Will Women Save Japan’s Economy?

Will Women Save Japan’s Economy?

It is not the first time, and it probably will not be the last, but International Monetary Fund (IMF) President Christine Lagarde is urging women to enter the Japanese labor force and at least buffer the effect of a rapidly aging society on the economy. It is significant that she has identified a solution to Japan’s problem and is trying to fix it – but can she be successful?

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Many of us – and I include myself – cite Japan as the test case of what happens when a society gets really old. And, as these things go, the country is indeed ancient.

The median age of the population in Japan is now 45, as compared to about 42 in Canada and under 38 in the United States. Unlike Canada or the U.S., however, the population of Japan is actually declining. According to one report, Japan’s population will contract by 20 percent by 2040.

I like to cite the concept of the ‘Demographic Window’ to talk about why the aging of the population is significant in an economic sense. The United Nations defines an open Demographic Window as occurring when you have less than 15 percent of the total population aged over 65, and less than 30 percent aged under 15 as a percentage of the total population. Basically when you have a decent proportion of the population working and paying taxes relative to using services, things just run better. Government finances stay under control, and the economy grows more quickly as well. According to my calculations using United Nations data, the Demographic Window in Canada and the United States is just getting lowered now, and will slam shut by 2015. In contrast, Japan’s window closed in 1995.

Really, it is remarkable that Japan (which is still the fourth largest economy in the world in purchasing power parity terms, losing second place to China a few years ago, and third to India this year) continues to do as well as is growth wise. But continuing to grow is going to get increasing difficult as the labour force shrinks, which was Ms. Lagarde’s point.

What Ms. Lagarde is eluding to is that the shape of an economy can look very different depending on how many women are participating in the labour force. A country with a high female participation rate can tolerate a closed window far easier than one with low female participation. And, in Japan’s case, female labor force participation is indeed very low. Only 69 percent of university-educated women in Japan are employed, compared to an Organization for Economic Cooperation and Development average of 80 percent.

Forcing Japanese female labor force participation higher will mean tearing down many workplace and cultural barriers that deter women, and particularly mothers, from seeking employment. From punishingly-long workdays through to a old-boys type culture, Japanese workplaces are not exactly female friendly. There are moves to change that, of course. As part of his ‘Abenomics’ plan, Prime Minister Shinzo Abe has proposed various incentives to get women working, including providing better childcare facilities.

Ms. Lagarde, in a speech to the World Assembly for Women Conference in Japan urges more of the same, and as well would like to see immigration (not a major force in Japan) opened up so as to be not just a source of labor, but a source of nannies for the newly-working women of Japan.

The payoffs of getting more women working could be large in economic terms. Citing an IMF study, Ms. Lagarde asserts that just getting Japanese female labor force participation to the G7 average would boost income per capita by four percent – permanently

Let’s keep an eye on what happens in Japan. Will women save the economy? If they do, it might be an eye-opener for other countries as well.

 

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