Priorities for the Japanese Economy in 2015 (January 2015)

Take a Careful Approach toward a Women's Quota System

Faculty Fellow, RIETI

Reelection of the Abe administration gives a new boost to the appointment of women

The elections in late 2014 firmed up the political footing of the Shinzo Abe administration, which has championed the role of women. The year 2015 is likely to see momentum gaining for a quota system that sets targets for the number of women in certain posts.

The following are several examples. The exposure draft of a corporate governance code for Japan was announced in December 2014. It sets forth the principle that "Listed companies should recognize that the existence of diverse perspectives and values in their enterprise reflecting a variety of experiences, skills, and characteristics is a strength that supports their sustainable growth. As such, companies should promote diversity of personnel, including the active participation of women." In keeping with this principle, it is reported that companies will start to disclose publicly and be accountable for the percentage of women among their executive officers. There are also increasing cases where the percentage of female faculty is considered as one indicator when evaluating universities, and this is taken into account when competitive funds are distributed. Hiring practices are also changing in response to such government policies. Hokkaido University, Kyushu University, and other leading post-secondary institutes have recruited economists to fill openings that are limited to women.

Some believe that the push for such a quota system will foster prejudice against women because actively trying to meet numerical targets for hiring and promoting women would actually encourage "backfire discrimination," namely, more discrimination against those who the system is trying to help. For example, Tomoko Namba, founder of DeNA Co. Ltd. and who has worked as a manager, says that giving women favorable treatment at every opportunity is an insult to women who have worked hard, and could even engender prejudice against female management. This argument is all the more persuasive as it comes from a female manager.

On the other hand, we must not forget that the very reason why quota systems are being considered is because of the claims that women have suffered from discriminatory treatment. There are a significant number of empirical studies that have shown consistently that women are faced with discriminatory treatment in Japanese businesses (e.g., Kawaguchi 2007; Siegel, Kodama, and Halaburda 2014). RIETI Visiting Fellow Kazuo Yamaguchi points out that discrimination against women takes many forms, but a particularly prominent type is statistical discrimination, wherein employers assume that just because a candidate is a woman, she will quit her job earlier, thus they refrain from hiring women in the first place or from appointing them to important jobs (Yamaguchi 2014 (in Japanese)). He appeals to the business world to overcome this tendency. If statistical discrimination is a factor in limiting participation by women, it is possible that expecting businesses to make a greater effort to gather information to judge the qualities of individual workers without relying on the simple indicator of gender could lead to hiring and promoting appropriate personnel while not lowering hiring and promotion standards.

Evaluating quota systems outside Japan

Do quota systems help to overcome statistical discrimination, or do they simply lead to backfire discrimination? The following is an introduction to research that evaluated whether quota systems have resulted in backfire discrimination in hiring and promotion practices in countries where such systems have been adopted. A survey paper from 2000 found that minorities hired as a result of affirmative action did not necessarily score lower in their work evaluations than did members of the majority population, even if the former were less qualified according to readily observable standards, such as education. Some possible reasons are that, when hiring, employers give adequate consideration to characteristics that are not readily noticeable, which helps them to hire excellent workers, or that employers give enough training to minority employees to afford them the chance to catch up with the other employees in terms of skills (Holzer and Neumark 2000). In Norway, on the other hand, businesses are required to hire a certain number of female executive officers in a short period of time. Share prices reportedly dropped at those companies that did not already have female officers. This means that many investors feared that corporate performance would decline as a result of hiring unqualified female officers. This seems to be a natural expectation if we consider that it takes a long time to develop managers to the executive officer level. (See Smith 2014 for a survey of research.)

Developing a quota system by crafting and responding to desirable policy

In light of the experiences in these countries, the following precautions when implementing a quota system are in order. First, when crafting its policy, the government should carefully consider how much time companies have to achieve quota targets. It takes time to find appropriate personnel and train them. For that reason, policy has to be stable over the long term. If the policy framework is constantly shifting, because of a change in administration or any other reason, the policy will only be half as effective. One effective mechanism is to have companies submit plans for achieving their targets and publicly disclose their progress along the way.

Policymakers will have to consider seriously how much time companies and organizations will need to reach their assigned targets. It is essential that companies and organizations write yearly plans that backcast from medium-term targets and that they closely check their progress. Moreover, given that training and evaluation of personnel will be done in those persons' workplaces, we cannot expect satisfactory results if only management and human resources (HR) departments are setting targets, and limited to only that. It is crucial that company management and HR share information on the targets and current status with hiring officials and management at the work site. Just having a clear awareness of female hiring targets is likely to increase the incidence of giving preference to women if there are male and female candidates with equal qualifications, so that, in many cases, businesses will be able to meet their targets without relaxing their standards for hiring and promotion. Additionally, we have to anticipate that as the deadline nears for meeting their targets, businesses in danger of not doing so will headhunt for highly qualified women. To retain those women, businesses will have to treat them appropriately in line with their capabilities and convey their future prospects to them.

Whether a quota system will eliminate discrimination against women or end up promoting backfire discrimination depends on how skillfully such policy is crafted and how businesses respond when they are assigned numerical targets. Implementing a policy suddenly, without enough lead time, would cause backfire discrimination in that it would simply lower the standards for hiring and promoting women. Backfire discrimination would not help to overcome statistical discrimination against women; in fact, it could make the problem worse. Furthermore, if backfire discrimination becomes widespread, there would likely be a growing sense among women that they are not all being treated equally. There could also be a strong reaction among men who feel that they are suffering from reverse discrimination. These outcomes could lead to a political dynamic to reverse the course of the policy. As for businesses and organizations that have been assigned numerical targets, they should not respond simply by immediately lowering their hiring and promotion standards. Rather, they should take the time to find highly qualified women and give them more training opportunities. If Japan takes a careful approach, a quota system could be a spark for expanding opportunities for women to take an active role in the business world.

December 26, 2014

January 19, 2015