When I first introduced the concept of “Womenomics” in a Goldman Sachs report 20 years ago, I argued that Japan’s need for greater gender diversity and inclusion was as much an economic as a cultural or social issue. After all, labor, capital, and productivity are the three determinants of growth, and Japan had a shrinking population and finite capital. Without radical measures to shore up the supply of labor, the country could end up with declining productivity and potential growth rates, and eventually falling living standards.
Two decades later, Japan still faces challenging demographic headwinds. After peaking at 128 million in 2008, its population in 2018 had shrunk by 1.5% to 126 million; by 2065, it is projected to fall by another 30%, to just 88 million. More important, Japan’s working-age population is expected to contract from 75 million today to 45 million in 2055 – a decline of 40%.
Japan holds the dubious honor of being one of the only major developed countries where pets (registered dogs and cats) outnumber children under 15. So severe is its demographic decline that, according to the International Monetary Fund, real (inflation-adjusted) GDP could shrink by over 25% in the next 40 years. To prevent that, Japan will have to pursue far-reaching structural reforms – and soon. Whatever strategy it settles on will contain valuable lessons for the many other developed countries confronting the problem of societal aging.
ROOM FOR PROGRESS
When the first Womenomics report appeared in 1999, Japan’s female labor-force participation rate (LFPR) was just 56% – one of the lowest in the OECD club of advanced economies. Since then, however, the percentage has risen sharply, to nearly 71% as of February 2019, overtaking the United States (66%) and the eurozone (62%). This growth has been particularly pronounced during Japanese Prime Minister Shinzo Abe’s time in office. Under his economic reform agenda – “Abenomics” – the number of employed women in Japan surged by more than three million, from 26.4 million in 2012 to 29.7 million in 2018.
Closing Japan’s gender employment gap could yield significant dividends. If the female LFPR (67% as of 2017) converged to that of males (83%), the workforce would expand by 5.8 million people, and GDP would increase by an estimated 10%. Moreover, as of 2017, average monthly hours worked by Japanese women was 81% that of men. But if this were to rise to the OECD average of 85%, GDP could increase by another 4%. Hence, in a “blue sky” scenario, Japan’s GDP could rise by as much as 15%.
Closing the gender employment gap would also come with significant potential benefits at the micro or company level. Across 297 Japanese publicly listed firms for which data are available, those with the highest ratios of female to male managers between June 2018 and April 2019 boasted the strongest five-year average sales growth, as well as the highest three-year average returns on equity; by contrast, the firms with the smallest female-manager ratios had very low or negative average ROEs.
TWO DECADES OF GAINS
At the time of the initial Womenomics report, there was little awareness in Japan about the topic of diversity. But that has changed, particularly since the start of Abe’s second term in 2012 (his first term was a brief stint between 2006 and 2007). Declaring that “Abenomics is Womenomics,” Abe brought the cause of gender equality from the realm of human rights into the world of economics and business. As corporate managers began to reassess and change their attitudes, they realized that gender equality could be a powerful driver of growth.
When the Abe government released its Womenomics agenda in January 2014, it included a broad range of objectives. The authorities sought to raise the LFPR for women aged 25-44 to 77% by 2020 (from 68% as of 2012) and increase the percentage of women returning to work after their first child to 55% (from 38% as of 2010). Moreover, the government targeted 30% female representation in leadership positions across Japanese society by 2020, a goal that would be supported by expanding childcare capacity and eliminating daycare waitlists by 2017. Finally, the government took steps to increase the percentage of new fathers taking paternity leave to 13% by 2020 (from 2.6% as of 2011), by improving parental-leave benefits, raising awareness about gender diversity, and encouraging a change in work styles.
All told, while Japan is still far from reaching its targets on female leadership representation, it has made significant progress toward these other goals.
This progress reflects specific actions taken by the government across a range of policy fronts. To encourage Japanese households to have more children, the government augmented the country’s parental-leave policies so much that they are now among the most generous in the world. For starters, Japanese mothers and fathers are eligible for up to one year of leave after the birth of a child. During the first six months, they can earn up to 67% of their existing salary (excluding bonuses), and then up to 50% for the rest of their leave. And because social-insurance premiums are waived during childcare leave, the actual amount parents receive is around 80% of pre-leave take-home pay.
Similarly, to raise the female LFPR, the government adopted the Act on Promotion of Women’s Participation and Advancement in the Workplace, which took effect in April 2016. Under this landmark legislation, any organization (public or private) with more than 300 employees must disclose data on gender diversity among its employees and publish “diversity action plans.” These plans must include specific goals for improving female participation and advancement in the workplace, complete with numerical targets (such as the female-manager ratio). As of December 2017, 99.7% of Japanese private-sector corporations with more than 300 employees had submitted their action plans.
The government also adopted legislation to alter work styles, which took effect in April. Because the number of hours Japanese work is among the highest in the developed world, large firms are now subject to new restrictions on overtime (effectively 100 hours per month), and will face penalties for non-compliance. The purpose is not only to support work-life balance for individuals, but also to boost overall labor productivity.
With respect to part-time workers, employers also will be subject to new “equal pay for equal work” regulations, starting in April 2020 for large companies and April 2021 for smaller firms. The new rules will oblige employers to offer the same rate of basic pay to all workers performing the same tasks, regardless of whether they are doing so on a full- or part-time basis.
THE GLASS CEILING IS STILL VISIBLE
These are notable legislative and regulatory achievements. But there is still much work to be done, particularly when it comes to addressing the dearth of female leaders, persistent gender pay gaps, inflexible labor contracts, misaligned tax incentives, insufficient caregiving capacity, unconscious biases, and gender-role stereotypes. With Japan’s demographic challenge still growing, policymakers must not delay in tackling these problems.
They might start by looking in the mirror. Women’s representation in Japan’s parliament, the National Diet, remains unacceptably low, suggesting that lawmakers should consider adopting temporary quotas. While the idea of parliamentary quotas may spark a backlash in socially conservative Japan, many countries already have introduced them, having concluded that they are necessary to ensure the responsiveness of public policy to their citizens’ full range of needs.
On the economic front, one of the biggest employment obstacles facing Japanese women is the rigidity of labor contracts, which are either full-time (regular) or part-time (non-regular), with no other options. Introducing more flexible labor contracts would bring more women back to the workforce, while reducing hiring risks for employers.
Another problem is Japan’s gender pay gap, which, at 25%, is among the largest in the OECD, where the average is 14%. Women account for as much as 70% of the non-regular labor force, which has grown from 15% to nearly 40% of the overall workforce. Until now, non-regular workers have typically earned roughly 60% of what regular employees make. But with the new “equal pay for equal work” law, stronger material wage gains could start to accrue to women, thereby boosting labor productivity.
Nonetheless, given the size of Japan’s pay gap, more immediate and radical measures will be needed. One solution that other countries have adopted is government-mandated reporting of gender pay discrepancies. According to one recent study, such disclosures do, in fact, narrow the gender wage gap, thereby increasing the number of female hires and the number of women promoted to more senior positions.
Unfortunately, while the disclosure of gender-related data under the Act on Promotion of Women’s Participation and Advancement in the Workplace represents an important step forward, there still are no penalties for non-compliance. And because organizations have flexibility in determining what types of data to disclose, it is difficult – if not impossible – to make cross-industry and cross-company comparisons.
Given these problems, gender-related disclosures and target-setting should be made mandatory and standardized. Barring that, publicly listed companies should at least be required to disclose what share of management positions and board seats are held by women. In addition to strengthening competition for female talent within industries, such disclosures would also be valuable to domestic and overseas investors, who are increasingly committed to ESG (environmental, social, governance) reporting criteria.
Japan also needs to eliminate institutional exemptions on spousal income in the tax and social-security codes, so that more married women will be encouraged to seek higher-paying, full-time jobs. Many other countries have already replaced “family income” with “individual income” taxation, reducing the tax burden for secondary earners who, more often than not, are women.
Changing Japan’s institutionalized political and corporate structures will take time. But in the near term, more should be done to promote women-owned businesses. Small and medium-size enterprises account for roughly 70% of all jobs in Japan, yet female entrepreneurship remains scarce. According to a survey by the Japanese Ministry of Economy, Trade, and Industry, women entrepreneurs face a wide range of obstacles to starting a business, from “lack of management know-how” to inadequate “access to credit.” There is much more the government could do to extend preferential treatment in public tenders to women-owned businesses, expand access to credit and low-interest loans, and support mentorship and networking programs.
Yet another issue is immigration law, which currently prohibits Japanese citizens and permanent residents from sponsoring or hiring foreign domestic workers. This is an area that is ripe for deregulation, provided that measures remain in place to limit the terms of work visas and prevent migrant workers from undercutting domestic workers’ wages. As other aging societies have already realized, expanding the supply of foreign-born caregivers can go a long way in closing gaps in care for children and the elderly.3
IT’S A JOB FOR EVERYONE
Closing the gender divide is not just a job for government. Japan’s private-sector leaders can and should do more to promote diversity within their respective industries. Judging from numerous discussions with Japanese corporate executives over the past 20 years, it is clear that simply talking about diversity does not have sufficient impact. Rather, companies need to take consistent, concrete actions to establish an environment in which female and other underrepresented employees can maximize their full potential. That means developing lasting initiatives to encourage gender diversity in recruiting, retention, and promotion.
In terms of retention, the inflexibility of working hours is one of the many reasons cited by Japanese mothers who leave their careers after giving birth. Thus, employers should do more to allow for alternative arrangements such as job-sharing and telecommuting. Equally important, they must vigilantly police discrimination against women who choose these options.
A related problem is that employee evaluations at many traditional Japanese companies still tend to privilege seniority and work hours over performance and output. That is why Japan ranks near the top of the developed world in terms of hours worked, and near the bottom in terms of time spent by fathers on household chores and child-rearing. Shifting toward a more performance-based approach would not just drive productivity but also boost motivation and morale. And beyond meeting the government’s requirements for diversity-related disclosures, companies should take it upon themselves to be more transparent about how they use recruitment, retention, and promotion to advance gender-related goals.
This applies especially to male leaders, who represent the majority in the business community. There are promising signs on this front. In 2014, then-Gender Equality Minister Masako Mori brought together more than 100 men who have advanced the cause of diversity in corporate Japan. Moreover, Japan now has its own chapter of the 30% Club, which aims to bring women’s representation on all FTSE 100 company boards up to 30%. Since the organization’s launch in the United Kingdom in 2010, women’s representation in this domain has increased from an average 12.5% to 31% as of March 2019.
What more can be done? As in any country, Japanese media is enormously influential in shaping public perceptions about gender roles. Among other things, Japanese media organizations should be urged to produce more content depicting working parents (as opposed to just working fathers), and to be more mindful about the use of gender stereotypes. For example, when men perform tasks at home, they should be described as “sharing housework,” not merely “helping” with it.
In education, Japanese women and girls need more encouragement to pursue disciplines in STEM (science, technology, engineering, mathematics). Though more Japanese women than men earn college degrees, women account for just 20% of computer science and 18% of engineering majors. At the same time, women comprise a larger share of lower value-added occupations that could become vulnerable as the latest wave of innovation ushers in a more knowledge- and digital-based society.
KEEPING THE MOMENTUM
Despite formidable obstacles, the Womenomics glass is half full, rather than half empty. Unlike in 1999, there are now two critical sources of tailwinds driving progress toward gender parity: the expansion of ESG investing, and shifting attitudes among younger Japanese males. In the first case, the United Nations Sustainable Development Goals have intensified the focus on ESG criteria, which include metrics for diversity. Investors are now tracking gender ratios across corporate management hierarchies and boards.
At the same time, younger Japanese have placed increasing importance on work-life balance. In 1987, 38% of single men aged 18-34 believed their future spouse should be a full-time housewife, and only 11% wanted their spouse to become a working mother. By 2005, however, the same survey showed a reversal, and as of 2015, 34% of men actually preferred that their spouse continue working after having a child, while only 10% would want her to stay home.
The attitudes of millennials and younger generations are turning the tide in favor of Womenomics. Unlike previous generations, younger Japanese understand that gender diversity is good not just for women, but for all of society.
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