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Japan should reform retirement policies to meet challenge of ageing workforce

MD Staff

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Japan must improve job quality and further reform the mandatory retirement age to address upfront the challenges of its rapidly ageing and shrinking labour force, according to a new OECD report.

Working Better with Age: Japan highlights that Japan has the highest old-age dependency ratio of all OECD countries, with over one person aged 65 and over for every 2 persons aged 20 to 64 in 2017. This is projected to rise to almost 8 for every 10 in 2050. If work patterns remained unchanged in Japan, its labour force will fall by 8 million by 2030. However, this could be reduced to a smaller fall of 2.4 million if conditions are created to allow older people to continue contributing their skills to the economy, and if more women are encouraged to remain in the labour force.

“Japan already has one of the highest participation rates for older people in the OECD”, said Gabriela Ramos, OECD Chief of Staff and G20 Sherpa, at the launch of the report taking place in Tokyo. “But Japan needs to do more to make its labour market more inclusive for women, non-regular workers and the many workers who face a job change following mandatory retirement at 60.”

Further progress in fulfilling G20 commitments to reduce the labour participation gap between men and women by 25% by 2025 will help offset a shrinking labour force while boosting incomes and pensions at older ages and reduce inequality.

The report stresses that some progress has been made to encourage employers to retain older workers after mandatory retirement up until the age of 65. However, due to Japanese employment practices, these workers are often re-hired as non-regular workers in poor quality, insecure and low-paid jobs.

Encouraging greater involvement of Japanese women at younger ages in the labour market is also an important factor to increase the labour force, the report notes. At just under 78% in 2017, the participation rate of prime-aged women (25-54) in Japan is well below the rate in a number of other advanced OECD countries. Even for those Japanese women who return to work after having children, poor job quality is an issue as many of them end up in a non-regular job, with a junior, part-time position. Greater opportunities for flexible working are necessary, to allow women to manage better their work and caring responsibilities for children and elderly parents. This would help keep women in the workforce.

Reforming employment regulation as well as seniority wages that encourage employers to use more precarious forms of employment would help tackle labour market dualism. At the same time, providing non-regular workers with more training and better working conditions, such as reducing excessive overtime hours would improve their employability and chances of continuing to work at an older age.

Recent government initiatives to promote a job- and performance-based system for setting wages and tackle excessive hours of work have the potential to help improve the productivity and working conditions of older workers. Fundamentally, cultural change is needed to promote a more balanced work life balance, which could deliver better for all but particularly for the elderly, women and children.

“Towards the end of their working lives, older workers deserve better than non-standard contracts, if they still wish to work. We should also ensure society can fully benefit from the wisdom, skills and experience that eldery people bring to the labour market as well as to the broader economy. Japan must therefore increase the mandatory retirement age to reduce this risk, and in the long-term abolish it altogether as done in several other OECD countries”, said Gabriela Ramos. Providing good opportunities for workers to upgrade their skills and learn new ones throughout their working careers is also a key requirement for fostering longer working lives in good quality jobs.

The OECD recommends that Japan take further action in a number of areas:

  • Undertake further reform of mandatory retirement age and seniority wages to encourage employers to hire and retain older workers
  • Tackle labour market dualism by reducing the incentives for employers to hire workers using non-regular, precarious forms of employment
  • Invest in lifelong learning to support the good foundation skills among older and younger Japanese adults and reduce inequalities in training participation by age, skill and type of employment contract
  • Improve job quality to increase opportunities for workers to continue working at an older age by: tackling excessive hours of work; adequately implementing the Work Style reforms; and adopting more systematic and obligatory psychosocial risk assessment of working practices
  • Boost opportunities to combine work and care for children and elderly parents in order to help women to (re-)enter and stay longer in the workforce

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A rapid rise in battery innovation is playing a key role in clean energy transitions

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Affordable and flexible electricity storage technologies are set to catalyse transitions to clean energy around the world, enabling cleaner electricity to penetrate a burgeoning range of applications. Between 2005 and 2018, patenting activity in batteries and other electricity storage technologies grew at an average annual rate of 14% worldwide, four times faster than the average of all technology fields, according to a new joint study published today by the European Patent Office (EPO) and the International Energy Agency.

The report, Innovation in batteries and electricity storage – a global analysis based on patent data, shows that batteries account for nearly 90% of all patenting activity in the area of electricity storage, and that the rise in innovation is chiefly driven by advances in rechargeable lithium-ion batteries used in consumer electronic devices and electric cars. Electric mobility in particular is fostering the development of new lithium-ion chemistries aimed at improving power output, durability, charge/discharge speed and recyclability. Technological progress is also being fuelled by the need to integrate larger quantities of renewable energy such as wind and solar power into electricity networks.

The joint study shows that Japan and Korea have established a strong lead in battery technology globally, and that technical progress and mass production in an increasingly mature industry have led to a significant drop in battery prices in recent years. Prices have declined by nearly 90% since 2010 in the case of lithium-ion batteries for electric vehicles, and by around two-thirds over the same period for stationary applications, including electricity grid management.

Developing better and cheaper electricity storage is a major challenge for the future. According to the IEA’s Sustainable Development Scenario, for the world to meet climate and sustainable energy goals, close to 10 000 gigawatt-hours of batteries and other forms of energy storage will be required worldwide by 2040 – 50 times the size of the current market.

“IEA projections make it clear that energy storage will need to grow exponentially in the coming decades to enable the world to meet international climate and sustainable energy goals. Accelerated innovation will be essential for achieving that growth,” said IEA Executive Director Fatih Birol. “By combining the complementary strengths of the IEA and the EPO, this report sheds new light on today’s innovation trends to help governments and businesses make smart decisions for our energy future.”

“Electricity storage technology is critical when it comes to meeting the demand for electric mobility and achieving the shift towards renewable energy that is needed if we are to mitigate climate change,” said EPO President António Campinos. “The rapid and sustained rise in electricity storage innovation shows that inventors and businesses are tackling the challenge of the energy transition. The patent data reveals that while Asia has a strong lead in this strategic industry, the US and Europe can count on a rich innovation ecosystem, including a large number of SMEs and research institutions, to help them stay in the race for the next generation of batteries.”

The joint study follows the publication earlier in September of the major IEA report Energy Technology Perspectives 2020, which has deepened the IEA’s technology analysis, setting out the challenges and opportunities associated with rapid clean energy transitions.

As governments and companies seek to make informed investments in clean energy innovation for the future, sector-specific insights like those offered by the joint study will be highly valuable, including for helping bring about a sustainable economic recovery from the Covid-19 crisis. The innovation study provides an authoritative overview of the technologies and applications receiving research attention – and of those that are underserved. It also shows where they stand in the competitive landscape.

Innovation is increasingly recognised as a core part of energy policy, and this year the IEA has been introducing more tools to help decision-makers understand the technology landscape and their role in it – and to track progress in innovation and the deployment of technologies. This includes a comprehensive new interactive guide to the market readiness of more than 400 clean energy technologies.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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Accelerating Mongolia’s Development Requires a Shift “from Mines to Minds”

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A new report by the World Bank estimates that out of every dollar in mineral revenues Mongolia has generated over the past 20 years, only one cent has been saved for future generations. The report argues that to break this cycle, Mongolia should use its mineral wealth to invest in people and institutions, while gradually reducing its dependence on the sector.

This is particularly true as demand for key minerals is likely to tumble due to climate change concerns, a shift of investors’ preference toward sustainability, China’s ambitious goal to reduce coal consumption, and persistence of the COVID-19 shock, according to Mongolia’s Mines and Minds, the World Bank’s September 2020 Country Economic Memorandum for Mongolia.

Since the advent of large-scale mining in 2004, Mongolia’s economy has grown at an average rate of 7.2 percent per year, making it one of the fastest-growing economies in the world. Growth has translated to rapid decline – although at times partly reversed – in the incidence of poverty and improved quality of life. The report also notes that Mongolia enjoys relatively strong human capital, and its infrastructure capital has improved for the last few decades, though remains scarce given the size of the country and low population density. This performance has been made partly possible through a generous but inefficient social assistance system and a large public investment program supported by mineral revenues and external borrowing.

However, a number of enduring challenges have grown in the shadow of this success. Mongolia’s rapid growth has been obscured by its extreme macroeconomic volatility and frequent boom and bust cycles. Growth has almost entirely come through capital accumulation and the intensive use of natural capital rather than through sustained productivity growth. Meanwhile, the country has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation.

Instead of maximizing the benefits of its mineral wealth for diversified and inclusive growth, Mongolia has increasingly become more addicted to it. At the same time, human capital has been underutilized and institutional capital has eroded.” said Andrei Mikhnev, World Bank Country Manager for Mongolia. “Such inability to capitalize on the country’s endowments has resulted in limited diversification of outputs and exports and has further amplified its vulnerability to the swings of the global commodity markets. Breaking this gridlock calls for a fundamental shift in approach that puts investing in minds on an equal footing with mines.”

The report recommends key policy actions to build the foundation of a diversified and sustainably growing  economy. These include:

  • Implement countercyclical fiscal and monetary policies – supported through transparent fiscal rules, an independent fiscal council, a market-driven exchange rate, and a well-functioning stabilization fund – to smooth consumption over the business cycle rather than maximize current consumption.
  • Undertake bold investment climate reforms to enhance competition, secure investor rights, and create a more level playing field that enables productive firms to invest and grow.
  • Move away from the mindset of diversifying products to expanding endowments, especially in terms of better utilization of Mongolia’s young and educated, especially female, labor force.
  • Accelerate the implementation of fundamental governance reforms (especially on the government effectiveness and control of corruption) to reduce political interference, increase transparency, and improve regulatory quality throughout the economy.

“Fortunately, there are many encouraging signs of improved macroeconomic management in 2017-19, providing the new government an opportunity to advance its reform efforts,” said Jean-Pascal Nganou, World Bank Senior Country Economist and lead author of the report. “Some impressive fiscal outcomes were achieved not by introducing new reforms but by effectively implementing existing ones. They demonstrate that with the right political will and leadership, similar improvements are possible in other areas including monetary and exchange rate policy, the financial sector, the business environment, and the labor market. The new administration has, therefore, an opportunity to institutionalize these reforms and avoid policy regression in the future.”

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