Chapter 4. Lifting the contribution of education to the Japanese skills system

This chapter reviews the issues of participation and funding of non-mandatory education, i.e. early childhood education and care (ECEC), tertiary education and lifelong learning. Participation in ECEC and tertiary education is high in Japan, but there is room for improvement in adult learning supply and demand.

Non-mandatory education is mostly provided by the private sector in Japan, which imposes a significant financial burden on households. Financial support for students is of limited scope, which potentially reduces the efficiency of resource allocation and raises equity concerns.

Our main findings suggest that Japan should: 1) strengthen lifelong learning and financial arrangements for non-mandatory education to support equity; and 2) design lifelong learning to meet the skills needs of both employers and the population.


The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Context and main features

The Basic Act on Education specifies three objectives for the Japanese education system. First, the system aims to help children to become independent individuals with well-balanced knowledge, a will to keep on learning, a sense of morality and a healthy body. Second, it should also prepare people to respect the public spirit and actively participate in building the Japanese society and state. Third, it should foster the integration of Japanese citizens who live in the international community, while respecting the traditions and culture of their country (MEXT, 2016[1]).

In educating people to contribute to society, the education system contributes to the economy by providing the skills employers seek. The Japanese government is conscious of the challenges it faces in building the skills of its population, and it sees the education system as a means of addressing the coming skills shortages due to its declining and ageing population. The following three areas of focus are among those identified to strengthen the skills system:

  • lifelong learning – to facilitate upskilling and reskilling of current workers

  • the tertiary education student financial support system – to help ensure that all young people have an opportunity to lift their skills through the education system

  • the early childhood education and care (ECEC) system – to build strong foundation for all for learning and ensure that new parents have incentives and opportunities to return to the workforce.

The government has encouraged tertiary education institutions to explore opportunities to expand lifelong learning, promoted participation in tertiary education through reforms to the tertiary student financial support system and extended ECEC subsidies to help encourage women to remain in the workforce following childbirth.

A challenging economic situation intertwined with demographic decline

Japan has been experiencing economic stagnation for more than 20 years, resulting in a decline of GDP per capita from 7th place in the OECD in 1990 to 18th place in 2015. Recurring budget deficits and the 2008 global financial crisis have pushed the government’s debt to 216% of GDP. This is the highest level of debt in the OECD, with the next highest (Greece) at 183% and the OECD average at 114% (OECD, 2017[2]).

By mid-century, Japan’s population is forecast to fall by around 25%, from 128 million in 2010 to less than 100 million by 2050. At the same time, the population is ageing, with the elderly (age 65 or older) rising from 5% of the Japanese population in 1950, to 27% in 2015 – the highest share in the OECD (OECD, 2017[3]).

While Japan faces a challenging economic outlook, the unemployment rate of 15-64 year-olds in Japan (3.5% in 2015) is the lowest in the OECD (the average was 7.0%). Youth unemployment was also the lowest in the OECD (5.5%, compared to the OECD average of 14%). At 10%, the proportion of young people neither employed nor in education or training (NEET) was also among the lowest in the OECD (OECD average at 14%) (OECD, 2016[4]).

Because the labour market is approaching full employment, Japanese firms struggle to find suitable applicants to fill vacancies. The 2015 Manpower Talent Shortage Survey found that 83% of Japanese employers reported that they struggled to fill vacancies. This was the highest level among the 42 participating countries, for which the average was 38% (ManpowerGroup, 2015[5]) (Figure 4.1). This difficulty in filling vacancies confirms that a shortage of skills has emerged in the Japanese labour market.

Figure 4.1. Skills shortage in selected countries, 2015

Note: Firms are classified as facing a skill shortage if they report having difficulties filling jobs.

Source: ManpowerGroup (2015[5]), Talent Shortage Survey, (accessed 25 July 2017).


With the skills shortage likely to intensify as a consequence of forecast demographic changes, Japan will need to make greater use of the skills of its population and keep enriching and adapting the skills of the workforce to meet changes in labour market requirements and technology.

A skilled population, but sub-optimal skills matching

The OECD Survey of Adult Skills shows that the Japanese adult population has the highest literacy and numeracy in the OECD, reflecting the country’s history of excellent educational performance. In the third dimension of the survey, problem-solving in technology-rich environments, 35% of Japanese workers scored at the highest levels (2 or 3), slightly above the OECD average of 31%. However, this result masks the fact that a high proportion of the adult population (37%), especially in older age groups, did not take part in the test because they were unable to perform basic tasks with a computer (for instance, use a mouse, scroll through text, highlight text, use drag and drop functionality). It implies that a significant share of the population lacks the most basic information-technology skills, making them especially vulnerable to technology-related changes in the knowledge economy (OECD, 2013[6]).

The survey found that, while Japanese adults had the highest scores in numeracy and literacy, the use of those skills in the workplace was around the OECD average. This means that a high proportion of Japanese workers have skills beyond what is required in their job. In addition, 31% of workers in Japan reported in the Survey of Adult Skills that they consider themselves overqualified for their job (10 percentage points above the OECD average). These findings suggest that utilisation of workers’ skills in Japan is sub-optimal and that the economy is not capturing the benefits of the high levels of skill in its population. The mismatch is more significant among employed women, possibly reflecting the fact that women are over-represented among those in temporary employment (OECD, 2016[4])1.

The skills shortage, already evident in the difficulty employers face in sourcing appropriately skilled people to fill vacancies, raises questions about the take-up of upskilling or lifelong learning in Japan.

Lifelong learning (adult education, continuing education, professional development and skills training) is a means of boosting productivity, reducing human capital depreciation, improving workers’ outcomes in the labour market and helping them to enjoy a better life. It can also be used as a way of developing and enhancing workers’ non-cognitive or “soft” skills, which are increasingly valued by employers (OECD, 2016g). However, the Survey of Adult Skills shows that there is limited participation by adults in lifelong learning in Japan (around the bottom quartile of participating countries) (OECD, 2016[7]; OECD, 2017[8]) (Figure 4.2), despite the fact that more than two-thirds of Japanese workers (69%) consider they need further training (compared to the OECD average of 34%) (OECD, 2012[9]).

Figure 4.2. Adult participation in education and training by employment status, 2017
Percentage of adults, 25-64 year-olds, 2012 or 2015

Note: Participation in formal and/or non-formal education refers to participation in the 12 months prior to the survey.

For Chile, Greece, Israel, New Zealand, Slovenia and Turkey the year of reference is 2015. For all other countries, the year of reference is 2012.

Data for Belgium refer only to the Flemish Community of Belgium, and data for the United Kingdom refer to England and Northern Ireland jointly.

Source: OECD (2017[10]), OECD Skills Outlook 2017: Skills and Global Value Chains, OECD Publishing, Paris,

The OECD has constructed a “readiness to learn” index from the background questionnaire in the Survey of Adult Skills, a synthesis of respondents’ answers to a number of questions on how they deal with new ideas, relate ideas to the world and source information.2 This index is well linked to the goals of the curriculum reforms currently being developed in the school system in Japan, which aim to prepare students for 2030 by developing their acquisition of knowledge and skills, their ability to think, make decisions and communicate, and their readiness for learning. The survey results suggest that Japanese adults are less open to acquiring new skills than adults in most other developed economies. Of the participating countries, the Japanese population is among the lowest on the readiness to learn index (OECD, 2017[10]) (Figure 4.3). Yet, as previously stated, 69% of workers in Japan consider they need further training in order to cope well with their present duties (OECD, 2012[9]).

Figure 4.3. Readiness to learn, 2012 or 2015

Note: The index of readiness to learn summarises the answers to the question of how intensely the respondents did the following things: “Relate new ideas into real life”, “Like learning new things”, “Relate to existing knowledge when coming across something new”, “Get to the bottom of difficult things”, “Figure out how different ideas fit together” and “Look for additional information”.

For Chile, Greece, Israel, New Zealand, Slovenia and Turkey, the year of reference is 2015. For all other countries, the year of reference is 2012.

Data for Belgium refer only to the Flemish Community of Belgium, and data for the United Kingdom refer to England and Northern Ireland jointly.

Source: OECD (2017[10]), OECD Skills Outlook 2017: Skills and Global Value Chains, OECD Publishing, Paris,

Lifelong learning allows people to fill gaps in their skill sets, prepare themselves to advance in their careers or keep up to date as technology develops and approaches to work evolve (OECD, 2016[4]). The European Union has also highlighted the major role lifelong learning can play in achieving the Europe 2020 goals (Council of the European Union, 2011[11]). Japan, along with European countries, has recognised the importance of lifelong learning as a response to technological and economic challenges and to changing demography.

High enrolment and completion rates in tertiary education

While the take-up of lifelong learning in Japan is low, Japan has high participation and high levels of completion in initial tertiary education. Japan has a relatively high entry rate in tertiary education, with 80% of people accessing this level of education at some point, compared to the OECD average of 68%. Graduation rate data shows that 68% of Japanese young people graduate from tertiary education at some point in their life, compared to the OECD average of 45% (Figure 4.4) (OECD, 2016[12]).

More than a third of the tertiary enrolments and around a third of graduates have taken short-cycle qualifications (tertiary qualifications below bachelor’s level). Women are a majority of short-cycle entrants (more than 60%) and of short-cycle graduates (62%). The high participation of women in short-cycle qualifications also means that Japan (along with Germany and Switzerland) is one of the few OECD countries where men outnumber women graduating with bachelor’s or higher degrees (OECD, 2016[12]). Women comprise only 45% of bachelor’s entrants in Japan and around 30% of those entering master’s and doctoral programmes. Across the OECD, women represent 54% of entrants to bachelor’s degree programmes (OECD, 2016[12]).

Figure 4.4. First time tertiary graduation rates, excluding international students, 2014

Source: OECD (2016[12]), Education at a Glance 2016: OECD Indicators, OECD Publishing, Paris.


But low returns to investment in tertiary education

Tertiary education provides people with additional skills and leads to social and economic gains. Individuals who participate in tertiary education and get qualifications benefit through higher earnings and greater job satisfaction, as well as through a range of non-financial outcomes (OECD, 2016[12]). Increasing the educational attainment of the population has also a positive impact for society, since it is negatively correlated with unemployment, poverty rates, welfare support and risky behaviours (Baum, Ma and Payea, 2013[13]; OECD, 2016[14]).

Given the shared benefits of tertiary education, many countries expect students and their families to share the costs through paying tuition fees. The principle of cost sharing is well-established in Japan. Japanese families value tertiary education and are prepared to pay a high share of the costs. They pay more than half of the full cost, higher than in all other OECD countries except Chile, and more than double the share across all OECD countries (OECD, 2016[12]).

However, the financial returns to tertiary education are low in Japan, compared with most other OECD countries (OECD, 2016[12]). Japanese men have a relatively low net financial return from tertiary education (8%, compared to the OECD mean of 14%). In part, this is a consequence of the high cost to students of a tertiary education in Japan. The net financial return from a tertiary education for women is even lower (around 3%), the lowest among countries for which data is reported (Figure 4.5) (OECD, 2016[12]).

The difference between men and women in the rate of return is largely a result of labour market factors. Tertiary-qualified women in Japan have a low rate of participation in the labour market. The Survey of Adult Skills showed that 67% of tertiary-qualified Japanese women aged 25-64 were in employment, compared to 92% of men and 81% of tertiary-qualified women in all participating countries (OECD, 2016[12]).3 This is largely a result of many women taking on caring roles and hence not pursuing high-earning careers. In addition, the very high rate of temporary employment among women, noted above, is likely a contributing factor.

Figure 4.5. Financial return on gaining a tertiary education degree, 2012

Source: OECD (2016[12]), Education at a Glance 2016: OECD Indicators, OECD Publishing, Paris.


The discrepancy between the private rate of return on investing in tertiary education in Japan and that in other OECD countries raises questions about the appropriateness of the current relatively high contributions of students to the costs of tertiary education. This is especially problematic for students from disadvantaged backgrounds, as international evidence suggests that they are more risk-averse and less likely to make the high financial commitment necessary for tertiary education in Japan (Usher, 2006[15]).

Strengths and challenges

A low level of public support for ECEC may hinder labour market participation and demographic growth

The early childhood education system not only provides children with learning foundations, well-being and social and emotional development, it also supports the return to work of parents who take time out of the workforce to care for their children. A 2011 report showed that if extending coverage does not compromise quality, widening access to preschool can improve performance and equity by reducing socio-economic disparities (OECD, 2011[16]). Early childhood education is seen in the economic literature as having high public benefits and hence justifying public support (Heckman, 2011[17]). One way for the Japanese labour market to access more skills is to encourage more tertiary-educated women to take on employment. That would require an expansion of access to day-care centres.

Figure 4.6. Impact of the education financial burden on Japanese households, 2016

Source: National Institute of Population and Social Security Research (2016[19]), The 15th Japanese National Fertility Survey: National Survey on Marriage and Childbirth,, Cabinet Office (2012[20]), Heisei 24-nendo Kodomo, Kosodate Vision ni Kakaru Tenken, Hyouka no Tameno Shihyou Chousa Houkokusho [FY 2012 Report Indicator Assessment on Evaluation of Children and a Vision of Childcare],

In Japan, 44% of the costs of pre-primary education come from public sources, below the OECD average of 83%. Japan is in the lowest decile among OECD countries for public expenditure on ECEC as a percentage of GDP (OECD, 2016[12]). This low level of public support for ECEC imposes a financial burden on some families. While the uptake of ECEC among 4-year-olds is high (96%, compared to the OECD average of 86%), there is lower-than-average take-up of places for 0-2 year-olds in day-care centres (31%, compared to the OECD average of 34% in 2014) (OECD, 2016[12]; OECD, 2017[18]). This can limit birth rates and incentivise women to take longer career breaks, which can exacerbate labour market disparities (Figure 4.6).

In Japan, responsibility for day-care centres and kindergartens is assigned to different government ministries. Although historically developed for different purposes, these two types of ECEC establishments perform a similar role – helping children’s education and enabling mothers to return to the labour force. Ensuring better integration of the two systems could improve ECEC coverage at earliest ages, and provide women with opportunities to return to work at a time of their choosing, while also ensuring that children benefit from participation in ECEC.

Financial support for students in tertiary education is low, but the system is improving

As noted above, the Japanese public accepts that students and their families should make a contribution to the costs of a tertiary qualification, as students gain a private benefit from completing it. As a result, there is wide acceptance of the notion of tuition fees as a charge on those participating in tertiary education.

Japan has a strong private tertiary education sector. Around 77% of all Japanese universities are private, and 79% of tertiary students are in private institutions (MEXT, 2016[1]). Given this substantial dependence on the private sector and the resulting high fees (an average of USD 8 200 per year for a bachelor’s degree in a private institution and USD 5 100 in a public institution) (OECD, 2016[12]), the level of private funding for tertiary education is high. According to data from the Research Institute for Higher Education at Hiroshima University, in 2014, public funding to public universities accounted for 0.23% of GDP, and public funding to private universities for 0.07% of GDP (Research Institute for Higher Education, 2014[21]). With 79% of tertiary students enrolled in private institutions, that means that a student in a public institution is around 11 times more subsidised by public funding than a student in a private institution4.

Japan is the second highest (after Korea) in the OECD in the share of private expenditure on tertiary education (65%, compared to the OECD average of 30%) (Figure 4.7). On average, Japanese households contribute 51% of the costs of tertiary education, compared to 21% across OECD countries (OECD, 2016[12]).

The high contribution made by students and their families to the costs of study is one of the factors that drive the low rate of return to tertiary education in Japan. The government’s student financial support system is managed by an independent administrative agency established in 2004 for this purpose, the Japan Student Services Organization (JASSO). It is an important mechanism for reducing the risks to both participation in tertiary education and access to it that result from the low rate of return.

Figure 4.7. Sources of expenditure on tertiary education institutions, 2013

Notes: Household expenditure refers to expenditure funded by households such as tuition fees and other student or household payments to educational institutions (e.g. fees paid for laboratory materials and art supplies).

Other private entities include private businesses and non-profit organisations (e.g. religious organisations, charitable organisations, and business and labour associations).

Source: OECD (2016[12]), Education at a Glance 2016: OECD Indicators, OECD Publishing, Paris.

Japan has begun to reform its student support system. As of 2016, JASSO provides two types of mortgage-style loans (i.e. loans with predetermined, fixed repayments). In addition, some students may qualify for a loan with interest concessions and income-based repayment systems (MEXT, 2016[1]). The Japanese government has also planned to launch a grant-type scholarship that will complement the two types of student loans (MEXT, 2016[1]):

  •  . Category 1 Loans: These are interest-free scholarship loans. These loans are provided to students who are academically outstanding but have significant difficulty in pursuing their studies due to financial reasons. They include:

    • o . Income-based repayment postponement for Category 1 Loans: Those who meet the standards for Category 1 Loans (excluding those for graduate school) and who meet financial conditions may receive a postponement in their payment period until their salary and income reach a specified level after graduation.

    • o . Exemption from repayment for graduate school students with particularly outstanding academic achievements: Graduate school recipients of Category 1 Loans, whom Jasso recognizes as having achieved particularly outstanding academic results, may be partially or wholly exempted from repayment of the loan.

  •  . Category 2 Loans: These are scholarship loans which bear interest. These loans are provided to students who are academically excellent but have significant difficulty in pursuing their studies due to financial reasons. Category 2 loans are interest-free before graduation and during the postponement of payment.

During the review visit, we were told that there are other sources of financial support for students that complement the Japanese government’s loans and help some students meet their study costs. For instance, some municipalities also give loans to some students, and most universities manage scholarship funds that they allocate to students who meet their criteria.

Overall, Japanese student loans provide lower levels of support for participation in tertiary education than those in countries with well-developed systems for student support. Student loans in Japan are limited in two ways. First, since JASSO’s financial resources are constrained, the loan system targets eligibility: only 38% of higher-education students qualify for (and take up) student loans. In 2016, 13.8% of students got a Category 1 Loan and 24.2% of students got a Category 2 Loan. Second, entitlements are low: loans cover only around 20% of the income needed by a student, while part-time work covers a further 16%. This leaves students in the position of having to make multiple applications for financial support and to rely on their families. Although borrowing entitlements under JASSO’s schemes are higher for students in private universities (to help meet the higher cost of tuition fees), the coverage of the loan system is low, meaning that those who miss places in national and public universities are worse off.

Nevertheless, first-time tertiary entry rates are well above the OECD average (OECD, 2016[12]). However, the international literature suggests that people from low socio-economic status groups are more risk averse, tend to apply unrealistically high discount rates to the costs of tertiary education, are financially constrained, and may therefore opt out of tertiary education or choose shorter tracks to avoid the financial risks (Santiago et al., 2008[22]; Usher, 2006[15]; Jacobs and van Wijnbergen, 2007[23]; Hartlaub and Schneider, 2012[24]; Gary-Bobo and Trannoy, 2015[25]).

The lifelong learning system needs further analysis and development

As technological change accelerates, firms need to adapt and to ensure that their employees acquire appropriate skills. The forecast decline and ageing of the population of Japan is likely to shrink the labour force and threaten the supply of skills. In mitigation, Japanese employers will need to upskill and reskill existing workers. Japan will also need to make greater use of the skills of those who have traditionally had lower workforce participation (such as people over 65, women and the 38% of the workforce who are non-regular workers5). And it will also need to boost productivity. Currently, the labour productivity of Japanese workers is about 25% below the top half of OECD countries (OECD, 2017[2]).

However, as noted above, the Survey of Adult Skills suggests that participation in lifelong learning in Japan is low (Figure 4.2), while readiness to learn among Japanese adults is close to the lowest of countries participating in the survey (Figure 4.3). There are four broad reasons for the reluctance of workers to take up lifelong learning:

  • Time constraints: Many Japanese workers are expected to work long hours to meet the demands of their jobs, and the requirement to undertake additional learning adds to demands on them. Nagamachi and Yugami (2015[26]) review the literature on working hours in Japan. While the number of working hours has trended downward from 2 100+ hours per annum in 1980 to approximately 1 700+ hours in 2015, they state: “Much of the observed reduction … stemmed from an increase in the number of part-time workers.” Citing Kuroda (2010[27]), they state that “... the average number of working hours among full-time employees has not changed much over the last 25 years.” They also note that Genda (2005[28]) found that “there was an increase in the ratio of employees working 60 hours or more per week from the late 1990s through to the start of the 21st century.”

  • Financial constraints: In the Survey of Adult Skills, the proportion of Japanese workers undertaking lifelong learning who were supported financially by their employer was in the lowest quartile of participating countries (Figure 4.8). In the absence of adequate funding, there is a risk that the pattern of take-up of adult education will mirror the distribution of power and resources, and will reinforce or increase inequity (Rubenson, 2006[29]). Moreover, apart from the direct cost of undertaking lifelong learning, there is a high opportunity cost, especially given the time constraints and the consequent high value of leisure time.

Figure 4.8. Employers’ financial support for participation in training, 2012 or 2015
Percentage of employees receiving employer financial support for participation in formal and non-formal education and training

Note: Only data for Chile, Greece, Lithuania, New Zealand, Slovenia and Turkey are from 2015.

Source: OECD calculations based on OECD (2017[30]), OECD Survey of Adult Skills (2012, 2015), OECD Survey of Adult Skills (database), (accessed 13 September 2017).


  • Relevance of lifelong learning: Japanese adults undertaking lifelong learning were less likely than those in any other country to rate their learning as useful for their work (Figure 4.9). The UNESCO framework for adult education places the relevance of the educational experience at the core of the multifaceted concept of quality. According to the UNESCO definition, relevance means that the learning in programmes must represent an effective route to, and support for, personal and social transformation, a source for improving the quality of life (UNESCO Institute for Lifelong Learning, 2009[31]). There is a risk of lack of congruence between workers’ needs, employers’ needs and providers’ preferences. Misalignment between the three risks low take-up of adult learning.

Figure 4.9. Share of workers who found education and training useful for their job, 2012 or 2015
25-65 year-olds participating in formal or non-formal education and training for job related reasons

Note: Only data for Chile, Greece, Lithuania, New Zealand, Slovenia and Turkey are from 2015.

Source: OECD calculations based on OECD (2017[30]), OECD Survey of Adult Skills (2012, 2015), OECD Survey of Adult Skills (database), (accessed 13 September 2017).


  • Lack of interest or motivation: This refers to psychological factors that may impede an individual decision (UNESCO Institute for Lifelong Learning, 2009[31]). In the Survey of Adult Skills, adults in Japan were among the lowest in the readiness to learn index (Figure 4.3). Figure 4.10 breaks down this indicator into sub-categories. It shows that adults in Japan are below their OECD counterparts when it comes to liking to learn new things, looking for additional information, getting to the bottom of difficult things and figuring out how different ideas fit together.

During the OECD review visit, the team noted that tertiary education institutions are taking on older adult students as the size of the core age group for tertiary education declines, presumably because they see lifelong learning as a means of assisting their sustainability. However, it appeared that some of the current tertiary education institutions lifelong learning initiatives are focused on qualifications traditionally developed for younger students. It is unclear if such qualifications will satisfy the needs of older workers. Degrees and similar formal qualifications are of significant duration and cover a broad range of topics. But employees, most of whom will have completed an initial tertiary qualification, have specific and narrow learning needs and limited time to devote to learning. As a result, they are more likely to want shorter (and hence lower-cost) programmes that cater to their immediate learning needs. Nor is it clear that such traditional qualifications would meet the needs of employers. In addition, there is no clear data on the likely returns to individuals (and their employers) of qualifications undertaken by those in employment and, hence, whether the costs of lifelong learning can be justified.

Figure 4.10. Readiness to learn, 2012 or 2015
Percentage of adults answering using the learning strategy very little or not at all

Source: OECD calculations based on OECD (2017[30]), OECD Survey of Adult Skills (2012, 2015), OECD Survey of Adult Skills (database), (accessed 13 September 2017).


Policy recommendations: Strengthen lifelong learning and financial arrangements for non-mandatory education to support equity

The fiscal situation in Japan limits the government’s scope for action to address the challenges and opportunities raised in this chapter. In these circumstances, the Japanese government needs to weigh its options carefully and ensure that it targets its expenditure to best effect, identifying those individuals and families who will benefit most from support and are at risk in the absence of support. For that purpose, the government can rely on the existing commitment of Japanese households to funding education, and it should focus on interventions that target lower-income groups in the population (Usher, 2006[15]). The government needs to ensure that the system develops competencies for the 21st century, while ensuring efficiency and equity. International evidence and country practices can provide examples on which to base policy choices.

As noted above, Japanese families value education and, hence, contribute a substantial share of the costs of education at all levels, especially in tertiary education. However, in a system where returns to investment in education are low and with rising poverty levels in Japan, the system faces equity risks. Some families will be unable to meet the expected contribution to the costs of education. This means that the Japanese government will need to continue its policy of targeting new investments to those at risk of missing out on the benefits of education. The increase in non-regular jobs has generated a “working poor” population, and the poverty rate is among the highest in the OECD, with one in six living below half the median income (OECD, 2017[32]). Under current settings, these people are at risk of being excluded from tertiary education and lifelong learning. They are also more likely to be deterred from taking up ECEC and participating in the labour market. Different options to get the best value of expenditures to be more equitable in non-mandatory education and achieve higher participation in lifelong learning are presented below.

Consider that demographic trends provide some financial leeway

An OECD report (OECD, 2006[33]) estimated the impact of demographic trends on total expenditure on educational institutions between 2005 and 2015. Under the assumption that participation rates and rates of expenditure per student remain at their current levels, the decline in the number of students under age 20 would have decreased the education system’s share of Japan’s total government expenditure by 10 percentage points. As enrolments in tertiary education decline over the next decade, it may be possible to reprioritise some of the savings to the public budget allocated to tertiary educational institutions, to help fund some of the tertiary education initiatives discussed in this report.

The financial health of tertiary education institutions depends on economies of scale. Therefore, the demographic trends also open up the possibility of gains from the consolidation of institutions. In countries experiencing demographic decline, governments may need to support the health and quality of institutions as the student age cohort dwindles, institutional revenues fall and economies of scale decline. In the short term, increasing recruitment of international or older students could compensate for declining cohorts.

However, in countries where the student/teacher ratio is falling, encouraging the rationalisation of institutions has helped to maintain standards of quality and efficiency:

  • In Wales, the risks to the financial viability of tertiary education institutions led the government to provide incentives for mergers between institutions between 1995 and 2010 (Tight, 2013[34]).

  • In Finland, a foreseen demographic downturn and the ambition to create a world-class university triggered a reduction in the number of tertiary education institutions from 20 to 15 (Välimaa, Aittola and Ursin, 2014[35]).

In both cases, institutional financial viability, leadership and governance have been improved, a critical mass of shared services has been achieved and performance has improved (European Commission, 2016[36]).

As student numbers decline in tertiary education, the Japanese government should seek efficiencies in the tertiary education system in order to reallocate funding to the priorities identified in this chapter. Redirecting funding to higher priorities could be achieved by a combination of:

  • retaining in the tertiary education budget a share of the savings as student numbers fall (rather than returning all of the savings to the Treasury) and allocate them to the student support system,

  • encouraging institutions to seek efficiencies (for instance by using new educational technologies and approaches),

  • supporting mergers of institutions as student numbers fall.

Provide higher subsidies in early childhood education and care

A growing body of research recognises that ECEC brings a wide range of benefits: better child well-being and learning outcomes as a foundation for lifelong learning; more equitable child outcomes and reduction of poverty; more female labour market participation; and better social and economic development for society at large (OECD, 2011[37]). Research also shows evidence of increased longer-term benefits from longer duration early childhood education (Horwood and McLeod, 2017[38]). As a consequence, international trends show that many countries have seen value in increasing subsidies in ECEC (OECD, 2016[12]).

  • A literature review on the impact of ECEC conducted by Mitchell et al. (2008[39]) shed light on the positive outcomes (cognitive, learning dispositions, and social-emotional) of ECEC participation for learners in the short and long term. Their work highlights the importance of the quality of ECEC to achieve positive outcomes, especially for low-income families. In particular, cognitive gains in mathematics and literacy for children from disadvantaged homes could be greater than for most other children, if their ECEC centre was of good quality.

  • A more recent literature review (Melhuish et al., 2015[40]) extends these results and underlines complex pathways in children’s development, particularly in the early years. The potential effects of ECEC experience are moderated by family factors, such as deprivation and parental sensitivity, as well as by child factors, such as gender and temperamental reactivity.

  • Horwood and McLeod (2017[38]) find that participation in early childhood education was associated with benefits for later cognitive and academic outcomes over the life course and that these benefits persisted at least up to age 30 and showed no evidence of declining with age.

  • In light of the general agreement that quality matters to gain significant pay-offs, Starting Strong III: A Quality Toolbox for Early Childhood Education and Care (OECD, 2011[37]) listed five key levers for effective promotion of quality in ECEC, based on policy observation and research:

    1. setting out quality goals and regulations,

    2. designing and implementing curriculum and standards,

    3. improving qualifications, training and working conditions,

    4. engaging families and communities,

    5. advancing data collection, research and monitoring.

  • Building on Starting Strong III, a report from the European Commission (2014[41]) notes that access to universally available, high-quality, inclusive ECEC services is beneficial for all. This is why, in situations where public funding is available, provision should usually be free or parents’ fees should be related to their income so that that ECEC services are affordable for low-income families.

  • Across OECD member economies and beyond, the share of children enrolled in ECEC services is on the rise, increasingly for children under age 3. This has been made possible, in part, by the extension of legal entitlements to a place, and by efforts to ensure free access for the older age group (age 3-5) and selected population groups, such as the younger age group (age 0-2), or those who are disadvantaged. Some countries (such as Australia, Germany and New Zealand) make a base level of early childhood education free or at low cost to families, reducing barriers to women’s return to work after childbearing, and improving the educational experience of children (OECD, 2011[37]).

  • The research literature suggests that the costs of childcare have an important influence on parents’ participation and re-entry into the workforce (Del Boca, 2015[42]; Gathmann and Sass, 2012[43]; Berlinski, Galiani and Mc Ewan, 2011[44]).

In some countries (such as Austria and France), the organisation of ECEC is made up of different types of centres for which responsibilities fall under different ministries. Conversely, another group of countries has designed an integrated service for the provision of child rearing before primary school:

  • In Latvia, children from age one to age seven can attend unitary pre-school education settings (pirmsskolas izglītības iestādes), which follow the curriculum developed by the Ministry for Education and Science.

  • In Sweden, the ECEC system consists of unitary pre-school centres (förskola), aimed at children aged between age one and age six, under the responsibility of the National Agency for Education.

  • In Finland, children are legally entitled to a publicly subsidised ECEC place from the end of the parental leave period. The majority of children who participate in ECEC attend day-care centres (päiväkoti/daghem), aimed at the 0-7 age group, which fall under the responsibility of the Ministry of Education and Culture.

For those countries, the seamless provision of services before primary school makes it easier to have high-quality ECEC standards. It can also be seen as an instrument promoting increased birth rates and women's participation in the labour market, as well as aiming to meet educational goals.

In the light of these countries’ examples, the Japanese government could:

  • continue its efforts to increase subsidies for ECEC, as resources permit, and accelerate those measures if possible,

  • maintain and extend its approach of targeting ECEC subsidies to disadvantaged families,

  • review the relationship between the kindergarten system and the day-care centre system that caters to children age 0-2, with a view to ensuring greater alignment between the systems and a stronger educational focus for the day-care system.

Increase financial support for tertiary students

In mostly privately funded education systems, there is a risk that some high-performing students may choose not to study (or may choose shorter, lower-level courses) due to tight financial constraints as well as debt aversion (reluctance to get into debt while future gains remain uncertain, or applying an unrealistically high discount rate to their investment in education). This reduces the efficiency of resource allocation. From an equity point of view, individuals should not be denied education opportunities as a result of a specific disadvantage (socio-economic status, gender, region of residence, ethnicity etc.). Economic theory indicates that, even if an equilibrium is efficient, it is not necessarily fair. This is why public intervention might be needed to restore both efficiency and fairness (Santiago et al., 2008[22]).

There are many strategies that can ensure that a country provides equitable opportunities and does not discriminate against high-performing students who may not necessarily be able to cover the costs:

  • Many OECD countries (Australia, Hungary, Korea, New Zealand, the Netherlands and the United Kingdom) have adopted a form of income-contingent student loans (OECD, 2016[12]). A comprehensive, income-contingent loan system allows a government the scope to manage its tertiary education resourcing policy and to share the costs between state and students by improving access and equity (Chapman, 2016[45]; Chapman and Ryan, 2005[46]).

  • In addition, many of those countries, as well as others that have not implemented income-contingent loans, make their loans available to a broad cross section of their students, and the loans cover a high proportion of the full cost of study. For instance, in Australia, more than three-quarters of students take loans. The proportion is 83% in England, 71% in New Zealand and around 70% in Norway (del Rey and Schiopu, 2015[47]; New Zealand Ministry of Education, 2016[48]).

  • A recent study led by Murphy et al. (2017[49]) analysed the England’s shift from free tertiary education to a system with some of the highest tuition fees in the world. Their findings suggest that the shift has resulted in increased funding per head, rising enrolments and a narrowing of the participation gap between advantaged and disadvantaged students. The income-contingent loan system implemented in English tertiary institutions keeps tertiary education free at the point of entry and provides students with assistance for living expenses.

The network of private universities is critical to the Japanese national tertiary education system. But government funding for private universities is lower than for public institutions, despite the fact that public and private institutions make equal contributions to national educational goals, deliver very similar services to similar quality standards and face similar costs. This raises questions about the disparity of the rates of funding provided to public and private universities. At present, the disparity in government revenue is made up by the higher fees charged by the private universities, mitigated by differences in entitlements paid out under the government’s student loan programmes. However, given the low coverage of student financial support in Japan, students in private institutions end up paying more, and this disparity raises equity risks.

To mitigate those risks, and extend to tertiary education the high standard of equity that characterises mandatory education in Japan, the government could:

  • reconsider the design of its financial support for tertiary students with a view to extending the income-contingent student loan system as resources allow (particularly to increase the support for disadvantaged students)6,

  • consider the parameters of the loan system (such as how the eligibility for loans is targeted, the interest rate, the repayment threshold, and loan entitlements) as a means of managing the costs of the loan system,

  • review the relationship between the funding of private and public universities, with a view to reducing the disparity in the funding rates.

Strengthen and target lifelong learning

Globalisation and technological change are transforming our societies and economies, strengthening competition between workers. High-skilled workers need to adapt quickly to an ever-changing technological environment, while low-skilled workers have to become more flexible and more skilled to retain employability, in a world of increasing automation. Lifelong learning is thus crucial both to keep workers’ knowledge up to date and to redirect workers towards economic sectors less threatened by technological replacement. An OECD report (OECD, 2013[6]) has underlined the need to move from a complete reliance on initial education towards fostering lifelong and skills-oriented learning. In an uncertain environment, lifelong learning and training can tackle the depreciation of human capital and the shrinking of the talent pool by targeting key competencies.

This section examines lifelong learning in three contexts:

  • Foundation education: Language, literacy and numeracy targeted at the small number who failed to gain those skills in mandatory education and at new migrants.

  • Vocational education: Targeted at updating the skills of those in occupations that are changing or are likely to change as a result of new technologies and automation.

  • Tertiary education: Targeted at professionals and managers whose skills need to be enhanced in order to remain competitive.

As noted above, the UNESCO Institute for Lifelong Learning (2009[31]) argues that lifelong learning can provide a route to, and support for, personal and social transformation and can, hence, improve the quality of life. The Council of the European Union (2011[11]) has stated that lifelong learning is crucial in developing tomorrow’s society, with a special focus on the low-skilled and older workers to improve their ability to adapt to changes in the labour market and society. Adult learning provides a means of upskilling or reskilling those affected by unemployment, restructuring and career transitions, as well as making an important contribution to social inclusion, active citizenship and personal development.

Therefore, the benefits of lifelong learning are not only financial. They also enhance individuals’ career choices and well-being and may influence health, while employers can gain through workers’ increased productivity. Lifelong learning also offers the opportunity for adults to gain some of the 21st century soft skills that are increasingly valued by employers and will be promoted to the next generation of Japanese school students through the coming curriculum reforms.

Where the benefits of lifelong learning are shared between workers and employers, there is a case for splitting the costs between them. Where lifelong learning aims to support unemployed people or those who are out of the labour force to find employment, public intervention should be considered, because there are significant social benefits (Santiago et al., 2008[22]).

However, reaping the benefits of lifelong learning is not straightforward. There may be financial or non-financial benefits, which are not easy to demonstrate or to quantify. According to UNESCO, although the systematic collection of relevant information has increased since 2009, there is still a shortage of information on the outcomes of lifelong learning and education (UNESCO Institute for Lifelong Learning, 2016[50]). In some countries, for instance, research shows variable or low financial returns to qualifications taken later in life, once a person has already completed initial post-secondary education:

  • In the United Kingdom, Jenkins et al. (2003[51]) do not find general evidence of positive wage effects of lifelong learning. Only men who left school with low-level qualifications are found to earn more than their peers who did not do any lifelong learning. Conversely, there is strong evidence of employment effect: undertaking training is associated with a higher probability of being in the labour market.

  • Another study in United Kingdom concluded that lifelong learning has an effect on subsequent earnings for women, but not for men (Blanden et al., 2012[52]).

  • In Australia, a study found that the impact of adult education differs by gender and level of study, with small or zero labour market returns in many cases (Coelli and Tabasso, 2015[53]).

  • Research in New Zealand found that male workers who completed a qualification had no additional earnings gain compared to similar workers who hadn’t taken formal study. Some women did gain from an additional qualification, but only if that study was at an advanced level (Crichton and Dixon, 2011[54]).

These findings suggest that lifelong learning benefits are context-dependent. Identifying country-specific factors would inform the design of a more coherent and efficient lifelong learning system. This suggests a need for a thorough analysis of the needs of society and the labour market in order to tackle this issue strategically. Lifelong learning in Japan will continue to have low take-up unless its relevance to the individual and to employers is clear and it can meet the needs of learners and employers at a reasonable cost. This requires leadership that will ensure that the needs of employers, workers and disadvantaged groups in Japanese society are articulated and communicated to education providers.

The literature and a range of the international evidence highlight a number of approaches that could boost the efficiency of training to respond to the objectives:

  • Aligning training systems to the needs of the economy would reinvigorate skill development (International Labour Office (ILO), 2010[56]). Identifying the skills needed in a 21st century economy, the specific needs of employers and the kind of institutions suited to deliver the training would boost training take-up.

    • In 2012, the Australian government launched a website called My Skills, which provides information to connect individuals and employers with training organisations that best suit their needs.

  • Targeting specific subgroups (those in work, those who have not succeeded in their first experience of education, men and women etc.) allows for programmes to be tailored to the specific needs of workers.

    • The Basic Competence in Working Life Programme in Norway, the Adult Education Initiative in Sweden, and the WeGebAU programme in Germany are three examples of learning programmes for adults who have not attained upper secondary education (OECD, 2013[6]).

    • Jenkins (2004[55]) estimates, based on a UK sample of 1 443 women, that lifelong learning which led to a qualification substantially increased the likelihood that a woman would return to employment.

    • In Ireland, the Springboard initiative, launched in 2011, provides free, part-time upskilling and cross-skilling courses in tertiary education as a means of helping unemployed people back into sustainable employment. Springboard qualifies participants in areas where there are identified skills needs, based on up-to-date analysis for Ireland by the Expert Group on Future Skills Needs.

  • Full qualifications are unlikely to be suitable for upskilling those in employment who already have an initial qualification and who seek to enhance their skills to improve their work. Smaller, more flexible, modules of learning and timetabling to suit busy workers would be likely to increase take up. The development of micro-credentials and nano-qualifications, as well as new approaches to delivering training (such as via Massive Open Online Courses [MOOCs]), offer opportunities to close skill gaps quickly. These qualifications could potentially have an early bearing on the labour market.

Overall, the distribution of the benefits from lifelong learning is not clear. Understanding the costs and benefits from different types of lifelong learning would encourage a more appropriate split of costs between employers, workers and the government and would incentivise workers to take part in relevant and useful lifelong learning (International Labour Office (ILO), 2010[56]).

  • In the United Kingdom, 58% of workers consider that the cost can prevent them from training (McNair, 2012[57]).

  • The European Centre for the Development of Vocational Training (Cedefop) estimated, with 2010 data, that among enterprises not delivering any training, 31% blamed the high costs (Cedefop, 2014[58]).

Time constraints on workers are likely to hinder the take-up of lifelong training. Assessing an appropriate balance between on-the-job and off-the-job learning could reconcile conflicting schedules (Hyde and Phillipson, 2014[59]; International Labour Office (ILO), 2010[56]).

  • McNair (2012[57]) showed that 42% of UK respondents consider the lack of time as a potential barrier to future learning.

  • In the Cedefop study, among firms surveyed by Eurostat who were not delivering any training, 32% considered there was “no time available” because of high staff workload and limited time available (Cedefop, 2014[58]).

As noted above, time pressures on Japanese workers, the high costs of lifelong learning, the relative reluctance of Japanese employers to support their workers’ participation in further training and the expectation of some tertiary institutions that lifelong learning should be moulded to traditional qualifications have restrained participation in lifelong learning in Japan. Those who have participated have questioned the usefulness of what they learned. These issues all need to be addressed if lifelong learning is to make a significant contribution to solving Japan’s future skill supply and productivity problems.

The Japanese government could consider:

  • Commissioning analysis of:

    • the need for upskilling of different groups in the workforce and in the population, such as women, people in employment at various levels, non-traditional workers and people below the poverty line,

    • the needs of employers for the upskilling of their staff,

    • the distribution of the benefits of different types of upskilling between employers, employees and the broader society.

  • Using the results of that study to design an approach to lifelong learning that addresses the weak uptake of lifelong learning in Japan by:

    • fostering collaboration between employer groups, representatives of potential users of lifelong learning and providers of lifelong learning, to ensure the relevance of provision to the users,

    • encouraging the design of programmes that make use of micro-credentials and new educational technologies to enable workers to gain meaningful and relevant skills in a shorter time and at lower cost,

    • encouraging more flexibility in scheduling and timing of lifelong learning courses to reduce the time constraints that deter participation,

    • developing mechanisms that allocate costs between employees, employers and the government to create incentives that will boost the use of lifelong learning to improve the performance of the economy.


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← 1. Women’s share of temporary employment in Japan is 60%, the highest among OECD countries. The flip side of this statistic is that a high proportion of Japanese men who are unemployed fall into the category of long-term unemployed. Of unemployed men in Japan, 45% were long-term unemployed (compared to the OECD average of 34%).

← 2. The index is drawn from responses to questions in the survey that explore respondents’ views on the following: liking to learn new things; relating ideas to real life; searching for additional information; working out how ideas fit together; and getting to the bottom of ideas that are difficult to understand. See Figure 4.3 for more details.

← 3. The difference in the employment rate between tertiary qualified men and women in Japan (24 percentage points) was among the highest in the OECD. Among OECD countries that took part in the Survey of Adult Skills, only Korea had a higher difference between men and women on this measure.

← 4. Computed as: 0.23 0.21 0.07 0.79 .

← 5. Non-regular employment is a category that includes fixed-term, part-time and dispatched workers. It has risen in Japan from 20.3% of total employment in 1994 to 38% in 2016 (OECD, 2017[2]).

← 6. In this case, it may be necessary to introduce some fee control so that the benefits of the additional student financial support are not captured by the higher education institutions.