The Effectiveness of Government Intervention to Promote Elderly Employment: Evidence from Elderly Employment Stabilization Law

Abstract

This paper examines the effect of a demand-side government intervention on employment of the elderly. The growing gap between the increasing pension eligibility age and mandatory retirement age has emerged as a serious social concern in Japan. Starting 2006, the government legally mandated employers to offer continuous employment up to the increased pension eligibility age. By comparing cohorts affected and unaffected by the policy, we find that such legal enforcement increases the employment rate of men in their early 60s. Furthermore, the effect is concentrated on employees at large-sized firms, where the mandatory retirement used to be applied more strictly. Then, we examine potential complementarity between pension reform –– the conventional supply-side intervention –– and the demand-side intervention. We find suggestive evidence that the impact of an increase in pension eligibility age on elderly employment is slightly larger when combined with this legal demand-side enforcement.