Multinationals and female employment: Japanese evidence
Professor of Economics, Hokkaido University
For ABE Yukiko's full bio,
Professor of International Economics, University of Oxford; and Research Affiliate, CEPR
For Beata JAVORCIK's full bio,
Consulting Fellow, RIETI
Gender inequality is greater in Japan than in other developed countries, and in response the country has implemented steps towards improving female employment. This column presents new evidence suggesting that foreign companies are an unexpected ally in promoting female labour market participation. Foreign direct investment has the potential to improve the allocation of talent and contribute to faster economic growth.
"Abenomics is womenomics", stated the Japanese Prime Minister Shinzo Abe at the 2015 World Assembly for Women in Tokyo. And, indeed in August 2015 the Japanese Diet passed a new law, the Act of Promotion of Women's Participation and Advancement in the Workplace. Starting in April 2016, this law mandates private sector companies and government organisations with more than 300 employees to:
- Obtain statistics on the proportion of female workers and managers, the gender gap in tenure, working hours of the firm;
- Formulate a plan to improve gender equality, with specific numerical targets and a time frame;
- Report the plan to prefectural labour bureaus, and announce it to employees; and
- Disclose the gender-related statistics to the public.
This is important. Creating employment and professional advancement opportunities for women, who previously were not fully able to exploit their skills in the labour market, can improve the allocation of talent and thus translate into faster economic growth (Inui et al. 2015).
Promoting female employment in Japan: New evidence
As we show in recent research (Kodama et al. 2016), Prime Minister Abe may have an unexpected ally in his efforts to promote female employment in the face of foreign companies operating in Japan.
Gender inequality is greater in Japan than in other developed countries, suggesting that there are ample opportunities for foreign affiliates to bring changes in this dimension. According to the World Economic Forum, Japan ranked 104th among 142 countries in terms of the Global Gender Gap Index in 2014. Japan is also at the bottom of the Glass Ceiling Index compiled by The Economist magazine for 2013, ranking 26th among the 27 countries considered. The Nordic countries attained a score of 80%, whereas the index value for Japan reached only 20%. Moreover, the gender wage gap is much larger in Japan than in other developed countries (Blau et al. 2014).
Most foreign direct investment (FDI) inflows into Japan come from countries that are more gender-equal than Japan. This can be seen in Figure 1, which plots the Global Gender Gap Index against the number of foreign affiliates operating in Japan, with the index value attained by Japan being shown with the horizontal line. Thus, it is likely that foreign investors bring gender norms that are different from the existing ones in Japan.
[Click to enlarge]
Indeed, anecdotal evidence suggests that Japanese women are likely to have greater career opportunities in foreign affiliates operating in Japan than in Japanese firms. For instance, the female manager ratio in Texas Instruments Japan Ltd was 10% in 1995, and the company set a target of raising it to 15% by 1999 (Taniguchi 2008) (Note 1). IBM Japan, Ltd has made serious efforts to utilise female talents as a crucial part of their corporate strategy; in 1999 it announced its intention for the number of female managers to quadruple to 700 by 2003. Nissan Motor Company employed only five female managers before its acquisition by Renault in 1998 and 36 in 2004, but this number increased to 101 in 2007, and the proportion of female managers in design, planning, and product development doubled (Note 2).
The difference in gender-related employment outcomes between domestic and foreign firms is clearly visible in firm-level statistics, such as the corporate social responsibility (CSR) survey, which covers all listed companies and comprises about 1,000 firms per year from 2004 to 2014.
How foreign affiliates are more gender-equal than Japanese firms
The data suggest that foreign affiliates are more gender-equal than Japanese firms. The proportion of females among workers, managers, directors, and board members is higher in foreign affiliates than in domestic firms of comparable size operating in the same industry in the same year. For example, the proportion of female managers on average is 1.6 percentage points higher in established foreign affiliates than in Japanese firms (Note 3). This is meaningful given that the average ratio of female managers in Japanese companies in our dataset is only 3.5%. Established affiliates have almost a 50% higher share of female directors and board members than Japanese firms do, although it is also true that the ratio of women in these positions is very low in domestic firms.
Foreign affiliates are more likely to offer family-friendly working arrangements, such as flexible working hours or telecommuting. They are also more likely to offer childcare facilities or subsidies. Moreover, their employees take a larger proportion of their vacation allowance on average. These differences are present for the most part only in foreign affiliates that have been in operation for more than three years, suggesting that it takes time to transplant a corporate culture across international borders. The difference is also more pronounced in affiliates with a higher foreign ownership share, suggesting that control is essential to the ability of the foreign parent to affect the corporate culture.
These female-friendly employment practices also translate into a lower gender wage gap. In other words, after taking into account worker characteristics such as education and age, the pay differential between men and women is smaller in foreign affiliates than in Japanese firms. The equalising effect is larger for older affiliates and increases with the foreign ownership share. Japanese women earn on average 33% less than equally qualified men of the same age employed in the same industry in a firm operating in the same region. Working for a majority-owned foreign affiliate brings the gender wage gap down to 25%.
Finally, we examine the link between foreign acquisitions and gender outcomes. The analysis compares changes in female employment in firms that received FDI to changes in similar firms that remain Japanese. The results indicate that foreign acquisitions lead to a 6–7 percentage point increase in the share of female workers in the medium term. However, they do not appear to have an impact on female representation at the board level within the time frame considered.
Together, all of these results suggest that inflows of FDI affect gender-related labour market outcomes in Japan. Given that innate ability is unlikely to differ between men and women and that women have been historically disadvantaged in the Japanese labour market, these results suggest that FDI has the potential to improve the allocation of talent and thus contribute to faster economic growth.
This article first appeared on www.VoxEU.org on March 27, 2016. Reproduced with permission.
- ^ The average ratio of female managers in Japan was only 2% in 1989 and 8% in 2012 (White Paper of Gender Equality, Cabinet Office of Japan). Among publically traded companies it was even lower, reaching 3.6% in 2012.
- ^ This increase took place slightly after the acquisition of Nissan by Renault: the Renault-Nissan alliance started in 1999, and Renault's shareholding increased from 36.8% to 44.4% in 2002.
- ^ Established foreign affiliates are defined as those that have been in operation for more than three years.
- Blau, F D, M A Ferber, and A E Winkler (2014), The Economics of Women, Men and Work, 7th edition, Prentice Hall/Pearson.
- Inui, T, M Nakamuro, K Edamura, J Ozawa (2015), "Making Japan a place where women can shine", VoxEU.org, 2 May.
- Kodama, N, B S Javorcik, and Y Abe (2016), "Transplanting Corporate Culture across International Borders: FDI and female employment in Japan," RIETI Discussion Paper Series 16-E-015.
- Taniguchi, M (2008), "Diversity in Organizations [Sosiki ni okeru diversity management] (in Japanese)," Japanese Journal of Labour Studies 574, 69-84.
March 28, 2016
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March 28, 2016［VoxEU Column］