She Is the Answer - IMF's work on gender issues and promoting womenomics in Japan

I will look at gender gaps globally and argue that they are macro critical. Many ask why the International Monetary Fund (IMF) is involved in this topic because it does not appear macro-related. I will then talk about policies known to be effective. Finally, I would like to talk about what is going on in Japan and why it is important. These are not easy problems to solve, but they are critical and very relevant to Japan and many other countries.

Female labor force participation rates (the rates at which women of working age (15-64) participate) have been more or less stagnant for the last 20 years. The global average has been stuck at about 50%. In India, my country, the rates have actually declined. The gap between male and female labor force participation is actually narrowing, but this is because the participation rate of men is declining, which is not necessarily good news.

Gender gaps in education remain quite significant but are narrowing, especially at the primary and secondary school levels. For tertiary schools, the rates are higher for women in some countries. Even with this progress, more women are more likely to be illiterate in developing countries. The mean number of years of schooling is lower for women, but there is variation throughout the world. Korea has very high schooling rates for women, but their participation in the labor force is relatively low, which is quite a loss. Why educate them and not have them be productively employed?

Even though the rates vary greatly between regions, there is also wide variation within regions. Regions are not homogeneous, including Asia.

Significant wage gaps are another source of inequality even when women participate. Research shows that even when controlling for factors that should explain the gap—education, age, fertility, etc.—the wage gap remains. Men in general are earning considerably more. In Japan, it is particularly noticeable. Women tend to be overrepresented in low-paying occupations relative to the national averages. This includes part-time work. The reasons are not entirely clear, but this also explains the large wage gap.

Women have much lower access to finance in developing countries. Financial inclusion is measured by the difference in the percentage of women who have an account with an institution relative to men. These gaps are particularly large in the Middle East, South Asia, and Sub-Saharan Africa. Women also face health issues. Significant progress has been made, but women's health issues tend not to attract policymakers' highest levels of attention.

With regard to gender-based legal restrictions, our colleagues at the World Bank issued a publication called "Women, Business and the Law" which surveyed more than 100 countries' laws in which a distinction could exist between men and women. The authors found that although gender-based legal restrictions have declined over the last 50 years (1960-2010), almost every country still has some gender-based restrictions. Some have numerous such restrictions. The nature of the restrictions varies across countries. In some countries, a woman needs her husband's permission to work. Some restrict the professions that women may participate in. Gender-based property and inheritance restrictions also account for women having lower access to finance.

Women and girls disproportionately earn lower incomes and suffer from extreme poverty. Out of all of the people employed in the world, only about 40% are women. They also have a lower level of job protection. Female representation in highly-paid senior positions in the public and private sectors is still quite low, which exacerbates income inequality. There are social justice issues, but from the IMF's viewpoint, we are involved in this because it is macro critical.

What are some of the channels through which macroeconomic gains can be found? Increasing female labor force participation boosts economic growth by mitigating the effects of a shrinking workforce. This is critical for rapidly aging countries such as Japan and Korea. Korea has an even faster rate of aging than Japan, so it will be catching up quite soon, too. Equal access to inputs raises productivity in female-owned companies, which is good for growth. Equal employment of women improves the talent pool.

The IMF researched the impact of gender equity on labor productivity and resource allocation. The idea of the model is very simple: agents, men and women, are endowed with entrepreneurial talent that is drawn from a fixed distribution. They inherently have the same distribution of talent. Some choose to be entrepreneurs, and others choose to be workers. Artificial restrictions that limit the ability of women to work are then superimposed onto this. If you do not use your distribution of talent in the most efficient way, you could be leaving a lot of gross domestic product (GDP) money on the table. These losses are quite large, with the global average at around 25%. The losses in Japan are very large.

Economic diversification is a strong driver of growth, and gender inequality is associated with lower economic diversification. We constructed a gender inequality index that takes into account various dimensions of inequality. We assembled a composite index of gender inequality and found that it is very closely correlated with the diversification of output and the diversification of exports; another channel through which female labor force participation impacts growth.

There are strong gender dimensions to inequality. Also, poverty is very closely linked to women. Many people say poverty is a female phenomenon. This is perpetuated in their working lives and in retirement, when their pensions are lower. Gender inequality is therefore much more insidious than generally believed.

In 2013, my colleagues looked at firm-level data on two million companies in 35 European countries. They found a strong positive association between the share of women in senior positions and a firm's return on assets. Adding one more woman in a senior management position or on the corporate board is associated with an 8-to-13 basis point increase in the return on assets. They went on to identify the sectors in which this originates. They found that the impact of adding more women and having a more diverse board is even larger in high-tech and knowledge-intensive sectors. Excluding women from these sectors tends to result in even higher losses. This movement away from manufacturing and toward higher technology and services is the wave of the future, especially in a country like Japan. The losses from excluding women may be even higher.

The legal underpinnings matter. What is the participation gap between men and women in countries where sons and daughters have unequal inheritance rates versus those in which inheritance rates are equal? Statistical analysis shows that discriminatory laws cause very serious differences. Favorable laws have very strong effects on female labor force participation. For example, in Namibia, there was an act that triggered a number of changes in the legal regime between men and women, and we quickly saw a very significant jump in female labor force participation rates. Bank account changes were made in Peru, and we saw a big jump there as well. Is this causation or correlation? We found that it is a causal relationship.

Societal attitudes matter. The World Values Survey asked, "Do you believe that men should be given priority in employment?" The ratio of people who answered yes plotted against female to male labor force participation rates shows a significant negative relationship between societal attitudes and female labor force participation. This is a correlation, but it has relevance for Japan. Attitudes are powerful and difficult to change.

Policies also matter. What policies can be used to improve women's economic empowerment? There is no single answer; it is multifaceted and varies by country. What impact do policies have? Childcare availability has a positive impact on female employment, and leave policies have a positive impact, as do taxes and allowances. Taxes that penalize a second income earner act as disincentives for women to work. The main point is that it is not just differences in education or demography.

Better infrastructure is much better for female labor force participation. Higher social spending on health and education tends to be good as well. More flexible labor markets help, too. India has fairly strict labor laws. A company which employs more than 100 people cannot fire anyone without the explicit permission of the state, which has kept women out of the labor force. States that interpret that law more rigidly have fewer women in the labor force.

What if Japan were to raise its female labor force participation rate to the average level in the G7? It was found that GDP would be permanently increased by approximately 4%. At the northern European average, Japan would add an additional 4% to per capita GDP. There are significant gains to be had from raising the female labor force participation rate in Japan.

There are some differences in education, but we do not believe it is the rate at which women are educated compared to men. It could be that women are being educated in areas that are less relevant for the labor force. So, it's not really the level of education but rather the fields of education chosen by women.

What has happened since the beginning of Abenomics? Female labor force participation has been increasing partly because of the importance given to increasing the availability of childcare facilities and so on. More women of childbearing age are coming back to work. The bad news is that Japanese women are marrying later and having children later. What this means is that fertility rates are far below the replacement rate. Female labor force participation has risen, and it has been recognized all over the world that policies have helped, but there is a dark cloud to that silver lining, because the increase in female labor force participation has been accompanied by a decline in fertility rates.

Wage gaps have narrowed but remain sizable: nearly 28% for all workers, 26% for regular employees. One reason is that women are disproportionately in non-regular and non-career-track jobs. Nearly 50% of women are in non-regular jobs compared to about 20% of men. Even within regular jobs, there are career-track versus non-career-track jobs and women are disproportionately in non-career track. Women have shorter tenures at their jobs. I think there is some subtle expectation that women will leave the workforce upon marriage or childbirth. There are other attitude differences; the expectation for men to remain in the workplace for long hours, etc. This is part of the culture, but it is not productive at all.

Women in Japan hold very few managerial positions. In countries where gender quotas exist, research has shown that changes are the largest, although the overall evidence on the impact of quotas is mixed. In the IMF, we don't set quotas but instead benchmarks, and that has brought about some change in the number of senior-level women.

The tax system is a strong disincentive. Japan has joint taxation which discourages women from joining the labor force. It becomes no longer economical to be in the labor force and pay a higher rate of taxation. Canada switched from a joint tax system and saw a 9%-10% increase in the female labor force participation rate. The same results occurred in Sweden and other northern European countries.

The increase in the capacity of nursery schools and childcare facilities is good news, though gaps remain. We are aware that women are prioritized based on marital status, health, income, etc. This point system puts non-regular workers at a lower priority and non-regular workers tend to be women. Some tweaks need to be made. There are strict regulatory standards for the opening of these childcare centers, so it may be necessary to relax them without changing the quality of childcare available.

The issue in Japan is fairly deeply rooted. Policy changes can make a difference, but there needs to be a concerted effort to change the societal attitudes and attitudes in the private sector. The government can lead. I believe some of that is happening. It can be a very powerful signal. Throughout the world, the jobs of the future are going to be less focused on areas in which men have a comparative advantage and more focused on areas in which men and women are equal, so it would be a greater loss to leave women out of the labor force. What will bring about the needed changes? It will have to be the realization that there are very major productivity gains that could be had by including more women in the labor force.

Q1. I have no objections to your presentation, but as far as I know, much research indicates, for example, that the development of electrical appliances, washing machines, etc., was very powerful for increasing female labor force participation. Technological progress is also very important. Future technological progress will change the demand for skills. What do you think will be the impact of artificial intelligence and robotics on female labor force participation? Do you know whether the IMF has done any work on this issue?

Kalpana KOCHHAR
The IMF has not looked at the impacts of robots, etc., although that is a very real concern. Based on what I have read, it's true that there will be a trend to automate processes and that will happen only in certain sectors. You can only automate things that are predictable. You cannot automate jobs with unpredictable problems. There are going to be, in any environment, certain jobs that have to be performed by human beings. Many of those jobs may have a greater advantage for women: caregiving, services, and problem-solving that involves collaboration and teamwork. These are traditionally associated with women.

Q2. What is your opinion about quotas? Are they good for women or too contradictory?

Kalpana KOCHHAR
That's really the million-dollar question. My own reading of the research on this is very mixed. I think back to affirmative action in the United States. It's not clear to me that the disadvantages that the different races faced would have been solved fast enough without this legislation. My sense is that quotas will help with larger discrepancies. Raising awareness and transparency helps. Quotas can also backfire. It can push some women up who are not ready.

Q3. Is there a difference in the macroeconomic impact of approaching the two different problems you mentioned about Japan (overrepresentation in part-time and non-regular work, and the glass ceiling)?

Kalpana KOCHHAR
I think the two problems are related so I don't know if I could make a distinction. It is multifaceted and has to work on different margins. We have also been pushing the fact that Japan needs to move away from the very rigid lifetime employment system. It creates a dichotomy between the totally protected and the totally unprotected. That could have a massive impact for women.

Q4. Motivating women is one of our most important jobs. Major companies in Japan put a great deal of emphasis on on-the-job training. To do that, they need potentially skilled workers and have to recruit the most potentially qualified workers based on statistical data. Female workers are risky because they may quit due to family duties. Their husbands may be transferred to another part of Japan and they then have to follow, etc. We should not only focus on women but also on related phenomena such as educational discrimination, which is also serious in Japan. Both originate from the same sources. The current administration is trying to mobilize the labor market. I think that will not only help women but also young men who lack good educational backgrounds and elderly people. If you are over the age of 65, you have no employment prospects due to age discrimination. I hope that the IMF also focuses on age discrimination. Japan is the only advanced country with a mandatory retirement scheme. I think this all comes from Japanese employment practices.

Kalpana KOCHHAR
We are thinking now about how to make links. I see links with our research on women, and you raise very good points. When the labor force is shrinking, you should be encouraging more people to work. I am surprised that Japan hasn't dropped mandatory retirement. It seems quite obvious that it should be dropped.

YASHIRO
Mandatory retirement has two aspects. There is mandatory dismissal at the age of 60 but also a job guarantee up to the age of 60. So it has merits and disadvantages. If it were abolished by law, that would mean that the employment guarantee may also be removed at the same time.

Q5. I am curious to know whether you have any data about any actions that have helped on a company level.

Kalpana KOCHHAR
A good set of studies has been done in the private sector which have revealed that companies that have adopted this have noticed a positive impact on their bottom lines, and some commitment to this is needed from the leadership. At the company level, conviction is key.

Q6. You mentioned changing taxation from a joint system to an individual system. Is that a global trend or is it a phenomenon confined to individual countries? Also, Japan has childbirth leave, but it is mostly women who take it even though the law does not limit such leave to mothers. Do you think a quota on this would work?

Kalpana KOCHHAR
I don't think I could call it a trend, but I can say that countries that have moved to individual taxation have seen significant benefits from increases in female labor force participation and I would argue with very little impact on total revenues.

I have seen very little research on paternity leave. The father gets leave if he chooses to take it. Tax incentives could be used to get companies to extend the leave and benefit the people taking it. Companies can be incentivized to do this. I don't know any rule about whether it would work; it is case-by-case.

Q7. One very traditional Japanese insurance company has mandated that all fathers take at least one week of paternity leave. It has had a very positive effect on the firm and increased productivity. Taking the leave made the men better managers of their saleswomen. It's not a cost but an investment.

Q8. As someone working in the government, I am interested in answers to this problem. In the case of Japan, do you think tax policy may be most important? Do you have any policy advice for Japanese government officials?

Kalpana KOCHHAR
I think the tax issue is an important remaining problem. Judging by the experience of similar countries, when the change was made it had a big impact. It's a low-hanging fruit in that sense for Japan. Some of the impediments we see in other countries don't exist in Japan. Certainly, changing tax incentives could bring more women in. Societal attitudes change over time. If you do have a big impact from changing the tax laws, more women come in, they rise to the top, and over time, the societal attitude changes. There will be no quick solution.

I had an interesting conversation with officials from Saudi Arabia, which, needless to say, is one of the most repressive countries for women. The shocking statistic is the number of women who have university degrees. Many have degrees but cannot set foot outside the house. The decline in oil prices has caused an existential crisis, and they are looking at a very difficult future. Now they are asking what they can do with their women. They could put their educated women into technology-intensive fields without changing the restrictions; the women could work from their homes. Even in countries like that, there is a dawning realization that something can be done. I don't know what will trigger the change in Japan, but it seems like the tax system change would be easy to do, and I believe it is being considered at the present time.

Q9. I think a change in the mindset of women is also an important factor in Japan. What kind of mindset should Japanese women have so that they can participate more?

Kalpana KOCHHAR
I would like to turn the question back to you. Have you surveyed university graduates or young women about whether they believe in these stereotypes? That bringing up their children is solely their responsibility?

Most women in our leadership development course have these kinds of negative beliefs. They should take care of children and be softer and kinder than men.

Kalpana KOCHHAR
Men and women are different and bring very different skills. Women shouldn't try to imitate men. There is a lot of evidence that children with two working parents are no worse off and sometimes are cognitively better off. There is no evidence that a woman sitting at home 24/7 generates a better outcome for the children. There has to be high-quality care, but maybe exposing your young women to that kind of research would help. Especially for girls, seeing a working role model in their mother is a very positive thing.

One thing we haven't talked about is the attitude of men. I think the positive effect of working parents with good careers is that children have good role models. There is the anecdote of the little boy standing by the roadside when John Major, the newly elected UK prime minister, was being driven to his official home at 10 Downing Street. The little boy asked who it was. His father said that it was the prime minister. The boy expressed surprise that a man could be a prime minister. He was born and raised under Margaret Thatcher. So this shows how stereotypes develop.