Chapter

Chapter 6A. Japan

Editor(s):
Kalpana Kochhar, Sonali Jain-Chandra, and Monique Newiak
Published Date:
February 2017
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Author(s)
Chad Steinberg and Masato Nakane 

Japan’s potential growth rate is steadily falling with the aging of its population. Against this backdrop, to what extent can raising female labor participation help slow this trend—that is, can women save Japan?

Japan is growing older faster than anywhere else in the world. After experiencing a demographic dividend of a rapidly growing labor force and a falling birth rate from the 1960s to 1980s, Japan is now facing the consequences of a rapidly aging society. Population projections suggest that the share of the population over age 65 will rise from 9 percent in 1980 to 36 percent in 2040 (Figure 6.1). Other Asian countries—such as Korea and Taiwan Province of China—are not far behind and will likely look to Japan for ways to cope with the economic and social consequences of a rapid rise and subsequent decline in population.

Figure 6.1.Demographic Changes in Japan, 1980–2040

(Millions of people)

Sources: Japan Ministry of Internal Affairs and Communication; and Japan National Institute of Population.

The consequence of this rapidly aging society is the sharpest labor force decline among advanced economies. The size of Japan’s working-age population, ages 15–64, will fall from its peak of 83 million in 1995 to about 51 million in 2050 (Figure 6.2). This is approximately the size of the workforce at the end of World War II. Unless output per worker rises at a faster rate to offset the decline in the number of workers, Japan’s GDP is likely to fall behind that of many of its neighbors. Japan has already ceded second place in global economic size to China, and India is not far behind.

Figure 6.2.Changes in Japan’s Working-Age Population Change, 1950–2050

(Index 1950 = 100)

Source: United Nations.

Yet there is much Japan can still do to help mitigate the decline in the size of its workforce. Both immigration and female labor force participation rates are well below Organisation for Economic Co-operation and Development (OECD) country averages (Figure 6.3). Attitudes and political sentiment about immigration, however, do not change quickly. In the near term, there is much Japan can do to encourage its highly educated female population1 to participate more actively in the workforce. Getting more women in the workforce would mean not only a larger labor force but possibly a more skilled labor force given that Japanese women on average have completed more years of education than their male counterparts.

Figure 6.3.Immigration and Female Labor Force Participation in Advanced Economies

(Percent)

Source: Organisation for Economic Co-operation and Development.

Note: Data labels use International Organization for Standardization (ISO) country codes.

We estimate that if Japan were to raise its female labor force participation rate to the level of the Group of Seven countries (excluding Italy and Japan), GDP per capita would be permanently higher by approximately 4 percent than under the baseline scenario (Figure 6.4). These back-of-the-envelope calculations assume a rise in the rate from 63 percent in 2010 to 70 percent in 2030.2 Raising the rates further—to the level of northern Europe, say—could increase GDP per capita by an additional 4 percent. The impact of these two scenarios on potential GDP growth (in the transition years) would be about 0.2 percentage point under the first scenario and 0.4 percentage point under the second scenario. A transformation of this magnitude is not without precedent: the Netherlands, for example, experienced a similar dramatic increase in female labor force participation rates in the past few decades.

Figure 6.4.Japan’s Real GDP: Policy Scenario with Higher Female Participation

(Trillions of yen)

Sources: IMF, World Economic Outlook database; and IMF staff estimates.

Female labor force participation is positively associated with a more neutral tax treatment of second earners, childcare subsidies, and paid maternity leave. According to OECD statistics, Japan provides much fewer of all these benefits than other OECD countries.3 Thus, the focus of this analysis is to identify barriers to increasing female labor force participation in Japan, drawing on shared experiences across countries where women face similar challenges in managing work and family life. At the same time, the analysis is agnostic on country differences that may arise due to existing work and cultural preferences.

Both demographics and policies matter in explaining female labor force participation rates. Among demographic variables, family size and education explain many of the changes within countries over time, whereas family-friendly policies, like the provision of childcare, are important in explaining differences across countries.

We argue that Japan needs to do two things. First, it must end the gender gap in hiring and promotion practices. Japan has by far the lowest rate of female managers among advanced economies. Increasing the number of women role models would influence women’s career choices. Second, Japan must do more to support working mothers. A more flexible work environment and better childcare facilities would help stanch the outflow of women from the workforce after childbirth. These policies would also be effective in reducing the high incidence of poverty among single mothers.

To achieve these changes, the following measures could be considered:

  • Reallocate public resources away from monetary benefits to in-kind benefits, such as childcare facilities, which would help support working mothers.

  • Deregulate the childcare industry to help increase the number of facilities.

  • Extend the duration and broaden the coverage of parental leave policies.

  • Eliminate institutional exemptions on spousal income in the social security and tax systems.

  • Reduce disparities between part-time and full-time workers.

  • Encourage firms to adopt more flexible work environments.

  • Ensure that current promotion and employment policies are enforced equitably to help increase the number of female career employees.

  • Introduce a new, more flexible labor contract for career employees that would reduce hiring risks for firms.

  • Possibly establish new rules for the number of female directors on corporate boards.

  • Eliminate the employer’s spouse allowance, which is given to households with low spousal income.

  • Reduce working hours, especially for full-time workers.

  • Introduce a new human resource management system that provides clear responsibilities for work and encourages career advancement at an earlier stage.

Japan and Other Advanced Economies

The main focus of our empirical analysis is on labor force participation rates in the advanced economies of the OECD for women between the ages of 25 and 54 (for more details, see Box 6.1) Female labor force participation rates have indeed risen across the OECD, with the mean of the distribution increasing from 61.2 to 76.9 percent between 1985 and 2005 (Figure 6.5). At the same time, female participation rates have started to converge, with the width of the distribution narrowing considerably. In Japan too, rates increased from 60.3 to 68.8 percent between 1985 and 2005, but at a much slower pace compared with the median OECD country. As a result, within the distribution Japan has lost ground to many of its peer countries.

Figure 6.5.Female Labor Force Participation in 22 Advanced Economies

Source: Organisation for Economic Co-operation and Development.

Box 6.1.Explaining Differences in Female Labor Force Participation in Advanced Economies

We apply a difference-in-difference econometric approach to help explore the role of demographics (D) and policies (Z) in explaining the differences in female labor participation rates across member countries of the Organisation for Economic Co-operation and Development (OECD) and within countries over time. Our econometric specification is:

in which flpit and mlpit are the female and male prime-age labor participation rates in country i at time t. D and Z are vectors for demographic and policy control variables, respectively, which vary by country and over time. The parameter α is a constant, and ε is the error term.

Our econometric results confirm that demographics are a powerful explanatory variable for changes over time in labor participation rates. Our analysis focuses on three variables of interest: marriage rates, the number of children per woman, and education levels. Lower marriage rates and fewer children reduce the opportunities for home production and therefore increase the attractiveness of market work, whereas a higher level of education strengthens the attachment of women to the labor market by increasing their potential earnings. The econometric results show that demographics have changed hand in hand with female labor force participation over time (see also Figure 6.5).

The increase in female labor force participation in Japan from 56.7 in 1980 to 70.3 in 2008, for example, is in large part linked to the decline in the number of children per woman. A key factor driving this decline in the average number of children is the higher percentage of Japanese women choosing to remain single. In the past 20 years the percentage of unmarried women between the ages of 25 and 29 has more than doubled, to 59 percent in 2010 from 24 percent in 1980. As a result, there has been a steady rise in single-person households in Japan (Matsui 2010).

While demographic factors are important, they are relatively less important in explaining differences across countries. This is noticeable in the relationship between the number of children per woman and female labor force participation. In 1980, a cross-section of countries shows a somewhat negative correlation, consistent with our regression estimates. But in 2008, the correlation turns seemingly positive. What this may highlight is that the importance of demographics diminishes or changes as countries’ demographics converge. The corollary to this finding, however, is that the onus for closing gaps between countries may now be on policies.

However, there is no policy silver bullet. Policy can make a difference, but the results are varied and are not as robust or as economically significant as the previous demographic results. Furthermore, a 1 standard deviation change in any of the policies we tested is associated with less than a 1 percentage point increase in the female labor force participation rate. Still, our analysis allows us to make some normative statements. First, wage gaps between men and women and expenditure on childcare seem to be robust predictors of cross-country differences. Second, women have strong preferences for part-time work: female labor force participation is significantly higher in countries with a higher share of part-time workers, which allows women to balance market work and family responsibilities. Third, parental leave policies must be generous to be effective.

This gap compared to other countries is particularly noticeable in a comparison of male and female labor participation rates (Figure 6.6). The labor participation rate for females in Japan is 25 percentage points lower than for males. Korea is the only country in the OECD with a higher difference, with most countries showing differences of about 10 percentage points. In some northern European countries, where support for working mothers is very generous, the differences are as low as 5 percentage points.

Figure 6.6.Gender Differences in Prime-Age Labor Force Participation Rate

(Percent, 2009)

Sources: Organisation for Economic Co-operation and Development; and IMF staff estimates.

Policies to Raise Female Labor Force Participation in Japan

One of the more striking characteristics of Japan’s labor force is the paucity of female managers, with the ratio of female managers at just 11 percent in 2013 compared with 43 percent in the United States (Figure 6.7). The trend is a result not only of low female participation rates, but also of current hiring practices, promotion policies, and lack of public and private sector policies that promote work-family balance. Korea—with similar hiring practices—is the only country that shares a similar disparity.

Figure 6.7.Female Managers

(Percent of total, 2009)

Source: United Nations Development Program.

Hurdle 1: Employment and Promotion Policies

A potential challenge to higher female labor force participation is limited opportunity to enter career positions. The most important individual labor market decision in Japan is typically made following graduation from postsecondary school, when jobs with implicit lifetime employment guarantees are filled. As a result, most employees do not make substantial job shifts during their prime working years, and therefore decisions made at this early juncture lead to the many inequities that exist in the current employment system. This includes not only the low level of female career employees but also the increasing number of nonregular workers among the young.4

For women, the key decision at this juncture is often between noncareer positions (ippanshoku) and career positions (sogoshoku) at large corporations. Career positions pay more and usually include significant investment in human capital over a lifetime of employment at a corporation. Noncareer positions, in contrast, are filled predominantly by women, pay less, and usually include less-demanding tasks, with little investment in human capital development. Corporations begin their selection processes for long-term career advancement soon after this initial hiring decision and give long-term binding employment contracts. Potential employees also use this occasion to signal their long-term intentions about employment with the corporation. From the corporation’s perspective, the aim of the system is to minimize the risk of early retirement of women (Yamaguchi 2008).

The result of this hiring system is that there are very few women in career positions within large corporations (Figure 6.8). A small-sample, nonrandom government survey in 2010 found that women make up just 6 percent of career employees, which is consistent with the low level of female managers overall. The share of women in these categories has been on the rise (up from 2.2 percent in 2000) because a higher share of women is being recruited into these positions at the start of their careers (12 percent in 2010), but the level remains very low by international standards. Moreover, for women who do enter career positions, the path to promotion is not always easy. The same survey found that at more than half the firms in the sample, top-performing male employees were one or more steps ahead of top-performing female employees in the promotion cycle.

Figure 6.8.Women in Career Positions (Sogoshoku)in Japan

(Percent, 2000 and 2008)

Source: Japan Ministry of Health, Labour, and Welfare.

This two-track system has also led to a significant wage gap between men and women (Figure 6.9).5 Although the size of the gap has declined over time, from 42 percent in 1980 to 27 percent in 2013—as measured by the difference in median wages between men and women—it is still significant by international standards. Japan’s gap is nearly twice that of Sweden but still smaller than that of Korea. Researchers using micro panel data sets have also found that the wage gap between men and women cannot be explained by differences in productivity levels and that the gap remains unreasonably large (Abe 2005; Kawaguchi 2007).

Figure 6.9.Gender Wage Gap in Japan

(Female median wages as a percent of male median wages, 2009)

Source: Organisation for Economic Co-operation and Development.

Clearly, increasing both women’s wages and the number of women in career positions would increase women’s attachment to market work. Achieving this, however, will likely require efforts on multiple fronts:

  • Corporations’ employment and promotion policies must be more equitable. The government first became actively involved in the resolution of discrimination against women at work in the 1980s with the passage of the Equal Employment Opportunity Act in 1986, which banned gender discrimination in vocational training, welfare, retirement, and dismissal. A 1999 revision added hiring and promotion, and a 2007 revision added further protections for pregnant women. Penalties were introduced in 1999, including the disclosure of noncompliant companies, and these were further elaborated in 2007. The reality, however, is that for similar work, Japanese women typically get paid significantly less, and the government needs to better enforce these laws in terms of wages, employment, and promotion discrimination (Matsui 2010).

  • Corporations need more flexible employment contracts to reduce hiring risks. Introducing a new, more flexible labor contract could increase incentives for hiring regular workers and allow a greater number of young and female workers to enter mainstream career paths with established firms. One possible option is to modify regular work contracts to include phased-in employment protection. Such a new regular work contract would gradually increase the dismissal costs to employers over the course of a worker’s tenure. This would help reduce the hiring risks attendant to uncertainty about new workers’ skills (or, more important, the length of their tenure) while maintaining employment protection for tenured employees.

  • Promote diversity; to provide role models to women. In part, the reason so few women are in career positions is that few of them opt for this career path in the first place. This self-selection process appears to begin early, with top universities continuing to show gender bias. At the University of Tokyo, for example, where entrance is based on test outcomes, less than 20 percent of the student body is female. Raising the number of women in high-profile career positions would encourage more women to choose career positions. There are some signs that this is beginning to take hold, with the Bank of Japan appointing its first female branch manager; Daiwa Securities placing four women on its board in 2009; and Shiseido Co., Seven & I Holdings Co., and Sompo Japan Insurance, Inc. setting a goal of raising the number of female managers to 30 percent by 2020 (Matsui 2010). The Act to Advance Women’s Success in Their Working Life, which came into effect in April 2016, requires large employers with more than 301 employees to disclose their plans to promote female employees, although there was no introduction of numerical targets for female managers due to strong opposition from the industrial lobby. Further progress perhaps could be made by establishing new rules for the minimum number of female directors on company boards, following the lead of European countries including France, Norway, and Spain.

Hurdle 2: Balancing Family Responsibilities with Work

The second hurdle to a woman’s career is usually returning to work after childbirth. Japan has female labor participation rates similar to comparable countries for women in their early twenties, but the rate drops off sharply for women in their late twenties and thirties, Japan’s so-called M-curve (Figure 6.10). The unfortunate reality is that roughly 60 percent of Japanese women quit working after giving birth to their first child. This partly reflects women’s weaker attachment to the labor market due to the issues already discussed, including lower wages and fewer opportunities for career advancement, but it also reflects a weak support system for working mothers.

Figure 6.10.Japan’s “M Curve”: Female Labor Participation Rate by Age

(Percent, 2009)

Source: Organisation for Economic Co-operation and Development.

Three policies can change this environment: (1) leave policies that allow women to retain their current positions, (2) childcare policies to reduce the time burden of family responsibilities, and (3) flexible work arrangements to allow both men and women to better balance market work with family responsibilities. These family-friendly policies would positively affect not only labor force participation but also fertility rates, an important policy angle for any aging society.

  • Parental leave policy—Japan’s leave provisions are near OECD averages but generally less generous than those of the major European countries. Japan’s system includes maternity leave, which was established in 1947, and childcare leave for children under age one, which was established in 1991 along with measures that increased child-related leave from 14 to 58 weeks, bringing Japan broadly in line with the OECD averages. Working parents are also entitled to 67 percent of their previous income up to an income ceiling of 52 weeks. The Act on Parental Leave was further revised in 2005 to extend the benefit to some nonregular workers, but their share in the total remains low (4.3 percent in 2007; Oishi 2011).

Use of leave policy increased following the introduction of childcare leave, but few males make use of it (Figure 6.11). The proportion of eligible female workers taking childcare leave increased from 49 percent in 1996 to 88 percent in 2011; however, the impact of the policy change may have been dampened by the increase in the share of ineligible nonregular workers. Meanwhile, fewer than 3 percent of fathers make use of childcare leave (relative to 70 percent in Sweden).

Figure 6.11.Use of Parental Leave in Japan, 1996–2011

(Percent)

Source: Japan Ministry of Health, Labour, and Welfare.

Evidence using micro data sets in Japan tends to confirm that the length of leave policy has a beneficial impact on women returning to work following childbirth. Waldfogel, Higuchi, and Abe (1999), for example, examine the impact of family leave on women’s employment in Japan, the United Kingdom, and the United States. They confirm that longer parental leave increases the probability that mothers will return to their jobs after childbirth in all three countries and that the effect is particularly strong in Japan. Shigeno and Ohkusa (1998) and Suruga and Cho (2003) also confirm that women working at companies that support parental leave are more likely to have a baby and return to their jobs (22 percent, according to Suruga and Cho 2003).

Our own cross-country results tend to confirm that to be effective leave policy must be longer. This is particularly true in Japan, where the probability of finding full-time work after a career interruption is very low: 18 percent for university-educated women and 12 to 13 percent for less-educated women. Thus, consideration should be given to extending the duration of leave policy to levels similar to those in France, Germany, and the Scandinavian countries (Figure 6.12). At the same time, efforts could be made to encourage more males to use parental leave.

Figure 6.12.New Mothers’ Maternity Leave in Selected Countries

(Weeks per childbirth, 2008)

Sources: Gauthier 2011; and IMF staff estimates.

  • Childcare—Usage of childcare and early educational services in Japan is still low by international standards (Figure 6.13). The system is also fragmented between daycare centers and kindergartens. Daycare centers provide full-day childcare for working mothers with children up to age 6 and are regulated and funded by the Ministry of Health, Labour, and Welfare. Kindergartens, in contrast, usually provide childcare for only part of the day for children ages 3 to 6 and are largely intended for traditional single-earner households. They are regulated and subsidized by the Ministry of Education.

Figure 6.13.Enrollment of Small Children in Formal Childcare in Japan

(Percent of children under age 4, 2008)

Source: Organisation for Economic Co-operation and Development.

The demand for daycare centers has increased with the rising number of two-earner households, with demand largely outstripping supply (Figure 6.14). The number of waitlisted children emerged as a defining social issue in the early 2000s, with the Koizumi government eventually targeting an increase in capacity from 203,000 to 215,000 children by 2009. This goal was met, but because of steady increases in female employment, the number of children on daycare waiting lists has largely remained unchanged at about 25,000 children. Informal reports suggest that potential unmet demand could be as high as one-third of current childcare capacity (Nikkei 2011). Kindergartens, meanwhile, remain underutilized (approximately 70 percent of capacity) because the population has aged and an increasing number of families requires full-day childcare.

Figure 6.14.Japanese Daycare Supply and Demand, 2002–10

(Thousands)

Source: Japan Ministry of Health, Labour, and Welfare.

Evidence using micro data sets in Japan also confirms that women’s participation decisions are indeed dependent on the time they must devote to childcare. Waldfogel, Higuchi, and Abe (1999) estimate that having an infant child reduces participation rates by about 30 percent. Meanwhile, Sasaki (2002) finds that mothers living in the same house as their parents or in-laws are more likely to participate in market work, because these women can reduce their child-rearing responsibilities with support from the older generation. In contrast, women often report receiving little support from men in the household even after returning to work, likely reducing participation rates overall. Recent studies by Murakami (2007) and Sakamoto (2008) find that the time men spend on childcare is the same regardless of whether or not the spouse works. Thus, market work represents an additional burden for women. This is also borne out in cross-country comparisons (Figure 6.15).

Figure 6.15.Time Spent on Childcare by Men in Selected Countries

(Percent of men with two or more children)

Source: Organisation for Economic Co-operation and Development.

Increasing the supply of childcare facilities should help reduce women’s childcare burdens and support an increase in labor force participation. Increasing the supply of childcare, however, will require focus on a variety of policy options, including deregulation and merging the two childcare systems. “One of the stumbling blocks continues to be excessive regulation of the daycare industry. Currently, a myriad of regulations—ranging from the floor space of the facility to the stringent licensing process—means that the supply of facilities remains limited relative to demand. Given constrained public finances, it is necessary to deregulate in order to encourage more private sector entrants into the sector” (Matsui 2010, 15). The government has also started the process of unifying the two systems, but progress is likely to be slow given different ministerial oversight responsibilities.

Finally, some consideration could be given to a small reallocation of spending toward childcare: Japan’s spending (as a percent of GDP) is still somewhat lower than in comparator countries (Figure 6.16).

Figure 6.16.Public Expenditure on Support for Children in Japan

(Percent of GDP in 2005)

Source: Organisation for Economic Co-operation and Development.

  • Flexible work arrangements—Finally, there is a growing need for a more flexible work environment. Inflexible working hours and a lack of support for women in the workplace are often cited by women who drop out of the workforce after having their first child. In one survey, working hours was the second-highest reason given for not participating in the workforce, behind only the additional burden of housework (Table 6.1). As Japan ages, this will become increasingly important, because more time will need to be devoted to the care of elderly parents at home. Employers have recently responded to some of these concerns by creating a new career position that does not require relocation,6 but more needs to be done.

Table 6.1.Japanese Women’s Reasons for Staying Out of the Labor Market
ReasonPercent
Housework33.9
Working hours14.2
Health12.1
Location7.9
Job Characteristics3.6
Others28.2
Source: Japanese Ministry of Internal Affairs and Communications, 2010.

Adopting elements of the Dutch model, with its emphasis on part-time but equal work, could be appropriate for Japan. This could include, for example, equal hourly wages and other full-time benefits such as parental leave and employment protection. Japan already has a large number of non-regular workers and a high share of female workers in these positions. In the survey that explored women’s reasons for staying out of the labor market, 87 percent of respondents indicated that if they were to participate in the labor force they would be interested mainly in part-time work. This is also largely consistent with the findings that suggest the availability of part-time work is significantly correlated with higher female labor participation rates. Achieving this, however, will require either closing the benefit gap between nonregular and regular work or by making regular work more flexible. The government is already making efforts to increase protection of nonregular workers, but over the long term it may be very difficult to equalize benefits between these two streams of work. Efforts instead could be made to make regular work more flexible. In the Netherlands, employees who have worked for more than a year can change their working hours; in Sweden the regulations are more closely tied to child-rearing, with parents eligible to work shorter hours until their child’s eighth birthday.

Special Issues for Low-Income Households

As discussed, both the tax system and family allowances can play a role in determining labor market participation, but these benefits decrease as the average education level of women improves. For Japan, with its high level of educational attainment, these monetary incentives—including Japan’s child-rearing allowance—may not be effective at raising overall rates of female labor force participation. Nonetheless, they could be quite important for low-income households. Our analysis here focuses on the tax system and Japan’s child-rearing allowances.

Japan’s tax system, like that of many other advanced economies, has implicitly compensated women for not fully participating in the workforce. This is because tax systems were originally designed to treat families equally, rather than as individuals. In Japan, for example, before 2004 a head of household was able to claim both a dependent exemption and a special dependent exemption of ¥380,000, as long as the spouse’s annual income was less than ¥1.03 million. This is also the income level that many private companies set for benefits on pensions and spouse allowances. As such, ¥1.03 million is often referred to as the “barrier to full-time female employment,” so that at pay levels above this level, many housewives prefer part-time to full-time work. A histogram of annual wages of female workers indeed indicates that just under a third of workers earn less than the ¥1.03 million threshold (Figure 6.17).

Figure 6.17.Taxation and Wages in Japan

In 2004, one of the special dependent exemptions was eliminated as part of a package of reforms implemented following the passage of the Basic Law for a Gender-Equal Society in 1999 (which provides general guidelines for the promotion of gender equality in society but does not stipulate penalties). In addition, eliminating both the pension exemption and the other dependent exemption is currently under review. Reducing these tax distortions could encourage more married women to seek full-time employment. This would have the additional benefit of reducing tax expenditures.

The short-term impact of removing tax disincentives on the female labor supply may not be large if implemented as a stand-alone measure. Analyses of micro data sets largely find a minimal impact from these distortions. Ishizuka (2003) finds that eliminating the distortions would lead to a small increase in regular full-time employment but at the same time lead to a decrease in overall labor force participation. Murakami (2008), meanwhile, finds that the 2004 reforms had no discernible impact on participation choices in the short term. Given other constraints to female labor force participation, this outcome does not seem surprising.

Japan started providing child allowances in the early 1970s to help pay for child-rearing costs as the number of working mothers increased and the number of multiple-generation households declined. Until 2010, monthly ¥5,000 or ¥10,000 child allowances were paid for children in elementary school or below and were conditional on income levels. In 2010, the Democratic Party of Japan renamed this allowance the “child-rearing allowance” and increased the overall benefits. The amount was increased to ¥13,000 a month, eligibility was raised to include junior high school students, and the new system was no longer conditional on income levels in 2010. In 2012, after the Liberal Democratic Party came into power, the benefit was raised to ¥13,000 a month for children less than 3 years old, but was reduced to ¥10,000 per month for children in junior high schools, and the income threshold was reintroduced.

The effectiveness of these allowances on participation rates, however, is ambiguous. Our results suggest that they are effective only for low-income households; thus, if households’ liquidity is constrained, an increase in income could lead to higher female labor force participation. However, in-kind benefits, such as child-care, are likely to be more effective. Moreover, Jaumotte (2003) finds a negative effect from tax benefits and argues that this is likely due to income effects.

Thus, perhaps a better rationale for child-rearing allowances is equity concerns and this benefit’s impact on lowering child poverty. In fact, the relative poverty rate for single-parent households with children in Japan was the highest among OECD countries, and its proportion is 10 percent higher than in the United States (Figure 6.18).

Figure 6.18.Poverty Rates for Single-Parent Households in Selected Countries

(Percent of single-parent households living with children)

Source: Organisation for Economic Co-operation and Development.

Conclusions

Japan is growing older faster than any other country in the world, and one consequence is the sharpest labor force decline among advanced economies. To keep the potential growth rate from steadily declining, Japan must find new ways to increase labor force participation, including female labor force participation. Demographic changes explain many of the changes in aggregate participation rates within countries over time. But more recently, policies have become increasingly important in explaining differences across countries.

Japan must make two changes to achieve higher female labor force participation rates. First, Japan should consider policies to increase the number of career-track female employees. Japan has by far the lowest share of female managers among advanced economies. Increasing the number of women role models would help steer women toward market work. Second, Japan should provide better support for working mothers. A more flexible work environment combined with better childcare facilities and longer leave policies would help reduce the number of women who exit the workforce after childbirth.

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A version of this analysis was published as Steinberg and Nakane 2012.

Japan’s younger generation of women is more educated than their female peers elsewhere. In 2010, the cohort in their late twenties had on average 14.3 years of schooling, surpassed among advanced economies only by New Zealand.

The effect on growth reflects the impact of the increase in labor input and does not include any additional increase in productivity from, perhaps, better reallocation of resources. Thus, these estimates can be considered to be a lower bound of the possible impact.

Spending on maternity and parental leave benefits per child is less than one-half the OECD average, with Japan in the bottom quarter of the distribution. Similarly, Japan is also in the bottom quarter of the distribution for public expenditure on childcare and early education services.

Nonregular workers are those who work part time, as day-laborers, for a fixed duration, or under agency contracts.

The higher share of women in nonregular positions has also likely contributed to this gap, with 52 percent of women holding nonregular positions relative to 17 percent of men.

Career employees are usually expected to relocate at the company’s request, with the relocation occurring as often as every five years.

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