McDonald’s Japan announced recently that it would abolish its policy of forced retirement at 60 for its company-owned restaurants. That change complies with Japanese legislation that took effect in April, but the company says that’s not why it is instituting it.

"Basically this decision comes from the understanding that work opportunities should be provided to employees who have ability, physical energy and drive, regardless of age," spokesman Ryosuke Tsuji says. "We should forget about age."

The policy change allows qualified employees to go on working for the corporate office or in one of its 2,800 restaurants. The change will have little immediate impact on company culture. The average age of workers at McDonald’s Japan is 33, and only five employees are older than 55. Further, the company’s 1,000 Japanese franchisees have not abolished the mandatory retirement age.

Japan’s recent law calls for companies to let people work longer because the age at which retirees become eligible for pension benefits is being raised. The legislation is intended to add tax revenue to save the country’s pension system and, perhaps more importantly, fill a labor shortage created by a zero growth rate in the population.

Companies can comply with the retirement law in three ways. They can raise the retirement age to a minimum of 62, or, like McDonald’s Japan, can abolish the forced retirement age in effect at most employers. Companies that pay employees based on performance, not seniority, are more likely to abolish mandatory retirement ages, according to Nhattan Nguyen, a senior consultant for Mercer Human Resource Consulting in Tokyo.

Most Japanese companies, however, do base pay on seniority, as well as team performance. A third way offered by the bill will be less expensive for companies: rehire employees who are set to retire or who have recently been forced to retire.

Employees at banking groups Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group will resign at age 60, then sign re-employment contracts on an annual basis until they are 65, the new mandatory retirement age at the company.

Since most companies pay based on seniority, they will likely choose the third option to comply with the law and fill the labor shortage, says Ames Gross, president of Pacific Bridge, a recruiter for the Asian market.

Gross says that in Japan, many companies are hiring people on a temporary basis. Known as temps in the U.S., they’re called "freeters" in Japan.

"Companies are reluctant to hire full time and are making fewer full-time offers," Gross says. Part-timers fill labor shortages, cost less and pay taxes toward the pension system.

Japan’s efforts to confront the effects of an aging and shrinking workforce offer a preview of the issues that will face both Western European and North American businesses as baby boomers begin to retire, says Ken Goldstein, an economist with the Conference Board.

The shortage of talent may be ameliorated by the recent legislation, Goldstein says, but it does not solve the long-term problem that low birth rates pose to companies.

"The bill delays judgment day, but at some point they’ll have to do more with less," he says.

—Jeremy Smerd