Panel Data Research Center at Keio University
DISCUSSION PAPER SERIES
DP2016-016
March, 2017

Did Government Intervention on Firm's Employment Policies Have an Effect on the
Employment of Elderly Workers?
Yoshinori Nishimura＊【Abstract】
This paper analyzes whether government intervention on firms' employment policies
have an effect on the employment of the elderly. As a result of the pensionable age
increasing in Japan, this policy makes a difference between the mandatory retirement
age and the pensionable age. The Japanese government has obliged firms to employ
elderly workers until they reach the pensionable age. According to literature, the labor
force participation rate of elderly male workers increased after the implementation ofthis policy. However, according to this paper's results, after omitting the unobserved
heterogeneity and controlling for worker demographics, there is no effect on theemployment of the elderly workers. Consequently, this paper discusses why thegovernment intervention in the demand side of the elderly labor market has no effect onelderly employment. According to this discussion, it is possible that a firm avoids thecosts from employing the elderly by using measures that are not illegal, while following
the directives of the law.
＊

Graduate School of Economics, The University of Tokyo

Panel Data Research Center at Keio University
Keio University

Did Government Intervention on Firm’s Employment
Policies Have an Effect on the Employment of Elderly
Workers?
Yoshinori Nishimura ∗Current version: March 12, 2017

Abstract
This paper analyzes whether government intervention on firms’ employment policies
have an effect on the employment of the elderly. As a result of the pensionable age
increasing in Japan, this policy makes a difference between the mandatory retirement
age and the pensionable age. The Japanese government has obliged firms to employ
elderly workers until they reach the pensionable age. According to literature, the labor
force participation rate of elderly male workers increased after the implementation ofthis policy. However, according to this paper’s results, after omitting the unobserved
heterogeneity and controlling for worker demographics, there is no effect on the employment of the elderly workers. Consequently, this paper discusses why the government
intervention in the demand side of the elderly labor market has no effect on elderly
employment. According to this discussion, it is possible that a firm avoids the costs
from employing the elderly by using measures that are not illegal, while following thedirectives of the law.
JEL codes: C21, J14, J18, J21, J23, J26, J38∗

Graduate School of Economics, The University of Tokyo. E-mail: nishimura.yy@gmail.com. I thankHidehiko Ichimura, Daiji Kawaguchi, Ayako Kondo, Hideo Owan, and the participants at the 9th Applied
Econometrics Conference organized by Osaka University sincerely for their comments on the earlier versionof this paper. This paper is partly based on “The effect of government intervention in the demand side ofthe labor market: Evidence from Japan.” This research is supported by Grant-in-Aid for JSPS Fellows,
Grant Number 2510637. The Preference Parameters Study was conducted by the Osaka University Instituteof Social and Economic Research. The data for this secondary analysis, “Chusho kigyo rodo jijo jittai
chosa, National Federation of Small Business Associations,” was provided by the Social Science Japan Data
Archive, Center for Social Research and Data Archives, Institute of Social Science, The University of Tokyo.
The Japanese Study of Aging and Retirement (JSTAR) was conducted by the Research Institute of Economy,
Trade and Industry (RIETI) and Hitotsubashi University. All remaining errors are my own.

11

Introduction

Retirement related policies, such as a reform of the pension system have become importantin developed countries as to sustain social security systems. Many developed countries have
faced the same problems of decreasing birthrate and ageing populations. As a population
ages, the cost of social security and social welfare increases, eroding the country’s budget. As
such, numerous developed countries have reformed their pension systems to reduce the costof social security and social welfare. Many developed countries, such as the United States,
the United Kingdom, and Korea have already decided to increase pension eligibility age overthe next decades. Japan has already increased pension eligibility age. Pension reforms indeveloped countries are expected to influence retirement. As Gruber and Wise (1998) discuss,
the relationship between the social security system and retirement in developed countries has
attracted a lot of attention in economics. In many developed countries, regulations about
the mandatory retirement system have also been reconsidered when reforming the pension
systems, especially after 2000. For example, the UK, Germany, and France have reformed thelaw that regulates mandatory retirement age. However, in the US, the mandatory retirement
system has been abolished in the 1980s.
In the US, there are studies that provide direct evidence on the effect of the abolitionof mandatory retirement age,1 which is discussed in this paper (Neumark and Stock (1999),
Ashenfelter and Card (2002), von Wachter (2002) and Adams (2003)). Ashenfelter and Card
(2002) analyze the labor market for university professors. According to their results, theemployment of workers protected by the law increases. Except in the US, there is not enoughevidence with respect to the effect of reforming regulations on the mandatory retirementage, although some developed countries have reformed regulations regarding the mandatory
retirement system. In fact, the results in this paper are different compared to the result in
the US. Below, I discuss why this is the case.
In Japan, the government has changed the basic pension eligibility age from 60 to 65,
so as to decrease the payment amount for public pensions. However, many firms set theirmandatory retirement age at around 60. As a result, many elderly reach the mandatory
retirement age before they start receiving their public pension. The Japanese government has
recently encouraged firms to reemploy elderly people after reaching the mandatory retirementage, until they arrive at the basic pensionable age (flat-rate part).2 This regulation is called
the Elderly Employment Stabilization Law (EESL). Kondo and Shigeoka (2016) was thefirst to analyze this policy.3 They estimated the probability of being a salaried worker atage 60-65. Moreover, they compared the 1945 birth year cohort with the 1946 cohort. The
result was that the 1946 birth year cohort was more likely to consist of salaried workers
at ages 60 and 61 by 2.4 and 3.2 percent, respectively. This effect seems small. However,1
Since Lazear (1979), theoretical research that answers why there is a mandatory retirement has developed.
Examples are the related studies such as Lazear (1981), Burkhauser and Ouinn (1983), Lazear and Moore(1984) and Lang (1989).
2
The government allowed firms that used a restrictive reemployment system not to remove it.
3
Clark and Ogawa (1992) estimated the effect of the change in the mandatory retirement policy on thewage profile before the EESL.

2

they have the weakness of data limitation as I subsequently explain. The goal of this paper
is to estimate the effect of the EESL on the employment of the elderly and discuss how afirm reacts to this policy after implementation. According to the results, before 2013, there
are no significant positive effects on the employment of the elderly, which is discussed insubsequent sections. According to the Ministry of Health, Labour and Welfare, there is an
exemption to the implementation of the EESL before 2013, and there are no clear statementswith respect to wage contracts when a firm engages in a contract with a worker who wants
to continue work after the mandatory retirement age. Additionally, there is an important
exception: before 2013, a firm could restrict the workers offered reemployment by accepting
the agreement from a labor union. This is an “escape route” from additional costs, whichfirms could use. As explained, most firms react to this policy by introducing a reemployment
system, without abolishing the mandatory retirement system or increasing the mandatory
retirement age, which means that many firms choose a reaction that enables them to use
these “escape routes.” This point is further discussed in the subsequent sections.
There are numerous related studies that analyze government intervention in the labormarket. However, the studies directly analyzing the effect of changing the mandatory retirement policy on the employment of the elderly are limited, and are discussed in the literature
review section. I also provide evidence by showing what happened after the implementation of the government intervention in the demand side of the elderly labor market. The
remainder of this paper is organized as follows: in section 2, I discuss the effect of the EESL
and review literature; section 3 describes the data; in section 4, I explain the estimation
procedure; section 5 reports the results; and section 6 concludes the paper.

2

Discussion and Literature Review

2.1

What is the EESL?

With respect to the EESL, Kondo and Shigeoka (2016) explain its details. Briefly, theJapanese pension program is divided into two parts: the basic pension (flat rate part) and theincome-related pension (wage proportional part). The pension eligibility ages of these two
programs are different. This paper uses the pension eligibility age presented in Motegi et al.
(2016). Please see Table 1. In Japan, the pension eligibility age has gradually increased. For
employees in private companies or the public sector, the pension including the basic pension
and the income-related pension, which is called the Employees’ Pension Insurance or the
Mutual Aid Insurance, are provided. For self-employed workers, only the basics pension,
which is called the National Pension Insurance, is provided by the government.
The EESL is a law which obliges a firm to increase the mandatory retirement age, omit
the mandatory retirement system, or give a reemployment offer and employ workers reaching
the mandatory retirement age until they arrive at the basic pensionable age (flat rate) after
2006. Depending on the birth year of elderly workers, the pensionable age increases. The
mandatory retirement age is around 60 in Japan. As a result, for example, the elderly bornin 1945 arrive at the mandatory retirement age before they arrive at the basic pensionable3age (flat rate) (age 63) if the mandatory retirement age is age 60. The government preparedthis law to fill a gap between the pensionable age (flat rate) and the mandatory retirementage. Figure 1 shows this fact. The year in this figure is the birth year (e.g., 1947, 1948).
For example, with respect to workers born between 1944 and 1945, there is a gap between
the pensionable age (flat rate) and the of age 60. The blue line shows the age when aworker starts receiving pension (flat rate part). With respect to the workers born after
1946, the government obliges firms to increase the mandatory retirement age, abolish themandatory retirement system, or make a reemployment offer and employ workers arriving at
the mandatory retirement age until they arrive at the pensionable age (flat rate part). Thisis, in summary, the EESL concept.
However, in the EESL, there is a important exception. Before 2013, a firm could restrict
the workers who can get a reemployment offer by accepting the agreement from a labor union.
This exception has been omitted after 2013, and a firm is obliged to employ all workers whowant to continue to work in the firm after the mandatory retirement age. Additionally,
there is no clear statement in the law with respect to wage contracts when a firm makes areemployment offer to a worker reaching at the mandatory retirement age. As explained in
section 6 , many firms introduce the reemployment system without increasing the mandatory
retirement age or omitting it. When a firm engages in a reemployment contract with a worker,
they discuss a decreased wage rate with the workers who intend to work in the firm after the
mandatory retirement age, as the law does not concretely mention anything with respect todecreasing wage rates for these workers.

4

Table 1: Public Pension Reform in Japan
Pensionable age

Publicpensionreform year

Employees’ pension
Flat-rate
Wage
Birth Cohort
part
proportional partMen
-1941.4.1
60
60
1941.4.2-1943.4.1
2001
61
60
1943.4.2-1945.4.1
2004
62
60
1945.4.2-1947.4.1
2007
63
60
1947.4.2-1949.4.1
2010
64
60
1949.4.2-1953.4.1
2013
65
60
1953.4.2-1955.4.1
2013
65
61
1955.4.2-1957.4.1
2016
65
62
1957.4.2-1959.4.1
2019
65
63
1959.4.2-1961.4.1
2022
65
64
1961.4.22025
65
65
Women
-1932.4.1
55
55
1932.4.2-1934.4.1
1987
56
56
1934.4.2-1936.4.1
1990
57
57
1936.4.2-1937.4.1
1993
58
58
1937.4.2-1938.4.1
1993
58
58
1938.4.2-1940.4.1
1996
59
59
1940.4.2-1946.4.1
2001
60
60
1946.4.2-1948.4.1
2006
61
60
1948.4.2-1950.4.1
2009
62
60
1950.4.2-1952.4.1
2012
63
60
1952.4.2-1954.4.1
2015
64
60
1954.4.2-1958.4.1
2018
65
60
1958.4.2-1960.4.1
2018
65
61
1960.4.2-1962.4.1
2021
65
62
1962.4.2-1964.4.1
2024
65
63
1964.4.2-1965.4.1
2027
65
64
1965.4.22030
65
65
Source: Ministry of Health, Labor and Welfare

5

Mutual aid pension
Flat-rate
Wage
part
proportional part
Men & Women
60
60
61
60
62
60
63
60
64
60
65
60
65
61
65
62
65
63
65
64
65
65

Figure 1: The Elderly Employment Stabilization Law
Male Elderly

65

64

63

62

Pension

61

60

Policy1948
PolicyPension1947
Pension

Policy1946

Pension1945
Pension
1944

6

2.2

The effect of EESL

In this section, I discuss what happened after the implementation of the EESL. This policy
makes firms change their employment system. As a result, it also works as a restriction forfirms. If we were to precisely understand the impact of this policy, we have to analyze thechannels which influence the outcome of whether a worker works or not. For example, one
is whether firms increase the number of offers to reemploy workers (Channel (2)). The otheris whether firms rescind or increase the mandatory retirement age (Channel (1)). Another iswhether workers accept the offer or not (Channel (3)). If we only consider whether a worker
works or not after the mandatory retirement age, we cannot distinguish between the threechannels. The results in the literature (Kondo and Shigeoka (2016)) consider the combined
effects on each channel. In this paper, to clarify and understand the EESL effect, I discuss
the factors that decide the impact of this policy with respect to the labor participation rate
after the implementation of the EESL. By using this framework, we can better understandthe estimations of both the literature and this paper and better interpret the result.
The retirement path of a worker after the mandatory retirement age is shown in Figure
2. Assuming that only one cohort exists, I explain the meaning of each node in Figure 2:• Node 1: A worker i faces the mandatory retirement age.
• Node 2: A worker i does not face the mandatory retirement age.
• Node 3: A worker i receives a re-employment offer at age A.
• Node 4: A worker i does not receive a reemployment offer at age A.
• Node 5: A worker i accepts a reemployment offer at age A.
• Node 6: A worker i rejects a reemployment offer at age A.

7

Figure 2: Retirement Path of Workers after the Mandatory Retirement Age

8Subsequently, I define the following sets:onATsalaried = i i is a salaried worker at age T .
onAnode k = i i is on node k.
Then, I consider the meaning of the following probability:
n
o
A
i
∈
A
Pr i ∈ AA+1
salariedsalaried(1)

For simplicity, I define the probability as follows:
n
o
n
o
A+1
A
A
A
i
∈
A
Pr AA+1=Pri∈Asalariedsalariedsalariedsalaried(2)

I also discuss the policy effects of the EESL by using the following expression, thus showingthat there are three important paths through which this policy influences workers and firms:noAA
Pr AA+1
salariedsalaried
o n
o
n
o n
o n
A+1
A
= Pr Asalaried Anode 5 Pr Anode 5 Anode 3 Pr Anode 3 Anode 1 Pr Anode 1 Asalaried
{z
}|
{z
}|
{z
}
|
Effect Channel (1)Effect Channel (2)Effect Channel (3)

n
o
n
o n
o n
o
A
+ Pr AA+1
A
1
−
Pr
A
A
Pr
A
A
Pr
A
A
node 6
node 5
node 3
node 3
node 1
node 1salariedsalaried
|
{z
} |
{z
}|
{z
}
Effect Channel (1)Effect Channel (2)Effect Channel (3)

n
o
n
o n
o
A
+ Pr AA+1
Pr
A
A
A
1
−
Pr
A
A
node 1
node 4
node 3
node 1salariedsalaried
{z
} |
{z
}
|
Effect Channel (2)Effect Channel (3)

n
o
n
o
A
+ Pr AA+1
A
1
−
Pr
A
A
node 2
node 1salariedsalaried|{z}
Effect Channel (3)I define the above expression for one cohort. To consider the difference of (1) between twocohorts, I introduce another cohort. To simplify the discussion, consider that there are only
two cohorts, C1 and C2. Additionally, there is only one mandatory retirement age, A.
Assume that the policy is introduced after cohort C1 faces the mandatory retirement age
and some individuals do not face the mandatory retirement age because some firms did not
introduce the mandatory retirement system. I analyze the difference between cohort C1 andcohort C2. However, I omit the discussion on the difference of the following terms of (3) tofocus on the effects on the demand side of the labor market.4
4The effect on the four terms of (3) is caused by the difference in the characteristics of workers who arrive
at nodes 2, 4, 5, and 6. In fact, when workers arrive at nodes 2, 4, 5, and 6, they decide whether they will

9

n
o
n
o
n
o
n
o
A+1
A+1
A+1
A
,
Pr
A
A
,
Pr
A
A
(3)
Pr AA+1A,Pr
A
node 5
node 6
node 4
node 2salariedsalariedsalariedsalariedno
By the way, Pr AA+1A
= 1 because a salaried worker will become a salaried worker
node5
salaried
when he/she accepts a reemployment offer, the first effect on Channel (1) represents the pathof the effect of acceptance of reemployment by workers. Some firms may decrease wages toreduce employment cost when they reemploy workers after the mandatory retirement age. If
the amount of the offered wage is very low when workers are reemployed, these workers may
reject the offer. As a result, the acceptance rate may decrease. The second effect on Channel(2) represents the path of the effect that a firm prepares an office where workers are able towork after the mandatory retirement age. Channel (3) represents the path where some firms
rescind or increase the mandatory retirement age. Effect Channel (3) represents the path thatsome nfirms rescind or increase
the mandatory retirement
age after theo EESL. Then, I define
o
n
A+1
A+1
A
∆ Pr Asalaried Asalaried
as the difference of Pr Asalaried AA
between C1 and C2.
salaried
Finally, I can derive the following relationship by the definition of probability measure.
n
o
n
o
A+1
c
A
A
A
A
∆ Pr (AA+1
)
=
−∆
Pr
A
(4)
salariedsalariedsalariedsalaried
I discuss the relationship between (4) and the results in the literature. Kondo and Shigeoka (2016) estimate β̂61 − β̂60 = 0.032 − 0.024 = 0.008. Let δ1 and δ2 be the factors
included in β61 − βn60 . I explain these oin the next section,n along with the relationship
o
60
60
61
c
61
β61 − β60 = −∆ Pr (Asalaried ) Asalaried + δ1 + δ2 = ∆ Pr Asalaried Asalaried + δ1 + δ2
using relationship (4).

2.3

Literature Review

2.3.1

Literature Estimates

Kondo and Shigeoka (2016) use a dummy variable of being a salaried worker. The outcome
is influenced by effects from multiple channels, explained in detail subsequently. They used
the following outcome:
1 if i is a salaried worker at survey year.
yi =(5)0 if i is not a salaried worker at survey year.
They analyzed two cohorts, which had the same pension eligibility age. If I consider
this environment,
they utilize
an environment owherenthe difference ofothe following
probabiln
o
n
n
o
A+1
A+1
A+1
A+1
ities Pr Asalaried Anode 5 , Pr Asalaried Anode 6 , Pr Asalaried Anode 4 , Pr Asalaried Anode 2
continue being salaried or not. If workers arrive at node 6, they have to apply to another firm. Whether they
become a salaried worker at age A + 1 or not depends on the state variables (e.g. pension eligibility in thenext period) which workers have on nodes 2, 4, 5, and 6. With the introduction of the EESL, the distributionof the characteristics of workers on nodes 2, 4, 5, and 6 changes. However, these influences are not clear.

10

n
o
between the two cohorts is small. As I explained, Pr AA+1
A
node 5 = 1. For example, letsalariednous consider Pr AA+1
salaried Anode 2 . If two workers (workers 1, 2) with different pension eligibility ages arrive at node 2, it is possible that the decisions of these workers are different conditional on demographics. If the pension eligibility age of one cohort (worker 1) is age A+1 andthe other (worker 2) is age A +n2, worker 2 is more
to work conditionalo willingnon on demographo
A+1
A+1
A+1
ics. I can discuss the terms Pr Asalaried Anode 6 , Pr Asalaried Anode 4 , Pr Asalaried Anode 2
can be analyzed in the same manner.
Agei is a vector of age dummy variables. Ageit = 1 means that the dummy variables,
except the age t dummy variable, are zero in the vector Agei and the age t dummy variable
is equal to one. Kondo and Shigeoka (2016) estimate the following parameter:5 Ti = 1 if thebirth year of i is 1946.
β61 − β60 = Pr[yi = 1|Ti = 1, Xi = x, Agei61 = 1] − Pr[yi = 1|Ti = 1, Xi = x, Agei60 = 1]− Pr[yi = 1|Ti = 0, Xi = x, Agei61 = 1] − Pr[yi = 1|Ti = 0, Xi = x, Agei60 = 1]
Then, I can rewrite this parameter as follows. Here, Pr[yi = 1|Xi = x, Ti = 1, Agei60 = 1] =α60 + β60 + γ + δ 0 x.

Pr[yi = 1|Ti = 1, Xi = x, Agei61 = 1] − Pr[yi = 1|Ti = 1, Xi = x, Agei60 = 1]− Pr[yi = 1|Ti = 0, Xi = x, Agei61 = 1] − Pr[yi = 1|Ti = 0, Xi = x, Agei60 = 1]h= Pr[yi = 1|Ti = 1, Agei61 = 1] − Pr[yi = 1|Ti = 1, Agei60 = 1]
Part 1i− Pr[yi = 1|Ti = 0, Agei61 = 1] − Pr[yi = 1|Ti = 0, Agei60 = 1]
Z
hZ

0
−
δ xdF (x|Ti = 1, Agei61 = 1) − δ 0 xdF (x|Ti = 1, Agei60 = 1)
Z
i
Z
0
−
δ xdF (x|Ti = 0, Agei61 = 1) − δ 0 xdF (x|Ti = 0, Agei60 = 1)
In Part 1, yit can be defined as:
1 if i is a salaried worker at age t.
tyi =0 if i is not a salaried worker at at age t.
Part 1 can be rewritten as follows:
5

They assume E[i |Xi = x, Ti = t, Agei = a] = 0

11

(6)



Pr[yi = 1|Ti = 1, Agei61 = 1] − Pr[yi = 1|Ti = 1, Agei60 = 1]
Part 1− Pr[yi = 1|Ti = 0, Agei61 = 1] − Pr[yi = 1|Ti = 0, Agei60 = 1]
= − Pr[yi61 = 0, yi60 = 1|Ti = 1] − Pr[yi61 = 0, yi60 = 1|Ti = 0]ncPart 2 (This part equals −∆ Pr (A61salaried )A60
salariedo)+ Pr[yi61 = 1, yi60 = 0|Ti = 1] − Pr[yi61 = 1, yi60 = 0|Ti = 0]
Let me assume that the population of one cohort is fixed.
n If the mandatory oretirement age
cA60
is 60, Part 2 of the following expression means ∆ Pr (A61
. This is thesalariedsalaried )
o
n
c
A60
between cohort 1945 and cohort 1946.
difference in Pr (A61salariedsalaried )It is possible that the influence of the following parts is small if I considering the meaning ofeach part.
•

Z

Z


−δ1 =
δ xdF (x|Ti = 1, Agei61 = 1) − δ 0 xdF (x|Ti = 1, Agei60 = 1)
Z
Z

0
0
−
δ xdF (x|Ti = 0, Agei61 = 1) − δ xdF (x|Ti = 0, Agei60 = 1)0

Remark: The difference-in-differences of conditional expectation about δ 0 x between age
61 and age 60. Kondo and Shigeoka (2016) use region dummies and the unemployment
rate as control variables.
• δ2 = Pr[yi61 = 1, yi60 = 0|Ti = 1] − Pr[yi61 = 1, yi60 = 0|Ti = 0]
Remark: The difference in the probability of being a salaried worker at age 61 while
not a salaried worker at age 60.
n
o
n
o
60
60
c
61
A
A
I derive the relationship β61 −β60 = −∆ Pr (A61
)
+δ
+δ
=
∆
Pr
A
+
1
2
salariedsalariedsalariedsalariedδ1 + δ2 using equation (4). Kondo and Shigeoka (2016) estimatesnβ̂61 − β̂60 = 0.032 − 0.024
o =
c
A60
0.008. It is possible that this magnitude is produced by ∆ Pr (A61
andsalariedsalaried )small factors δ1 and δ2 . The estimate of Kondo and Shigeoka (2016) was influenced bymultiple channels, from all the effects on the three channels discussed in section 2.2.
2.3.2

Effect of Government Intervention on the Elderly Labor Market in theUS

According to the literature on the US, since the 1980s, studies about retirement havebeen published continuously (e.g., Fields and Mitchell (1984), Alan and Thomas (1986) and12

Slade (1987)). With respect to mandatory retirement in the US, Neumark (2003) explains its
history and the relevant literature.6 Some studies have focused on government intervention
in the supply side of the labor market (e.g., Staubli and Zweimüller (2013) and Neumark andSong (2013)). I here discuss the results on the US related to this paper. Since around 1990, in
the US, many studies have provided evidence with respect to how a firm discriminates workers
based on their age. (e.g., Hutchens (1988), Hirsch et al. (2000) and Adams (2002)). Johnson
and Neumark (1997) analyze the consequences of age discrimination in the workplace. Lahey(2008) analyzes the effect of the age discrimination law on the labor market. The following
four studies directly analyze the abolition of the mandatory retirement system.
• Neumark and Stock (1999)– After the implementation of age discrimination laws, the labor force participationof workers protected by age discrimination laws increases.
– With respect to other workers which age discrimination laws do not protect, theeffect is not clear.
– They indicate that age discrimination laws steepen age-earning profiles for workers
entering the labor market.
• Ashenfelter and Card (2002)– A special exemption from the 1986 Age Discrimination Act allowed colleges anduniversities not to abolish compulsory retirement at age 70 until 1994.
– After the abolition of mandatory retirement, the retirement rates at 70 and 71 fellby two thirds after 1994.
• von Wachter (2002)– Overall, the labor force of workers 65 and older increases by 10 percent to 20
percent after the end of mandatory retirement. Neither job tenure nor wage ofolder workers were affected.
• Adams (2003)– This study analyzes the effect of age discrimination laws on employment, hiring,and retirement.
– With respect to employment, the labor force participation rate increases for theworkers which the laws protect.
– However, there is no clear effect with respect to the workers which the laws do notprotect.
– With respect to hiring and retirement, there is no effect.

13

2.4

Paper Objectives and Results

This paper analyzes the effect of government intervention in the demand side of the elderly
labor market on the employment of the elderly. According to the literature review, withrespect to the workers which age discrimination laws protect, the labor force participation
rate increases. However, as I discuss in the subsequent sections, the results are different forJapan, and I further discuss the reasons for this.
Finally, I analyze why the results are different from those of Kondo and Shigeoka (2016).
This is due to the difference in the estimation procedure. The estimation procedure in thispaper omits the unobserved heterogeneity and controls for important demographics. This
paper shows that there is no significant effect if we control and omit the factors which cause
a bias of the coefficient. Additionally, Kondo and Shigeoka (2016) indicate that the effect of
the EESL is weak, although there is a significant effect.

3

Data

I use the Preference Parameters Study, provided by the Osaka University Institute ofSocial and Economic Research,6 which is mainly conducted for calculating parameters ofpreferences defining utility functions, that is, time preference, risk aversion, habit formation,
externality. The panel survey has been conducted every year since 2004. The surveyed
individuals are men and women aged 20-69. This survey is conducted by a self-administeredplacement method. In this paper, I use the dataset from 2003 to 2013, with only the samples
whose birth year is between 1941 and 1950. The response rate is 71.1 percent in 2003. Thispanel data are suitable for this study because the data include the labor force participation
around age 60 with respect to the observations born between 1941 and 1950.
In Japan, there is a dataset focusing only on surveying the elderly whose name is theJapanese Study of Aging and Retirement (JSTAR),7 which is a panel survey of elderly people
aged 50 or older conducted by the Research Institute of Economy, Trade and Industry,
Hitotsubashi University, and, more recently, the University of Tokyo. However, the JSTAR
has been conducted since 2007, which means that the labor participation information before
age 60 is not available for the elderly whose birth year is around 1945. As a result, I use thePreference Parameters Study. This dataset is the most suitable panel data for this study. In
section 5, which presents main results in this paper, I use the Preference Parameters Survey.
However, I use the JSTAR in section 6 to discuss the results. I explain what data from the
JSTAR I use in section 6.
Finally, in section 6, I use another dataset which is the Fact-finding Survey on the Work
Conditions among Small and Medium-sized Enterprises (Chusho kigyo rodo jijo jittai chosa)conducted by the National Federation of Small Business Associations.8 The surveyed firms
6

See the website at (http://www.iser.osaka-u.ac.jp/surveydata/engpanelsummary.html) for details on the
Preference Parameters Study.
7
See the website at (http://www.rieti.go.jp/en/projects/jstar/) for details on the JSTAR.
8
See the website at (https://ssjda.iss.u-tokyo.ac.jp/Direct/gaiyo.phpeid0407langeng) for details on the
Fact-finding Survey on the Work Conditions among Small and Medium-sized Enterprises.

14are drawn from the firms whose number of employees is below 300. This survey is conductedby a self-administered placement method, resulting in repeated cross-section data. With
respect to firms whose number of employees is above 300, public repeated cross section data
are not available. In this survey, information about the mandatory retirement policy amongsmall and medium-sized enterprises is available. Additionally, there is no panel data ofJapanese firms at present. With respect to the Study of Employment in Small Companies, I
also explain which data I use in section 6.

15

4

Estimation Procedure

In this section, I explain the estimation procedure, which uses only observations whosebirth year is between 1941 and 1950. I estimate the following equation, similar to thedifference-in-diffeences method.
yit = β0 + λt + β1 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} + γ 0 xit + ai + it(7)

where yit is an indicator equal to one when a respondent works at period t. λt is a time
fixed effect. ai is an individual fixed effect. xit are control variables at period t. xit include therespondent’s age, family structure, whether a respondent arrives at their basic pensionable
age (flat rate part) and the amount of assets in the previous wave. Consequently, I analyze
the difference in labor force participation after age 60 between those born between 1941 and1945 and between 1946 and 1950. The coefficient β1 identifies this effect. The following
relationship illustrates this point.
The trend of the labor force participation rate is shown in Figures 3 and 4. According tothese figures, before age 60, there is no difference in the trend between those born from 1941 to1945 and from 1946 to 1950. According to Figures 3 and 4, the male labor force participation
rate of people for birth years between 1946 and 1950 is larger than for those born between
1941 and 1945 after age 60. However, the labor force participation rate of individuals born
between 1946 and 1950 is also larger than for those born between 1941 and 1945 before age
60. As a result, it is possible that this is not due to the effect of government intervention.
Subsequently, according to Figures 5 and 6, there is a difference in the ratio of self-employedworkers. As the birth year increases, the ratio of self -employed workers increases as well.
Of course, these workers are not subject to government intervention. According to these
discussions, the labor force participation of those born between 1941 and 1945 is smaller
than for those born between 1946 and 1950 after age 60, although the ratio of those subject
to government intervention is smaller. It is possible that the effect of government intervention
is weak.
Next, I discuss the trend of labor force participation of a particular group: male elderly
who are both working and not self-employed at the first wave (birth year from 1941 to 1945)and male elderly who are both working and not self-employed at the sixth wave (birth year
from 1946 to 1950). This group seems to be directly influenced by this policy. Figure 7
shows the trend of labor force participation between male elderly who are both working andnot self-employed at the first wave (birth year from 1941 to 1945) and male elderly who areboth working and not self-employed at the sixth wave (birth year from 1946 to 1950). Before
age 60, the trend is similar, but there is a difference in labor force participation between
those born from 1941 to 1945 and those born from 1946 to 1950 after age 60. However, it
is possible that this is not due to the EESL. This point is verified in the estimation part.
Subsequently, I control for the factors of respondent demographics and business cycle, and soon. This group is a main target to analyze in this paper because the effect of the government
intervention seems to directly influence it.

16This paper has certain limitations. The Preference Parameters Study asks respondents
only respondents’ birth year. As a result, the exact age at the time of the interview isunknown. Additionally, whether a respondent arrives at the basic pensionable age (flat ratepart) is also unknown. In this paper, I set age = survey year - birth year, and the basic
pensionable age (flat rate part) is based on Table 1. However, the birth month is unknown.
As such, the pension eligibility age is set by birth year A, which is equal to that of people
with the birth date between A.4.2 and A + 1.4.1.
I estimate equation (7) by separating the following groups and report the results in thenext section. With respect to Group 2, I focus on the observations who work just before
age 60. With respect to Group 3, I focus on the observations who work (not self-employed)
before age 60. Finally, with respect to Group 4, I focus on the observations who are notworking just before age 60.
• Group 1: (birth year from 1941 to 1945) all female and male elderly versus (birth year
from 1946 to 1950) all female and male elderly• Group 2: (birth year from 1941 to 1945) female and male elderly working at the firstwave versus (birth year from 1946 to 1950) female and male elderly working at thesixth wave
• Group 3: (birth year from 1941 to 1945) male elderly who are both working and not
self-employed at the first wave versus (birth year from 1946 to 1950) male elderly whoare both working and not self-employed at the sixth wave
• Group 4: (birth year from 1941 to 1945) female and male elderly who are not working
at the first wave versus (birth year from 1946 to 1950) female and male elderly who are
not working at the sixth wave

17

Figure 3: Labor Participation (Male)
%
100
90
80
70
60
50
40
30
20
10
0
58

59
60
61
1941-1945
1946-1950

62

Age

Source: The Preference Parameters Study
Blue: birth year from 1941 to 1945, Red: birth year from 1946 to 1950

Figure 4: Labor Participation (Female)
%

100
90
80
70
60
50
40
30
20
10
0
58

59

60

1941-194561
1946-1950

62

Age

Source: The Preference Parameters Study
Blue: birth year from 1941 to 1945, Red: birth year from 1946 to 1950

18

Figure 5: The Ratio of Self-Employed Workers (Male)
%
100
90
80
70
60
50
40
30
20
10
0
58

59

60

1941-1945

61

62

1946-1950

Age

Source: The Preference Parameters Study
Blue: birth year from 1941 to 1945, Red: birth year from 1946 to 1950

Figure 6: The Ratio of Self-Employed Workers (Male)
%
100
90
80
70
60
50
40
30
20
10
0
55-59

60-64

Source: Census 2005

19

65-69

Age

Figure 7: Labor Participation (Male, Not Self-Employed)
%
100
90
80
70
60
50
40
30
20
10
0
58

59
60
61
1941-1945
1946-1950

62

Age

Source: The Preference Parameters Study
Blue: birth year from 1941 to 1945, Red: birth year from 1946 to 1950

5

Results

This section discusses the results. According to Table 2, which presents the results ofGroup 3. These elderly people seem to be directly influenced by the EESL. As we canobserve, the coefficient of 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} is significantly negative for the OLS. However, when I omit the unobserved heterogeneity, the coefficient of1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} is not significant. The OLS estimator of1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} is biased. The coefficient of living with a parent
is significantly negative. It is possible that this implies the decrease of labor supply due toinformal care for parents. However, this fact cannot be confirmed because of data limitations. According to this result, the effect of government intervention is weak, which is further
discussed in the next section. I also compare the result here with the results of Kondo andShigeoka (2016). According to them, the labor force participation rate of salaried workers
born in 1946 is significantly larger than that of salaried workers born in 1945 at ages 60 and
61 by 2.4 and 3.2 percent, respectively. This impact is considered small. However, they use
repeated cross sectional data and do not control for educational characteristics and otherdemographics. When omitting the unobserved heterogeneity and control demographics ofworkers, I cannot confirm the significant increase in the labor participation rate. However,
the weakness of this paper is that the sample size is small. In fact, the standard error of
the coefficient of 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} in the fixed effects result islarge. The absolute value of the coefficient 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} iscomparatively large.
Table 3 shows the results for Group 1, exhibiting the difference in labor force participa20

tion between the elderly workers born between 1941 and 1945 and those born between 1946
and 1950 by gender. As per Table 3, no significant result is obtained for both in female andmale labor force participation when I omit the unobserved heterogeneity. In this analysis,
the standard error of the coefficient of 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} is comparatively small and the sample size is comparatively large. Table 4 shows the results for Group2, birth year from 1941 to 1945 of male elderly who are both working and not self-employedat the first wave versus male elderly born from 1946 to 1950, who are both working and not
self-employed at the sixth wave). Additionally, in this case, the labor force participation rateof female and male workers does not significantly increase when I estimate the model without omitting the unobserved heterogeneity. When I omit the unobserved heterogeneity, no
significant effect of the coefficient of 1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950} is obtained.
Finally, Table 5 presents the results for Group 4 of female and male elderly born from
1941 to 1945 who are not working at the first wave versus female and male elderly born from1946 to 1950 who are not working at the sixth wave). While I cannot detect a significant
increase in the labor force participation rate for Groups 1-3, I find a significant decrease inlabor force participation rate between the elderly born between 1941 and 1945 and between
1946 and 1950. When I omit unobserved heterogeneity, there is a decrease in the labor
force participation rate for both female and male workers. This implies that the inflow ofelderly workers who do not work around age 60 into the labor market decreases after the
implementation of the EESL. Especially for male workers, the effect is large. However, I
cannot verify whether this effect is caused by the EESL or not. Because of data limitations,for example, I cannot compare the labor force participation around age 60 between workers
born from 1941 to 1945 and from 1936 to 1940.

21

22

0.0832(0.0584)713

0.0064(0.0570)-0.1665∗∗∗(0.0518)

Standard errors in parentheses∗
p < 0.1, ∗∗ p < 0.05, ∗∗∗ p < 0.01
Asset level dummies in the previous period (high, middle), a dummy of arriving at the basic pensionable age,wave dummies and regional dummies are also included in the estimation model.

N0.0136(0.0330)
713

high school-0.0514(0.0409)

living with a parent-0.0654(0.0450)-0.0164(0.0286)

0.0915∗∗∗(0.0172)

the number of children

less than high school-0.0589(0.0631)0.0784(0.0567)

married-0.0020(0.0019)0.0013(0.0017)

age squared

0.1862(0.2348)-0.1571(0.2139)(2)
Male Not Selfemployed FE
0.1599(0.2926)

age(1)
Male Not Selfemployed OLS
1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950}
0.3242∗∗∗(0.0669)

Table 2: Labor Force Participation 1

230.0300(0.0193)2444

0.0028(0.0254)-0.0121(0.0366)2306

0.0043(0.0461)0.0405(0.0424)0.0067(0.0287)-0.0861(0.0542)-0.0004(0.0008)

0.0362(0.0999)(3)
Female FE
0.0060(0.0306)

0.0423(0.0436)2444

0.0238(0.0538)-0.1028∗∗∗(0.0278)-0.0060(0.0195)-0.0524(0.0382)0.0003(0.0009)-0.0772(0.1072)(4)
Male FE
0.0540(0.1377)

Standard errors in parentheses∗
p < 0.1, ∗∗ p < 0.05, ∗∗∗ p < 0.01
Asset level dummies in the previous period (high, middle), a dummy of arriving at the basic pensionable age,wave dummies and regional dummies are also included in the estimation model.

N-0.0039(0.0359)2306

high school-0.0064(0.0400)

living with a parent
0.1332∗∗∗(0.0418)0.0474∗∗∗(0.0095)

0.0631∗∗∗(0.0127)

the number of children

less than high school

0.1323∗∗∗(0.0348)-0.1751∗∗∗(0.0276)

married-0.0178(0.0245)0.0000(0.0007)-0.0001(0.0008)

age squared-0.0344(0.0866)-0.0235(0.0985)(2)
Male OLS
0.1144∗∗∗(0.0380)age1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950}(1)
Female OLS
0.0533(0.0348)

Table 3: Labor Force Participation 2

24-0.0305(0.0719)785-0.0491∗∗(0.0236)1118-0.0613(0.0597)

Standard errors in parentheses∗
p < 0.1, ∗∗ p < 0.05, ∗∗∗ p < 0.01
Asset level dummies in the previous period (high, middle), a dummy of arriving at the basic pensionable age,wave dummies and regional dummies are also included in the estimation model.

N0.0578(0.0695)785

high school

0.0031(0.0297)-0.1544∗∗∗(0.0566)

living with a parent

0.0357(0.0395)-0.0011(0.0863)0.0508∗∗∗(0.0129)

0.0914∗∗∗(0.0195)

the number of children-0.0145(0.0547)-0.0008(0.0018)0.0744(0.2272)(3)
Female Work FE
0.0661(0.0588)-0.0464(0.0311)0.0590(0.0475)-0.1108∗∗∗(0.0394)

married0.1196(0.0729)-0.0004(0.0013)0.0040∗∗(0.0019)

age squaredless than high school

0.0349(0.1556)-0.5415∗∗(0.2340)age1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950}(1)(2)
Female Work OLS Male Work OLS
0.2161∗∗∗0.1671∗∗∗(0.0510)(0.0476)

Table 4: Labor Force Participation 3

0.0408(0.0386)1118-0.0026(0.0545)-0.1059∗∗∗(0.0391)-0.0218(0.0269)-0.0630(0.0616)-0.0019(0.0014)0.1831(0.1729)(4)
Male Work FE
0.0748(0.1575)

25

0.1932∗∗∗(0.0495)
0.0388∗∗∗(0.0140)-0.1824∗∗∗(0.0335)
0.0572∗∗∗(0.0145)0.0565(0.0483)

marriedthe number of children

living with a parent

0.0635∗∗(0.0287)1326-0.0791∗∗(0.0390)1521

high school

Standard errors in parentheses∗
p < 0.1, ∗∗ p < 0.05, ∗∗∗ p < 0.01
Asset level dummies in the previous period (high, middle), a dummy of arriving at the basic pensionable age,wave dummies and regional dummies are also included in the estimation model.

N

0.0458(0.0379)

0.0331(0.0483)

less than high school-0.0443(0.0389)0.0014(0.0010)0.0008(0.0009)

age squared-0.2102∗(0.1269)-0.1470(0.1058)

age

1{60 ≤ ageit }1{1946 ≤ birthyeari ≤ 1950}(1)(2)
Female Not Work OLS Male Not Work OLS-0.1018∗∗∗
0.0666(0.0378)(0.0658)

Table 5: Labor Force Participation 4-0.0198(0.0270)1521

0.0519(0.0643)1326

0.0543(0.0840)-0.1093∗∗∗(0.0395)

0.1154∗∗(0.0563)-0.0142(0.0378)0.0055(0.0274)

0.0048(0.0245)0.0005(0.0013)-0.0903(0.1514)(4)
Male Not Work FE-0.2666∗(0.1558)-0.0051(0.0373)-0.0940(0.0631)-0.0006(0.0009)

0.0639(0.1124)(3)
Female Not Work FE-0.0578∗(0.0323)

6

Discussion: What happened after the implementation of EESL?

As previously discussed, no effect of government intervention on the employment of theelderly workers is observed. In this section, I consider why there is no effect of the EESL on
the employment of the elderly. To understand the mechanism of this policy effect, we needto consider the channels of this policy effect, as discussed in section 2.2. Consequently, thisstudy must answer the following three questions:• 1. Did the probability of receiving a reemployment offer increase? (Channel 2)• 2. Did the number of firms which abolished or increase the mandatory retirement age
increase? (Channel 3)• 3. Did the acceptance rate of reemployment offers decrease due to low wages offer byfirms? (Channel 1)
With respect to Channels 2 and 3, the dataset partly implies these facts. On the other
hand, with respect to question 3, there is no available data to clarify this point. Table 8shows whether a firm carries out the employment policy the EESL requires.9 In 2006 and2007, almost all firms carries out the necessary employment policy. According to Table 9,
most firms obey the EESL by introducing the reemployment system. Subsequently, the firstquestion can be used by using the JSTAR. There is a sharp increase in the ratio of people
receiving a reemployment offer after arriving at the mandatory retirement age, as shown in
Figure 10. Reemployment offer 1 means the ratio of workers receiving a reemployment offerfrom the firm where they arrive at the mandatory retirement age. Reemployment offer 2means the ratio of workers receiving a reemployment offer from the firm where they arrive at
the mandatory retirement age or affiliated firms (including Reemployment offer 1). According
to Figure 10, there is a sharp increase in the ratio of workers receiving a reemployment offer
after those born in 1946 arrive at the mandatory retirement age. According to Figure 10,
the ratio of firms obeying the EESL increases after the workers born in 1946 arrive at the
mandatory retirement age. According to this figure (reemployment 2), the ratio of workers
receiving the reemployment offer increases by about 10 percent. This approximates the ratioof workers who cannot get the reemployment offer without the EESL. It is possible thatthe rejection rate for the offers in this group is high. According to Usui et al. (2015), male
employees aged 54 gradually move to part-time work or retire after beginning to receive
pension. Those who continue to work cannot choose their optimal working hours, althoughwanting to choose more working hours. Potentially, it is possible that there are some elderly
who cannot continue to work, although he/she wants to continue to work if he/she receives
a reemployment offer.
With respect to the mandatory retirement age, there is a change in the distribution
between 2004 and 2008, at least for firms whose number of employees is below 300. According
9

See the website at http://www.mhlw.go.jp/stf/houdou/0000101253.html (in Japanese)26

to Table 11, the ratio of firms wanting to adopt the mandatory retirement age above 64 in
2004 is larger than that in 2008.
According to these facts, firms change the employment policy after 2006 by making reemployment offers or increasing the mandatory retirement age. However, according to thispaper’s results, the employment of the elderly workers does not significantly change after theworkers born in 1946 reach 60.10 The firms have obeyed the government directions; introducing the reemployment system, abolishing the mandatory retirement age, or increasing the
mandatory retirement age. The analysis of Channel 1 is important for understanding what
happened after the implementation of the EESL, thus providing scope for future work. It
is possible that the firms tried to reduce the cost of obeying the EESL by decreasing wages
after the mandatory retirement age when they engage in a contract with the workers reaching
mandatory retirement age. There is no clear statement with respect to wage contracts whena firm gives a reemployment offer to a worker. Kondo (2016) finds a decline in earnings ofthe elderly workers who reached age 60 after 2006. This evidence is based on only observablewage. The offered wage when making a contract of reemployment after the implementationof the EESL should be thus analyzed. It is possible that some workers reject an offer because
the offered wage is too low.
Figure 8: The Ratio of Firms Preparing the Employment Measures for the Elderly
More than 51 workers

51-301 workers

More than 301 workers

70

75

80

2007

2006

85

90

95

100
%

Source: The Employment of the Elderly Workers, Ministry of Health, Labor and Wealfare

10

According to the literature’s result, there is a significant effect. However, the effect is small.

27

Figure 9: The Ratio of the Employment Measures for the Elderly (All Firms Preparing the
Employment Measures)
Introducing Reemployment
SystemIncreasing the Mandatory
Re9rement Age

Abolishing the Mandatory
Re9rement
0

20
2007

40
2006

60

80

100
%

Source: The Employment of the Elderly Workers, Ministry of Health, Labor and Wealfare

Figure 10: The Ratio of Receiving Reemployment Offers
%
100
90
80
70
60
50
40
30
20
10
0
1941 1942 1943 1944 1945 1946 1947 1948 1949 1950
Birth Year
reemployement oﬀer 1
reemployement oﬀer 2

Source: JSTAR

28

Figure 11: Employment Policy for Elderly Workers in 2004 and 2008: Retirement Age (Only
Small and Medium Sized Enterprises: Less than 300 workers)(MRA: Mandatory Retirement
Age)
%
100
90
80
70
60
50
40
30
20
10
0
59

60

61

62

63

2004

More Than64

None

Dependingon JobCategory

2008

Source: Fact-finding Survey on the Work Conditions among Small and Medium-sized Enterprises(Chusho kigyo rodo jijo jittai chosa)Finally, I identify the changes in the wage contract when a worker receives a reemployment
offer from the firm where he/she reaches the mandatory retirement age. Figure 12 showswhether the worker’s wage decreases or not after reemployment. This figure also shows theratio of the worker’s wage change after reemployment. According to this figure, the ratioof receiving a decreased wage after reemployment increases by 10 percent after a worker
born after 1946 reaches the mandatory retirement age. However, it is unclear whether thisis due to the EESL. As such, I compare the workers born in 1945 with those born in 1946.
However, the sample size is insufficient with respect to only workers born around 1945 and1946. Additionally, figure 13 shows the distribution of the wage decrease rate when receivinga reemployment offer. According to this figure, there is an increase in the ratio of the wage
decrease rate of between 30 percent and 70 percent. However, this is also not for the dataset
which includes only workers born around 1945 and 1946.

29

Figure 12: The Ratio of Whether Wage Decreases After Reemployment (Reemployment
Contract)(Only Workers Receiving a Reemployment Offer)
%

100
90
80
70
60
50
40
30
20
10
0
before 1945

a2er 1946

no decrease

decrease

before 1945: birth year before 1945, after 1946: birth year after 1946
Source: JSTAR

Figure 13: The Ratio of Wage Decrease After Reemployment (Reemployment Contract)(OnlyWorkers Receiving a Reemployment Offer)
%
100
90
80
70
60
50
40
30
20
10
0
less than 30 percent 30 percent - less thanmore than 70
70 percent
percent
before 1945
a;er 1946

before 1945: birth year before 1945, after 1946: birth year after 1946
Source: JSTAR30

7Conclusion

This paper analyzed the effect of government intervention in the demand side of the labormarket on the employment of the elderly. However, the results showed that there is no significant effect of the EESL on the employment of the elderly. Additionally, the inflow of theelderly not working around age 60 into the labor market is significantly negative. According to the discussion in section 6, firms obey the government’s directions, thus introducing
the reemployment system, abolishing mandatory retirement, or increasing the mandatory
retirement age. This suggests that firms attempted to reduce additional costs caused by thegovernment policy by choosing actions that the government does not prohibit. As a result,the number of reemployment offers has increased after the implementation of the EESL.
However, there is no clear statement in the law with respect to wage contracts whena firm makes a reemployment offer to a worker reaching the mandatory retirement age.
As explained in section 6 , many firms introduce the reemployment system or increase themandatory retirement age without abolishing the mandatory retirement age. When a firmmakes a reemployment contract with a worker, it discusses a wage decrease rate with theworker who intends to work in the firm after the mandatory retirement age. The law does
not concretely enforce a certain wage rate. The following question is important for directly
analyzing the reason why the employment of elderly workers has not increased: did theacceptance rate of reemployment offers decrease due to low wages offered by firms? (Channel
1)Specifically, the effect on Channel 1 is worth mentioning. This study showed there was no
positive effect on the employment of the elderly. However, firms might decrease the offered
wage because they have to give a reemployment offer. After the mandatory retirement age,
firms can offer wage rates not strictly regulated. As a result, they have incentives to decrease
the offered wage. This is a possible topic for future research.

31

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