Japan’s women to the rescue

 

Among economists (most of whom are male), there is a tendency to treat diversity and gender equality as “soft” issues – worthy social goals perhaps, but secondary to the real business of economic growth, job creation and productivity.

But these soft issues have jumped to the top of the long-term growth agenda in Japan, the world’s third-largest economy, where Prime Minister Shinzo Abe is working to shake the nation out of its 20-year deflationary slump.

So far the world’s attention has focused on Mr. Abe’s bold macroeconomic policies to lift demand and growth in the short run.  These policies have been strikingly successful, confirming the validity of Keynesian remedies for an economy suffering from insufficient demand when interest rates are stuck at their zero lower bound. As a result of higher deficit spending and a vast quantitative easing program by the Bank of Japan, the Japanese economy is growing at 4 percent, the highest rate among advanced economies, and the stock market has soared by 80 percent over the last six months.

Now, after his recent impressive electoral victory, Prime Minister Abe has signaled his intention to move forward with the “third arrow” of his policy quiver — significant structural reforms to increase Japan’s long-term growth potential.  His list reads like a neoclassical economist’s list of “usual suspects,” including deregulation, industrial restructuring, corporate tax reform and trade liberalization — all worthy objectives.  But in a departure from tradition, he is also championing reforms to expand economic opportunities for women.

Mr. Abe believes in numerical targets, and he has established several of them to increase the participation and advancement of women in the workplace.  He wants to eliminate day-care waiting lists by creating 200,000 new day-care openings in authorized public facilities by 2015, with another 200,000 by 2017.  He wants businesses to double their child-care leave to three years.  He wants 30 percent of leadership positions in government and business to be held by women by 2020.  He is calling on Japanese corporations to appoint at least one woman to their boards.  And he is considering both changes in tax laws that discourage mothers from working and new training subsidies to help them return to the workplace following child-care leave.

These initiatives are not motivated by softhearted political correctness but by hard-headed economic logic. Japan needs to expand its work force, which is shrinking rapidly as a result of a sagging birth rate and an aging population. The International Monetary Fund estimates that Japan’s working-age population will fall by almost 40 percent by 2050.  The share of citizens older than 65 is expected to jump from 24 percent in 2012 to 38 percent in 2050, when the ratio of the working population to the elderly population will be 1 to 1.

“Japan is growing older faster than anywhere else in the world,” the I.M.F. reports.  Unless the nation can shore up its work force, it faces a long-term drag on economic growth at a time of soaring obligations for old-age entitlements.

Japan has one of the largest gender gaps in the world.  Even though Japanese women are highly educated — indeed, the university enrollment rate for 18-year-old females now exceeds that for 18-year-old males — the female employment rate is about 25 percentage points lower than the rate for men, and ranks among the lowest in the developed countries.

Shinzo Abe

Japan’s Prime Minister Shinzo Abe

Japan also has the largest gender pay gap of any country in the Organization for Economic Cooperation and Development, with the exception of South Korea. On average, Japanese women earn about 72 percent of the compensation of men for equivalent jobs. The gender pay gap rises during childbearing and child-rearing years indicating a “motherhood pay penalty”.”  This penalty is larger in Japan than in any other O.E.C.D. country, including Korea.

In the 2012 Global Gender Gap Report of the World Economic Forum, Japan ranked near the bottom — 102 out of 135 countries — on an index measuring gender parity in economic participation and opportunity. Japan has consistently had the worst ranking of any developed economy on this index since it was introduced in 2006.

There are several reasons for Japan’s poor performance. Strong cultural norms value stay-at-home mothers. Tax distortions reinforce these norms and penalize two-worker households.  Long working hours with overtime requirements make it difficult to balance work and family responsibilities.   Child-care services are in acute short supply.  There are long waiting lists for public child care, and a limited number of private providers because of burdensome regulations that Mr. Abe has pledged to ease.

Women are often caught in a Catch 22: they cannot secure a job until a child-care slot is available, and they are not eligible for such a slot until they have a job.  And rigid immigration laws make it impossible for Japanese families to sponsor foreign workers to provide domestic help. A Japanese woman cannot get a visa for a foreign nanny, but a Japanese nightclub owner can get a visa for a foreign female entertainer.

About 70 percent of Japanese women leave the work force after their first child. Only about one-third of Japanese mothers with young children work, compared with 50 to 60 percent in the United States, Britain and Germany, and 75 percent in Sweden.  Nearly three-quarters of college-educated working women in Japan voluntarily leave their jobs for six months or longer, more than twice the incidence among their counterparts in the United States (31 percent) and Germany (35 percent). Most of the Japanese women who quit work for family responsibilities want to rejoin the work force but have a hard time doing so and face serious penalties in future wages and promotions.

The gender gap is costly. The I.M.F. estimates that if Japan’s female labor participation rate climbed to the average of the Group of 7 industrial economies, Japan’s per-capita economic output would be 4 percentage points higher. If employment rates for Japanese women were to reach parity with those for Japanese men, Goldman Sachs estimates Japan’s work force would gain eight million people and its gross domestic product would be 14 percent larger.

Given the magnitude of these effects, it is not surprising that the recent I.M.F. assessment of the health of Japan’s economy specifically welcomed policy initiatives to increase female employment.  It is also not surprising that a group of Japanese business leaders has established a high-level task force to work with the Japanese government and the World Economic Forum to foster business practices and policies to increase economic opportunities for women and to improve Japan’s ranking on the forum’s index.

To be sure, narrowing Japan’s gender gap won’t be easy. It is entrenched in a wide array of cultural barriers, government policies and corporate workplace practices. Political resistance and inertia are still formidable. Despite Mr. Abe’s call to put women in leadership roles, to date his own Liberal Democratic Party has been lackluster in recruiting female candidates for Parliament.

The main reason to think that Japan’s structural changes to encourage the employment and advancement of women will succeed is that there is no alternative.  Japan’s demographic challenges are too severe and the untapped economic potential of Japanese women is too large to ignore. As Mr. Abe astutely remarked in a speech last spring, women are Japan’s “most underutilized resource.”

(Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.)

© The New York Times 2013

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