual wage assignment employed by previous

6

I tried using Wm + RP as a single variable, but the result of the estimation was not good as
expected here.

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

39

Table 4 Explanatory variables
Variable

Description

Expected
Sign

Age

Age at time of survey

–

D_HC

Dummy of health condition: 0 if “Good,” 1 otherwise

–

R_PP

Sum of monthly real principal pension amount in 10,000 Yen (1990
price)–

R_PRV

Sum of monthly real private pension amount in 10,000 Yen (1990
price)–

D_MR

Dummy of mandatory retirement: 1 if experienced mandatory
retirement, 0 otherwise

–

D_TKY

Dummy of “Living in Tokyo”: 1 if lives in Tokyo, 0 otherwise

+

D_HS*

Dummy of household structure

D_HS1

Dummy of Singles: 1 if Singles, 0 otherwise

+

D_HS2

Dummy of Couples: 1 if Couples, 0 otherwise

+

D_HS3

Dummy of Type A: 1 if Type A, 0 otherwise

+

D_HS4

Dummy of Others: 1 if Others, 0 otherwise

–

R_MW

Real monthly wage in 10,000 Yen (1990 price). Gives the virtual
wage assigned if not currently working.

+

R_WS

Real monthly working subsidy in 10,000 Yen (1990 price): Received(reduced) public pension if working, virtual reduced pension if notworking+studies. All of the studies listed in Table 5 used only current attributes of theelderly people surveyed. Yet the employment behavior of an elderly male isaffected not only by his present circumstances but also by his previous career.7
Here I have drawn on the information available in the Employment Status Surveyof the Elderly to assign the virtual market wage. The survey asked for certain facts
about previous employment, including some characteristics of the job the person
held at age 55, the type of firm where he was employed, and his occupation.
Using these data and other information from the ESSE, I assembled two sets ofdata to look up the mean wage table:
Case 1: Employee at age 55. This data set has five components: (1) year of thesurvey, (2) sex, (3) age at the time of the survey (in a category of 60–64), (4)7While attending a meeting of the Ohita Prefecture Employers Association in June 1995, I heard
someone say that “elderly men do not want to work if they are paid less than in previous jobs.
That is the supply side problem that our programs try to counteract by encouraging theemployment of the elderly.”40

Hiroshi OGAWA

Table 5 The method for virtual wage assignment in previous studies
Study

Wage Assignment Method

Shimono and Tachibanaki (1984)

Average income of part-time employees

Seike (1986)

Wage table from Basic Survey on Wage Structureindexed by the property of employees

Takayama (1992a)

Hourly average wage by prefectures

Yashiro, Ohishi, and Futagami (1995)

Average scheduled cash earnings of males in a
firm of 10–99 employees by prefecture

occupation at age 55, and (5) type of firm that employed the respondent at age
55. With these data, I was able to calculate the average wage of men who were
employed at age 55, were working at the time of the survey, and had
experienced retirement at least once.
Case 2: Not an employee at age 55. I used four components to assemble thisdata set. As the ESSE did not solicit information on the past status of individuals
who fell into this category, it contains only current data: (1) year of the survey,(2) sex, (3) prefecture, and (4) age at the time of the survey (in five-year step).
From this data set, I calculated the average wage for all men who had been
unemployed at age 55 but were working at the time of the survey.
Using these two data sets, I also assigned virtual working hours.
The validity of this assignment procedure depends on whether or not theoccurrence of wage control with a reduced pension benefit, as described in
Tachibanaki and Shimono (1994), was influenced by the person’s previous job—i.e., by the type of firm that employed him and his occupation at age 55.
There is evidence that this assumption is correct. Table 24 in the 1992 ESSE
report shows that the current occupation of an elderly male who had experienced
mandatory retirement heavily depended on his occupation at age 55. If he could
not get a job at the same level after his mandatory retirement, he would receive alower wage in his new position, as the experience and skills he had acquired
during his previous job would not count. Such a situation would result in acontrolled wage with a reduced pension benefit.
Another finding from the 1992 survey is that the probability of “working in thesame occupation as before mandatory retirement” will vary according to theperson’s position and the type of firm that employed him at age 55. For example,
there was a 70% probability that an elderly male who at age 55 worked as a
specialist at a firm with more than 1,000 employees would get the same kind of

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

41

job if he reentered the labor market after his mandatory retirement. The probability
that this would be possible for a blue-collar worker was only about 40%.
These facts demonstrate the feasibility of the wage assignment method used inthis study, which emphasizes the importance of previous employment indetermining the current wage table. It is also a better estimator of wages thanapproaches used in previous studies, such as scheduled cash earnings of small
firms or the mean wage of part-time workers.
Unlike previous analyses, the present study used the wage amount itself—not
the wage rate—as a wage variable. There are two reasons for this. First, thereduction rate of the RP was based on monthly earnings, not on wage rates. And
second, the largest number of 60-to-64-year-old males with a positive PP worked
40 to 49 hours per week (Figure 6). This shows that the Japanese labor market
did not provide enough part-time jobs for elderly males; the 1992 survey
reported that more than 60% of those wanting to work requested part-time jobs
but were not permitted to determine how many hours they would work. Thus inthis case wage amount and wage rate had the same effect on employment.
4.2.2. Estimating Pension Benefits after the Working Deduction (RP)It is simple to determine the RP for a person who is currently employed, as I canuse his current pension benefit as the RP. But for a person who is unemployed, alittle estimation will be needed. Here I have used the wage and working hours

1,600
1,400
1,200

Sample

1,000
800
600
400
200
0
0–9

10–19

20–29

30–39

40–49

50–59

60–

Working hours per week
Source: Ministry of Labor, Employment Status Survey of the Elderly, 1983, 1988, 1992.
Note: Males, age 60–64, who have a positive PP and are currently working.

Figure 6 Distribution of the working hours of elderly males, 1983, 1988, and 1992

42

Hiroshi OGAWA

estimated above to calculate the average monthly income and then the reduction
rate. If the man was working more than 32 hours per week, I estimated the RP
based on the Kosei-Nenkin benefit (it would be the PP for unemployed people
by definition) and reduction rate. If he worked less than 32 hours per week, I
treated him as “not insured” and made no deduction.8
4.3. The Model

To determine what factors affected the probability that a person would be out of
the workforce or working, I used a simple binary selection model. Formally, I
assumed that individual i chose to work if the market wage (Wm) was higher thanhis reservation wage (Wr). For each individual i, I defined a variable Yi to denote
the working status of i. If individual i was employed, Yi = 1 and if not, Yi = 0.
I assumed a vector of observable variables, xi, which explained both Wm and Wr,
and a stochastic error term ei. Finally, I used probit estimation to determine theestimate of parameter β:
Yi = 1 if Wm – Wr = x’i β + ei > 0
Yi = 0 if Wm – Wr = x’i β + ei ≤ 0
Table 5 shows the independent variables used here. As I wanted to determine thefactors that increased the employment of males aged 60–64 who were observed
between 1988 and 1993, it was desirable to use the data set that encompassed theperiod 1988–93. The ESSE data set included the results of the 1983, 1988, and1992 surveys, so I pooled these three surveys to estimate the model.
4.4. Results of the Estimation

Table 6 presents a probit analysis of the employment rate in 1983–92, and Table
7 shows the effects of each factor on that rate in 1983–88 and 1988–92. With the
exception of age, all of the parameters met the expectations listed in Table 5 andwere significant at the 1% level. The parameter of age was significant at the 5%
level. Table 8 lists the five individual factors that had the greatest effect on theemployment rate during the periods 1983–88 and 1988–92. This table shows that
(1) during 1983–88 the negative effect of the Principal Pension was so large thatit overrode the other factors’ positive effects, but (2) during 1988–92, as a resultof the pension reform in 1986, the PP now had a positive effect, as did the otherfour individual factors.
8

A person who works less than 32 hours per week need not join the Kosei-Nenkin plan.

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

43This model explains the 1.86 point change (out of 4.06 points, or 45.8%) in theemployment rate of elderly males between 1988 and 1992. It also shows thatmarket wages (Wm) had the largest effect on their increased participation in theworkforce. As the Japanese economy experienced a “Bubble” during this period
and market wages rose, this large positive effect of Wm could be expected.
The reduction of the PP through pension reform in 1986 produced about a
0.11 point increase in the employment rate; the total effect of changes inhousehold structure was about a 0.66 point increase. Thus, the new finding
presented in this paper is that household structure affects the employment
behavior of elderly males. The shifts between 1983 and 1988 were in the same
direction, as workforce participation of Type A and Couples households
increased, but the negative effect of the increase in the Principal Pension
overrode this small effect of changes in household structure and it was
impossible to observe it.

Table 6 Probit analysis of employment rate, 1983–1992
Marginal
Probability

t-value

Elasticitya

Average

CONST

1.9243b**

3.13

—

—

Age

–0.0072*–2.30–0.642461.9132

H_HC–0.2819**–30.02—0.2911

R_PP–0.0290**–38.06–0.4184

10.0372

R_PRV–0.0094**–6.07–0.0101

0.7487

R_MW

0.0060**13.48

0.169119.6086

R_WS

0.0219**31.47

0.17415.5308

D_MR–0.0975**

–9.43

—

0.3910

D_TKY

0.0612**3.44—

0.0775

D_HS1

0.1121**4.57—

0.0364

D_HS2

0.2448**16.10—

0.3193D_HS30.3033**20.67—

0.4861

D_HS4–0.0951**

–4.53

—

0.0593

Variable

Number of samples
Log likelihood
Madalla’s pseudo R-square% correctly predictedc

12,402
10,809
0.3
80.62

a
b
c

Measured at sample mean
Probit coefficient
Correctly predicted samples/total samples* Significant at 5% level** Significant at 1% level

44

Hiroshi OGAWA

Table 7 Effects of individual factors on employment rate,
1983–1988 and 1988–1992
Marginal Probability × Changes in
Sample Average

Changes in Sample Average
Variables

1988 Average –1983 Average

1992 Average –1988 Average

1983–1988

1988–1992

Employment rate

–0.03430.0406–0.04760.0186Age–0.00160.11450–0.0009

H_HC–0.0304–0.0049

0.00800.0014

R_PP

2.9310–0.0358–0.07940.0011

R_PRV

0.0072–0.0426–0.0001

0.0004

R_MW

0.50872.84760.00290.0178R_WS

1.0822–0.23140.0221–0.0053

D_MR

0.03630.0305–0.0033–0.0031

D_TKY–0.00210.0069–0.0001

0.0004

D_HS1–0.00130.0149–0.0001

0.0017

D_HS2

0.03610.00960.00830.0025

D_HS3–0.02140.0109–0.0061

0.0035D_HS4–0.00200.01040.0002–0.0010

Table 8 The five most influential factors in employment,
1983–1988 and 1988–1992
Order ofEffect1983–1988

1988–1992

1

Principal pension–0.0794

Market wage

0.01782Working subsidy

0.0221

Total household structure
effect0.0066

3

Health condition

0.0080Working subsidy–0.0053

4

Market wage

0.0029Health condition

0.0014

5

Total household structure
effect0.0022

Principal pension

0.0011

The Effect of Household Structure on the
Employment Behavior of Elderly Male Workers

45

5. Conclusion
The purpose of this study has been to explain the increase in the employment
rate of males aged 60–64 who were observed between 1988 and 1993. The
findings are as follows:
1. Household structure affects the employment behavior of elderly males.
Whereas previous studies used household structure only to explain the
behavior of married females, I found that the behavior of elderly males is also
affected by this factor. The increase in households composed of Couples or
Couples with Dependent Children—Type A had a more positive effect on theemployment rate than the decrease in the Principal Pension. This effect wasoverridden by the PP’s negative effect while the PP benefit was increasing. As
I analyzed the period that included both an increase and a decrease in the PP,
this effect of household structure becomes clear.
2. The rise in market wages that Japan experienced during the “Bubble” explains
in large part the increased employment rate within the cohort group.
3. The pension reform in 1986 lowered the Kosei-Nenkin benefit slightly, but notenough to affect this change in employment.
These findings were obtained based on three factors introduced in this study:
1. Analysis of household structure, which was not previously used to explain theemployment behavior of elderly males.
2. Inclusion of the Kosei-Nenkin’s decreasing years in the estimation period.
3. Analysis of the Principal Pension, by which I could distinguish the negative
effect of the PP and the positive effect of the RP.

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46

Hiroshi OGAWA

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