Every five years the government reviews the national pension system, which, like national health insurance, is roughly divided into two plans: one for regular salaried employees and another for everybody else. However, the pension system for salaried employees, known as kosei nenkin, has an attached feature for a salaried employee’s spouse, which is known as the “number 3” system. Spouses of salaried employees get their own pensions without having to pay premiums, as long as they don’t make above a certain level of income. Essentially, it applies to spouses who qualify as full dependents on the breadwinners’ tax returns.

Though the system has only been in effect since the 1980s, it was obviously fashioned at a time when many wives of salaried male employees were so-called full-time homemakers, meaning they kept house and raised children on their own. But since the high asset bubble burst in the early 90s and the employment structure changed, many wives have had to go out and work in order to make ends meet. Nevertheless, the number 3 system has been maintained by the government, and the long-term result has been a perversion of the original purpose of the program. Because of the income ceiling for number 3 dependents, the women who benefit (and they are all women) limit the amount of work they do so as not to exceed that limit and thus remain qualified for the pension and other benefits enjoyed by dependents. 

As everyone knows, Japan is going through a labor shortage right now, with employers desperate for workers, especially at the lower end of the income pyramid. One result is that wages have gone up for this demographic, and since a lot of part-time workers are number 3 dependent wives, they are reluctant to work as many hours as their employers want them to work. Moreover, because their pay has actually increased in recent years, they feel they have to work even less since they reach their ceiling for the year more quickly than they did in the past. 

On May 5, the Asahi Shimbun ran a fairly long article about this dilemma, since the government plans to submit pension-related bills during the current Diet session. The income ceiling has become a topic of discussion in the media lately due to its influence on the employment situation, so Asahi profiled several women who are affected. One woman in her 40s from Mie Prefecture, raising two secondary school-age children, told Asahi that she is “bitter” about the income ceiling. She married in 2007 and worked some temp jobs for a while until she became pregnant. Home finances were tight and she wanted to go back to work and put her child in daycare, but her husband disapproved. He said he would provide for the family and wanted her to remain home doing housework and looking after their child, adding that these were tasks he would never do. Nevertheless, once the child and a second one had entered kindergarten she started working part-time at a construction company. She calculated that she couldn’t make more than ¥80,000 a month, otherwise she would lose her tax exempt dependent status and have to start paying into the pension system. The income ceiling was ¥1.6 million a year for the tax exemption and ¥1.3 million a year for the number 3 pension status. 

At the time, she felt these exemptions were “benefits,” but now she feels differently. Firstly, she recognized how the system effectively enforced gender roles, which her husband strongly supported. This became a point of contention between them, and eventually they separated and then divorced, with her gaining custody of the children. She is now looking for work that she can do from home so that she still has time for taking care of her children. But as she points out, because she “had to consider my husband’s feelings,” she did not work continuously in the past and thus accumulated no bankable job experience. Deep into middle age, she is only qualified for low paying jobs that have no chance of advancement. 

To drive home this point, Asahi profiled another woman in her 50s, from Chiba, who said that when her food service employer gave her a 2 percent raise last year she was quite happy at first, but then realized she would need to cut back on her hours in order to remain a dependent on her husband’s tax return. Moreover, her employer asked her to work more since they were quite busy. Now she wonders if the whole system shouldn’t just be scrapped. 

This problem is becoming more acute, especially since the minimum wage was raised last year by 5.1 percent. Prime Minister Shigeru Ishiba has made it a goal of the ruling party to raise the minimum wage nationwide to ¥1,500 as soon as possible, but as the average wage approaches that goal it has accelerated the labor shortage due to the income ceiling. More women are quitting their jobs when they have children, and then when they start work again after their children enter school they are afraid of losing their dependent status; thus the tax exemption/number 3 system leads to a vicious cycle.

The disincentive is real, because even if the woman decides to work more, once she breaks through that ceiling she will have to start paying pension premiums, which means her take-home pay goes down, even if she recently received a raise. Of course, in the long run, she will receive higher pension benefits when she reaches retirement age, but that’s a long ways off. In addition, many salaried employees receive allowances for dependent spouses, which can be rescinded if the spouse makes over a certain amount of money. 

Women, the Asahi found, still end up doing the bulk of the housework and child-rearing, regardless of whether they remain a dependent or take on more of a real work load at their jobs. One woman in Osaka says the income ceiling makes her feel like “a bird in a cage.” Another woman from Sendai says that after she decided to remain a dependent she feels as if she is “looked down upon by society, which thinks I’m somehow taking advantage of the system.”

Almost all the business and economic organizations in Japan have been lobbying the government to get rid of the system for years now, since it eats into corporate productivity. The system needs to be revised so that married women who want to work aren’t penalized for it. In addition, single women and women in common law relationships should also be considered. 

Why the ruling Liberal Democratic Party continues to stick to the system is a matter of some debate, but generally most of the elected officials in the party believe that altering the system would be more unpopular than letting it continue as it is. In that regard, a recent revision passed to encourage more part-timers to work more hours grants a subsidy to employers so that they can compensate these workers for the premiums they had to pay once they are liable for social security contributions. Many of these workers are women who are dependents. It doesn’t seem to have had an effect on them, however. 

A professor of social policy told Asahi that the public discussion tends to dwell on “fairness,” meaning the balance between burden and compensation, which misses the point. Japan has traditionally discounted women in the work force by prioritizing lifetime employment, which is premised on long-term benefits accrued steadily over time. Women cannot accumulate work experience if they are expected to raise children mainly by themselves, so they are automatically penalized because they don’t build careers over the long run. They do not participate in what the professor calls “membership-style employment.” Once you quit one job, you have to start all over at another one when you return to the workforce. 

“It’s a different reality for women with regards to being taken seriously by the economic order,” he says. This is the main reason, he thinks, that the Japanese economy has remained sluggish for more than 30 years. “It’s like an airplane flying on just one engine.”