The Impact of the Social Security Reforms on Welfare: Who benefits and Who loses across Generations, Gender, and Employment Type?

TL;DR

This paper analyzes how social security reforms in Japan affect different demographic groups and generations, revealing that certain reforms benefit future generations while others may harm low-income and part-time workers.

Contribution

It provides a quantitative assessment of social security reforms' impacts across generations, gender, and employment types using an overlapping generations model.

Findings

Reforms without extending retirement age benefit future generations.

Rising copayments harm low-income and part-time workers' welfare.

Extending retirement age combined with reforms improves current workers' welfare by 2-9%.

Abstract

We quantitatively explore the impact of social security reforms in Japan, which is facing rapid aging and the highest government debt among developed countries, using an overlapping generations model with four types of agents distinguished by gender and employment type. We find that introducing social security reforms without extending the retirement age raises the welfare of future generations, while reforms with rising copayment rates for medical and long-term care expenditures, in particular, significantly lowers the welfare of low-income groups (females and part-timers) of the current retired and working generations. In contrast, reforms reducing the pension replacement rate lead to a greater decline in the welfare of full-timers. The combination of these reforms and the extension of the retirement age is expected to improve the welfare of the current working generations by 2--9 % over the level without reforms.