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Learning from Japan’s ‘womenomics’

LiveMint logoLiveMint 07-03-2017 Ajit Ranade

Prime Minister Shinzō Abe of Japan is best known for his economic revival strategy consisting of the three arrows, collectively called Abenomics. Abe’s campaign promise, before his party’s stunning victory in December 2012, was to bring Japan out of its deflationary funk, into strong and sustainable economic growth. His three arrows consisted of expansionary monetary and fiscal policies (the first two arrows), and structural and economic reforms (the third). This third arrow consisted of deregulation, trade liberalization, tax reform and industrial restructuring.

An important component of the third arrow was “womenomics”, getting more women into the workforce and in positions of leadership. Women have long been considered the most “underutilized” resource of the Japanese economy, a point often underscored by Abe. Japanese women are highly educated on average, and indeed have a higher college enrolment than men. Yet female labour force participation rate in Japan has been among the lowest among OECD (Organisation for Economic Cooperation and Development) countries. It was 63.2% in 2010 and, thanks to Abenomics, rose to 66.7% in 2015. More recently, among 25- to 54-year-olds, the Japanese female participation rate has risen to 73%—slightly ahead of the US, where it has fallen. Of course, it is still far below Sweden’s 88.3%. Furthermore, many jobs taken up by women are either part-time or on contract. Their pay for similar jobs is only 72% of what men are paid. So it’s not just the quantity but the quality of participation that also matters. A recent government survey showed 63% of women quit their jobs disappointed by their career prospects. Seventy per cent of the women are not able to return to the workforce after the birth of their first child. The reasons include non-availability of quality childcare centres.

Female participation is crucial for Japan, since its population is declining and also ageing rapidly. The elderly will make up 40% of the total population by 2060, and the ratio of working to retired persons will be 1:1 by 2050. Unless women participate in much greater numbers to expand the workforce, the pension and tax burden will be crushing, and will affect economic growth. If female labour participation is on a par with other industrial nations, Japan’s per capita output would be higher by 4%. Female participation in Japan is lower by as much as 25% compared to males. If this were on parity with males, then Goldman Sachs’ estimates suggest Japan would gain eight million workers, and its gross domestic product (GDP) would be higher by 14%.

It’s precisely because of such dismal numbers and a “low base” that the benefits from increasing female participation will be immense to Japan. Realizing this, Abe put in place numerical targets and tangible metrics in his “womenomics” strategy. He initially aimed to have 30% of leadership positions for women in government and business. This number has been pared down recently, but the numerical target remains. For instance, last year a woman was appointed for the first time as the governor of Tokyo. Since availability of day-care is a big hurdle to young mothers rejoining the workforce, the aim is to reduce daycare waiting lists. Around 400,000 new centres will be opened by the end of 2017. Abe wants businesses to double their childcare leave to three years. Only 3.1% of the board seats are held by women in Japan, as against 19.2% in the US and 20.8% in Canada. The “womenomics” plan also contains reforms like removing the tax penalty for working mothers, and introducing new training subsidies to help them return to the workplace. Abe’s aim is to increase the percentage of women returning to the workforce from the current 30% or so to 55%.

Clearly “womenomics” is working, albeit not as fast as planned. Even though India is not in the OECD peer group, there are lessons from Japan’s “womenomics”. The Indian parliament recently passed a landmark maternity benefits Bill, which will benefit women returning to the workforce. In recent years, the female labour force participation rate (LFPR) in India has been falling. It fell by 11% between 1987 and 2011, according to data from the National Sample Survey. Only one-third of the female labour force describes itself as “working”. Presumably, the remaining do unpaid work. Even among those who are “working”, the pay gap for similar work is substantial. Only in programmes like MGNREGA is the gender gap low.

The LFPR pattern shows a U-shaped relationship with women’s education attainment. As women get more education, the LFPR initially falls. This signifies that their “time at home” becomes more valuable, and hence they choose to drop out of the workforce. But eventually as women’s average education achievement crosses, say, eighth or tenth grade schooling, it results in higher LFPR as well as lower fertility. This is clearly manifest across major states of India—the total fertility rate in many southern states, with relatively higher female education attainment, has fallen to replacement levels. Those states also exhibit higher LFPR.

Beyond education, skilling, pay parity and board positions, India’s agenda also includes providing women leadership positions in political life. The recent violent experience in Nagaland, wherein the local community refused to let women enjoy 33% reservation in local governments, shows how far we have to go. This resistance to even constitutional mandates shows that there is as much a cultural hurdle as an economic policy hurdle to achieving progress for women. But as Japan’s “womenomics” shows, numerical targets do help us get started.

Ajit Ranade is chief economist at Aditya Birla Group.

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