Gender Equality and Economic Growth

The OECD Ministerial Council Meeting proposed the OECD Gender Initiative in 2011. This initiative emphasized the importance of promoting gender equality not only for social justice but also for economic benefit. Participation of women in economic activities raises productivity, increases the number of tax payers and social security contributions, and generates innovations and enhances competitiveness through a diverse workforce.

Japan lags far behind other advanced countries in gender equality. Japan ranked 57th in 2009 in the Gender Empowerment Measure (GEM), which approximates the extent to which women can participate in decision making through political and economic activities. This is exemplified by the low percentage of women in management and administrative positions in Japan among OECD countries as shown in Fig. 1. (This percentage is particularly low in Japan, Korea, and Turkey.) The lack of gender empowerment is similarly seen in the gender wage gap. This current state of affairs is not at all befitting of an advanced nation such as Japan.

Figure 1. Percentage of Women in Management in OECD Countries

If women, who account for a half of the population, are currently not fully utilized in economic activities, promoting their utilization should naturally lead to economic growth. At the very least, increasing women's participation in the labor force will increase gross national product per capita, and utilizing the ability of talented women will increase labor productivity per hour. In fact, many Western countries have realized this. Let us then inquire into why most Japanese companies do not promote the utilization of female human resources. Next, we shall look into the minority of Japanese companies that have achieved high productivity through utilizing female human resources as potential role models that could help us break through the current inertia.

There are several reasons why there has been little progress in utilizing female human resources in Japan. During Japan's period of rapid economic growth, the prevailing Japanese employment practices were that of long, inflexible work hours and lifetime employment. These practices made it difficult for female employees to balance their work and family, resulting in high percentages of women leaving employment for marriage or childcare. Companies, on their part, came to embrace the practice of suppressing labor cost by not investing in female human resources and making tenure-based wage premiums for women lower than for men, on the assumption that female employees will leave their jobs at the time of marriage or childbirth. I have shown before that this practice of "statistical discrimination" against women is the greatest cause for the gender wage gap (Yamaguchi 2008). The problem is that this practice has remained unchanged due to "institutional inertia" although it has now become dysfunctional.

What matters then are the characteristics of firms that successfully utilize female human resources. In light of my previous studies, I assumed that the firms' work/life balance (WLB) policies and their practices are key elements, and that successful firms have a corporate culture that has replaced male-oriented Japanese employment practices along with a workplace environment that facilitates active roles of female employees. Based on these assumptions, I employed a statistical analysis to classify firms into distinct types according to the state of implementation of various WLB programs. I then analyzed how certain types of firms that show high performance differ from other types in their personnel management practices. Data included in the analysis were 1,677 Japanese firms with 100 or more employees covered by the survey "International Comparison of Measures to Improve Work-Life Balance" conducted by the Research Institute of Economy, Trade and Industry (RIETI). The results of this analysis have recently been published in the RIETI Discussion Paper, "Labor Productivity and Gender Equality: Why Japanese companies are no good, what firms should do, and what the government should do, in order to utilize female human resources effectively." Findings of this study are summarized into 13 points in the section "4.1 Conclusion," to which readers are advised to refer for details. Its major findings are summarized as follows.

First, I found that firms can be classified into six types, including (1) a minority of firms "promoting comprehensive WLB programs (approximately 3.6%) that promote diverse WLB programs ranging from childcare and family care leaves over and beyond statutory minimum, to the realization of various measures of workplace flexibility ("part-time working system," "telecommuting," "flextime working system," and "discretionary flextime working"), (2) a majority of firms that have few such programs (66.4%), and (3) four intermediate types. The intermediate-type firms that mainly support women through childcare and family care leave programs can be further classified into three types in accordance with how personnel management officers evaluated the impact of such support programs: "successful" for a positive impact on workplace productivity, "unsuccessful" for a negative impact, and "neutral" for neither positive nor negative impact. The firms surveyed for comparison in Western countries were largely evaluated as "successful" by their personnel management officers whereas there were slightly more "unsuccessful" than "successful" firms in Japan. Thus, we can conclude that childcare and family care leave support over and beyond statutory minimum is not necessarily considered by personnel management officers in Japanese firms as conducive to enhancing workplace productivity at present. What matters more, however, is an objective result, and I looked into how the type of company affects its gross profit margin (gross profit) per regular employee and gross profit margin per weekly working hours, both considered to reflect productivity and market competitiveness. I also analyzed the characteristics of the personnel management guidelines of the two types of firms performing better than all other types. The result is summarized in Table 1.

The objective results show that highly performing firms successfully utilizing female human resources commonly promote WLB for employees under a definite policy, for instance, by establishing a WLB promotion headquarters, and commonly emphasize "encouraging employees to fulfill their potential irrespective of gender." The provision of support exceeding statutory minimum childcare and family care leave in "successful," "neutral," and "unsuccessful" companies was found to be correlated strongly with whether a company considers "encouraging employees to fulfill their potential irrespective of gender" as "very important," "quite important," or "less important." "Successful" firms were most likely to consider this very important, while "unsuccessful" firms were least likely to consider it very important.

Although the concept of WLB has prevailed in Japan, it has been misunderstood, for instance, as "an employee welfare benefit for those firms which can afford it." Such a misunderstanding, in turn, may have led to delays in the spread of WLB programs and "failure" in childcare and family care leave support. It is important to realize that WLB promotion is a part of "diversity promotion" for utilizing diverse human resources. In fact, firms that promote WLB with definite policies and believe in the maximization of the potential of every employee regardless of gender have successfully utilized female human resources and achieved good performance, as indicated above. The problem, however, is the fact that firms with such characteristics, the majority in the U.S. and European countries, are still scarce in Japan: these two types of successful firms shown in Table 1 only account for approximately 5% of all firms when combined. Using a baseball analogy, the vast majority of Japanese firms have "struck out looking," with few concrete measures in place for utilizing female human resources. No progress can be expected if things remain as they are. In order to break through this inertia, we require positive measures to change the firms' incentives. In addition to voluntary efforts by firms, some effective measures could include the legal guarantee of employees' right to determine their work hours without being penalized, and the government sanctioning, by giving some disadvantages in subsidized projects and public procurement, against firms with an unacceptable level of female human resource utilization. (See the section "4.2 Policy Implications" of the aforementioned discussion paper for details.)