Priorities for the Japanese Economy in 2015 (January 2015)
Innovation to Enhance Women's Labor Participation
Vice Chairman & Vice President, RIETI
In the House of Representatives elections held in December 2014, the ruling coalition of the Liberal Democratic Party and Komeito won a landslide victory, capturing a total of 326 seats to stay in power. On the economic policy front, Abenomics will continue and there will be growing calls for the concrete and accelerated implementation of its third arrow, the growth strategy, in 2015. Greater participation of women in the labor force is one of the pillars of the growth strategy. In this article, I would like to discuss what roles innovation could play in promoting women's participation.
Trade-off between work and childrearing
In their campaign promises in the latest elections, not only the ruling parties but also many opposition parties pledged to promote women's empowerment and support work-life balance. In addition, many parties also advocated revitalizing rural economies in Japan. Addressing the problem of monocentric concentration in Tokyo, underlined as a key element of efforts to revitalize rural economies, is closely related with the issue of work-life balance of women. Boosting Japan's potential growth rate and preventing its population from declining are the two underlying policy goals. Regarding the association between women's employment and fertility, it is often pointed out that the cross-country correlation between the total fertility rate and the female labor force participation rate in major member countries of the Organisation for Economic Co-operation and Development (OECD) has shifted from negative to positive in recent years. Some people interpret this as a causal relation and argue that increasing female labor force participation will lead to a recovery in fertility, but such a simplistic interpretation is not correct (Note 1). This is because there is a significant likelihood that the observed correlation is a spurious one attributable to an omitted variable, i.e., a certain factor that affects both female labor force participation and fertility but which has been left out of the analysis.
A number of Japanese and overseas empirical studies using micro data have shown there is a trade-off between women's employment and childbirth and childrearing. Thus, we cannot rule out the possibility that greater participation of women will result in lower fertility. Rather, the presence of a trade-off is the very reason why the government needs to implement policy measures to help achieve a decent work-life balance. For instance, the enhancement of childcare services can be a key work-life balance policy because it helps alleviate the trade-off between work and childrearing by reducing opportunity costs. Enhancing preschool and compulsory education, as advocated by some parties during the recent election campaign, has a similar impact.
Innovation and women's employment
Most of the empirical studies on women's employment and fertility focus on governments' labor and social security policy such as requiring employers to offer parental leaves and work hours that are more accommodating to working mothers, enhancing public childcare services, and providing financial support to households with children. However, innovation policy also has a lot to do with the issue of work-life balance. Some studies have shown that the development and penetration of home appliances has reduced the burden of housework on women, thereby helping increase the female labor force participation rate. For instance, by developing and simulating a theoretical model, Greenwood et al. (2005) showed that falls in the prices of household durables can explain more than half of the rise in the female labor force participation. Cavalcanti and Tavares (2008) found that falls in household appliances and other products related to household chores boosted female labor force participation significantly in OECD countries, estimating that this factor alone accounted for 10% to 15% of the rise in the rate of female labor force participation in the United Kingdom between 1975 and 1999. Meanwhile, Coen-Pirani et al. (2010) estimated that the diffusion of three major household appliances—washing machines, drying machines, and refrigerators—increased married women's labor force participation rate in the United States by five percentage points in the 1960s.
The emergence of household appliances was a remarkable technological advancement that led to a significant increase in the productivity of household chores such as cooking, washing, and cleaning. Today, childrearing and nursing care for elderly family members are the services and production activities within households that affect women's decisions on their labor force participation the greatest. It is hoped that further innovation in these fields—such as the development of robots and artificial intelligence that can help perform those tasks—will make it dramatically easier to achieve work-life balance. Although utilizing external childcare services and nursing care facilities is done to substitute such services and production activities within households with services available on the market, those areas of services are extremely labor intensive at the moment. The kind of innovation that can enhance the productivity of childcare and nursing care facilities and reduce the cost of their use would also help achieve work-life balance.
Relationship with population concentration in large cities
How to put the brakes on population declines in Japan has been an issue of great concern in recent discussions on the revitalization of rural economies. Large gaps in fertility between urban and rural areas observed in statistical data are considered to be one of the grounds for promoting decentralization. However, the correlation observed between the size of cities and fertility may not represent a causal relationship. Instead, it may be a result of bias caused by omitted variables for regional differences relevant to the number of children, such as family structure, commuting time to work, and industrial structure and/or a result of selection bias in which those wishing to have more children are inclined to live in rural areas. Should it be the case, promoting the decentralization of population would not boost fertility, whereas it could have a negative impact on economic growth by weakening the economies of agglomeration.
Some studies have shown that living with or near parents (grandparents to children) has a significant impact on the employment of women with children (Note 2). Meanwhile, estimates by Black et al. (2014) showed that married women's labor force participation rate in urban areas in the United States drops by 0.3 to 0.5 percentage point for every one minute of commuting time to work and that differences in commuting time to work explain 10% of cross-city differences in married women's labor force participation. Based on those findings, they pointed out that the advancement of transportation technology has an effect to enhance women's labor force partition.
In Japan, women's labor force participation is relatively low in Kanagawa, Saitama, and Chiba prefectures, each of which has a large number of people commuting to work in Tokyo. An observation based on prefectural-level data from Shakai Seikatsu Kihon Chosa (survey on time use and leisure activities) and the Employment Status Survey shows that every one minute of commuting time to work translates into a 0.4 percentage point decrease in the labor participation rate for women of childrearing age, i.e., those aged between 25 and 44. This suggests that long commuting hours may be a factor behind the trade-off between urban concentration and female participation in the labor force.
Another possible solution to this problem—apart from innovation in transportation-related technology—is telework, which can be regarded as broadly-defined innovation utilizing information technology. Telework is complementary with crowdsourcing, a segment of technology that has been growing rapidly in recent years. Dettling (2013) showed that married women using the Internet at home are more likely to participate in the labor force, most conspicuously among those with higher levels of education and children. Based on those findings, she argues that the availability of high-speed Internet services at home facilitates work-life balance for highly-educated women by enabling telework. Meanwhile, an empirical study on large-scale NASDAQ-listed Chinese service firms conducted by Bloom et al. (forthcoming) shows that the introduction of a working-from-home (WFH) system could not only improve the work-life balance of employees taking advantage of the system but also increase firms' total factor productivity (TFP) by 20% to 30%, for instance, through saving on office space.
If we are to follow the guiding principles of the optimal policy mix that calls for assigning different policy tools to different policy goals, we need to implement different measures to achieve the two policy goals, i.e., improving productivity through economies of agglomeration and boosting fertility, which are in trade-off with each other. However, technological advancement in transportation and information and telecommunications as well as innovative work styles capitalizing on such new technology may break the trade-off between productivity and fertility. In considering measures to promote women's participation and help achieve a better work-life balance, policymakers should take a broader view to explore the possibility of various policy tools, rather than focusing solely on those within the realm of labor and social security policy.
- Black, Dan A., Natalia Kolesnikova, and Lowell J. Tayler (2014), "Why Do So Few Women Work in New York (and So Many in Minneapolis)? Labor Supply of Married Women across US Cities," Journal of Urban Economics, Vol. 79, January, pp. 59-71.
- Bloom, Nicholas, James Liang, John Roberts, and Zhichun Jenny Ying (forthcoming), "Does Working from Home Work? Evidence from a Chinese Experiment," Quarterly Journal of Economics.
- Cavalcanti, Tiago V. de V. and José Tavares (2008), "Assessing the 'Engines of Liberation': Home Appliances and Female Labor Force Participation," Review of Economics and Statistics, Vol. 90, No. 1, pp. 81-88.
- Coen-Pirani, Daniele, Alexis Leon, and Steven Lugauer (2010), "The Effect of Household Appliances on Female Labor Force Participation: Evidence from Microdata," Labour Economics, Vol. 17, No. 3, pp. 503-513.
- Compton, Janice and Robert A. Pollak (2014), "Family Proximity, Childcare, and Women's Labor Force Attachment," Journal of Urban Economics, Vol. 79, January, pp. 72-90.
- Dettling, Lisa J. (2013), "Broadband in the Labor Market: The Impact of Residential High Speed Internet on Married Women's Labor Force Participation," FRB Finance and Economics Discussion Series, 2013-65.
- Greenwood, Jeremy, Ananth Seshadri, and Mehmet Yorukoglu (2005), "Engines of Liberation," Review of Economic Studies, Vol. 72, No. 1, pp. 109-133.
- Kogel, Tomas (2004), "Did the Association between Fertility and Female Employment within OECD Countries Really Change Its Sign?" Journal of Population Economics, Vol. 17, pp. 45-65.
- Posadas, Josefina and Marian Vidal-Fernández (2013), "Grandparents' Childcare and Female Labor Force Participation," IZA Journal of Labor Policy, 2:14.
- Yamaguchi, Kazuo (2005), "True Relationship Between Female Labor Force Participation and Total Fertility Rate: An Analysis of OECD Countries," RIETI Discussion Paper 05-J-036 in Japanese (http://www.rieti.go.jp/jp/publications/summary/05122701.html), English abstract (http://www.rieti.go.jp/en/publications/summary/05122701.html)
January 6, 2015
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