Implications of Population Ageing in East Asia - An Analysis of Social Protection and Social Policy Reforms in Japan, Korea and Taiwan Tetsuo Ogawa University of Oxford

Research and the Paper Structure: 1. I intend to adopt an Analytical Framework, which I call “the PEST”, to examine aspects of the significant phenomenon of population ageing and reforms in social policies in Japan, Korea and Taiwan 2. Social Policy Reforms in Japan, Korea and Taiwan concerning population ageing: The outlines of policy responses addressing ageing issues in the region and analyses the principles underlying the on-going reforms and practice Cases: Reforms of Pensions, Health and Long-Term Care in three countries 3. Policy Solution and Prospective Policy Action: the Imperatives for Social Policy Changes and Prospective Reforms in the Future. 4. Conclusion

1. The PEST Analytical Framework: Various Views about Population Ageing and Social Policy from International Organisations: 1) OECD (1998) states that responding to these challenges requires social policy solutions. It states ‘spending pension, health and long-term care must be attained for older people (OECD, 1998)’. 2) Strategic frameworks need to be in place at the national level in order to harmonise and sustain ageing reforms, and to build-up public understanding and support of older people in the region (ISSA, 2002: 13). 3) ‘A sustained decline in fertility rates underlines a rapid ageing and decline of Japan’s population that can be expected to continue well into this century. This dramatic shift will have profound social and economic implications, but the transition appears manageable if appropriate policy measures are ever taken (IMF, 2001)’. 4) It must be necessary to note that in the age of globalisation, international co-operation may also facilitate the success of the social protection and reform process (UN, 2002). An Attempted Analytical Framework of Social Protection and Social Policy Reform There is the very issue of how to address responses the Japanese, Korean and Taiwanese societies have taken to population ageing: in what ways have they set policy principles to guide policy reforms which are applicable, with varying degrees of urgency, to the three different societies?

Explaining the PEST Model: Influences by four major changes, i.e., Political Changes Economic Changes Social Changes Technological Changes concerning Medical Science > External and Internal Factors influencing a country’s social policy relating to population ageing in a wider context of Political Economy (Paul Pierson, 2001 et al)

Methodological Issues: Macro-Analysis Method 1: Factor Analysis Data by the OECD, National Governments

Method 2: Micro-Analysis Using Input and Output Tables: The Analysis of ‘Industrialisation in Welfare Services’ In Japan, the 2000 Input and Output Tables  ‘Creation of the new ‘Nursing Care’ sector’    In line with the introduction of the Long-Term Care Insurance System in April 2000, new ‘Nursing Care (In-home)’ and ‘Nursing Care (In-facility)’ sectors were introduced for the 2000 I-O Tables. Basically, these sectors cover the services provided through the Long-Term Care Insurance System. As annual values are needed for I-O analysis, the values from January to March 2000 were calculated for annual estimation. These sectors exclude ‘the purchase of welfare tools and equipment’ and ‘housing renovation services,’ which come under In-home services.

2. Social Policy Reforms in Japan, Korea and Taiwan concerning population ageing Economic Implications of Demographic Changes: 1) Population ageing reduces output growth and limits increase in economic welfare. 2) Debate: Political Economy of Welfare State versus Finance of Welfare State. 3) Priority Areas and Policy Co-ordination: Pension, Health and Long-Term Care (protective social policy perspective) and Employment (productive social policy perspective)

3. Policy Solutions and Prospective Policy Actions The Need to Change Social Policies >What is the Policy Imperative? Policy Making for What? > No Open Method Discussion: From Selectivism to Universalism in welfare entitlement i.e. avoiding the fragmentation of Welfare Access and integrating ageing-related policies to create a Life-Saving System based upon universal rights

A Consequence brought by population ageing in Japan: By 2025, one older person will fall on roughly two persons of working age, which will leave Japan with a significantly higher old-age dependency ratio than any other country in the world (OECD, 1998). The key issues are:  How to balance resources between the working population and older population?  Large increase in the role of government in transferring resources from the working age to old age?  How to sustain the current low level of social protection expenditures and avoid excessive financial pressure on the working population

Old-Age Dependency Ratios (U.N. World Population) Japan’s Potential Support Ratios with 5 Scenarios Source: U.N. Population Division 2000. 33 36 43 41 47 2025 21 27 28 25 20 2000 U.S. U.K. Italy Germany France Canada Japan 4.77 2.19 2.07 1.71 2050 2.59 2.35 2.24 2025 4.03 3.99 2000 Constant Ratio 15-64/65 Years or Older Constant age Group 15-64 Constant total Population Medium Variant with Zero Migration Medium Variant

Issues of Social Policy Reforms in Japan 1) The government is concerned with the increase of public social expenditures: The need to tackle ageing issues by a series of social policy reforms, Pensions, Health Care and Long-Term Care. 2) How to address the ageing issue simply? – The debate over social policy reforms in Japan has focused mainly on three questions: (1) how to cope with the rise of social protection expenditure? (2) to what extent should future benefits be cut if possible? (3) How the Japanese Welfare System can be changed? 3) Expenditures are cost-effective to meet the most pressing requirements?

Policy Imperatives for Reforms: Japanese Case Economy and Employment Environment GDP growth – 0.46 % (2000-2001) Unemployment Rate 5.03% (2001) Public Debt 136.70 % of GDP Central and Local Government Finance Borrowings (by Japanese National Bonds) State JPY 414 Trillion (€ 3.23 Trillion) Local JPY 109 Trillion (€ 0.85 Trillion) Rate of Social Protection /General Expenditure 38.4 % Demographic Changes TFR 1.39 (2002) Projected as of 2050 Social Policy Reforms 1) Pensions, 2) Health Care, 3) Long-Term Care and 4) Employment Policy

Current Issues in Pensions Sustainability of PAYG Public Pension Non-Participation and High Drop-Out from the Basic Pension Scheme Financial Pressure on Firms? Extension of Defined Contribution (DC) Pension Scheme to some other parts? Pension guarantee and fund issues in a global context Who is responsible for your retirement?

The 2004 Pension Reform Choice of Cutting Benefits, Higher Government Transfers, or System Change? Various ideas on Prospective Pension Reform: The Elder Representative Group: Replacement Rate 59%; Contribution Rate 26% The Japan Federation of Economic Organisations: Replacement Rate 36%; Contribution Rate 13.58% The Ruling Party (LDP and the Komei Party) Replacement Rate 50%; Contribution 18.3% The Opposition Party (DPJ) Replacement Rate 50%; Contribution 13.58% + Consumption Tax Rise 3%

The Overview of the 2004 Reform 1. Employees’ Pension Insurance Rise from 13.58% (2004) to 18.3% (2017) 0.354 % rising-up every year 2. Introduction of the New Indexation (till 2023) New Indexation = Consumer Price Index - 0.9% The Content of 0.9 %= 0.3% (the Rate of Increase as an Extension of Life Expectancy) + 0.6% (the Pace of Decrease as Labour Force Down) 3. Income Replacement Rate 59% (2004) > 50% (2023)

Conclusion: Policy-Research on Population Ageing: The essential question we should ask is: what is the role of government? What kind of government can be said as ‘good’ for people? If we think a government that tries to do more is good, then such a government should actively make ageing policy. In East Asian societies, the role of government is said ‘unique’ in tackling the challenges of population ageing and policy reforms. In some cases, analysts tend to take an institutionalist approach to explain this role. However, we might need to have a new innovative analytical framework to research social policy relating to population ageing.