"Can Women Save Japan?" is the title of a working paper published last year by the International Monetary Fund (IMF). As the paper indicates, the active participation of women in the workforce has been attracting attention as a cure to revitalize Japan's economy. The growth strategy formulated by the Shinzo Abe administration also explicitly refers to the need to increase the number of women in management and director positions. Prime Minister Abe's call for at least one woman to be on the board of directors in listed companies is still fresh in our minds.
According to the recent White Paper on Gender Equity, the ratio of women on the boards of directors in listed Japanese companies is 1.2%. A study by the Corporate Women Directors International indicates that the same ratios in other developed countries are mostly over 10% while those in Japan and Korea are significantly lower.
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Some countries with higher ratios of women directors are even further increasing them with compulsory measures. In 2003, Norway introduced a gender quota for listed companies and non-listed companies meeting certain criteria to raise the ratio from 6% to 40% in 2008.
A rationale for such quota is the need to overcome the prejudice and statistical discrimination against women. For example, many studies have indicated that, on average, women are more risk adverse than men, and this is often used as a rationale for the argument against women's aptitude for management. Nevertheless, Renée Adams, a professor at the University of New South Wales, Australia, and Patricia Funk, an assistant professor at the Universitat Pompeu Fabra, Spain, emphasized in their argument that gender differences at the director and non-director levels should be distinguished. Citing a 2005 study conducted in Sweden, they demonstrate that women directors are less traditional minded and security oriented, and instead are more risk loving.
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Should Japan then be positive about introducing a gender quota system? Many of the recently published empirical studies in major academic journals are thought provoking. Kenneth Ahern, an assistant professor at the University of Southern California, and Amy Dittmar, an associate professor at the University of Michigan, demonstrate that, based on data from 2001-2009 on 248 listed companies, stock prices depreciated significantly when the content of the gender quota was announced, and the Tobin's q ratio (the ratio of the market value of a firm's assets to the replacement cost of the firm's assets), a measurement of corporate value, decreased by 12.4% as the women director ratio increased by 10%. In fact, as the companies' debt increased, their business performances worsened.
While there have been some studies in the past that indicated positive correlations between the women director ratio and companies' performance, the interpretation of such results requires caution, for they include reverse causality. Norway's case is a good social experiment to study the effects of the increase of the women director ratio on businesses.
It is clear—also from the fact that the number of listed companies decreased by over 30% from 2001 to 2009 and that the number of non-listed companies not meeting the quota criteria increased by 30% to avoid the application of the quota—that the introduction of such quota system has been a burden on businesses even in Norway where the gender gap is smaller.
David Matsa, an associate professor at Northwestern University, and Amalia Miller, an associate professor at the University of Virginia, compared companies in Norway that were either affected or unaffected by the quota. They demonstrate that companies with higher ratios of women directors tend to undertake fewer workforce reductions, increasing relative labor costs and employment levels and reducing short-term profits, and that the effects are strongest among firms which didn't have women directors previously.
These results suggest that the introduction of a compulsory gender quota does not necessarily increase corporations' profit or value. To increase the women director ratio, a subtle approach to remove impediments is important.
Marianne Bertrand, a professor at the University of Chicago, and Claudia Goldin and Lawrence Katz, professors at Harvard University, analyzed the gender gap in earnings among master of business administration (MBA) degree holders from the University of Chicago and who are considered possible candidates as future directors. They demonstrate that, although male and female MBA degree holders have nearly identical earnings at the outset of their careers, their earnings diverge quite significantly a decade later. They describe three proximate factors that account for approximately 80% of the earnings gap: (1) choice of courses and performance at the business school, (2) career interruptions, and (3) shorter work hours, emphasizing the effect of the greater career discontinuity and shorter work hours associated with motherhood.
Also, referring to a pursuit survey on graduates of Harvard University's undergraduate programs, they demonstrate that female MBA degree holders' participation and full-time employment ratios are lower than those of female graduates who are medical doctors, Ph.D. degree holders, and lawyers, and that the periods of their career interruption are longer. These differences are even more significant when they have children. This trend might reflect the fact that promotions in corporations require continuous competition as is seen in tournaments. One of the authors emphasizes that the commitment to continue to work without interruption at a workplace is a requirement for reaching the top of corporations in the United States.
Thus, a straightforward approach to increasing the women director ratio is to prevent women's career discontinuity, namely, to increase their full-time participation ratio. Adams and Tom Kirchmaier, a fellow at the London School of Economics, demonstrate in their 2013 paper that, based on data from 2001-2010 on approximately 10,000 listed companies in 22 countries, an increase of 5.3% in the women's full-time participation ratio (27.7% on average) contributes to an increase of 2.6% in the number of women non-executive directors (9.0% on average), indicating that women's full-time participation ratio has a strongly positive effect.
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What kinds of policies, then, are effective for increasing women's full-time participation ratio? Olivier Thévenon, an Organisation for Economic Co-operation and Development (OECD) economist, analyzed 18 OECD countries from the early 1980s and demonstrated that public expenditure on childcare services for parents of children younger than three years old positively contributes to women's (25 years old to 54 years old) full-time participation ratio while the extension of childcare leave does not affect the ratio.
Thévenon and Anne Solaz, a researcher at the Institut National d'Études Démographiques, France, analyzed the effect of childcare leave in more detail using data from a longer period and covering more countries, and demonstrate that, while childcare leave of up to approximately two years positively contributes to the women's participation ratio, a longer leave negatively contributes to the ratio. The "three-year childcare leave," which was discussed for Japan's growth strategy, is a contradictory policy in view of promoting women's participation and avoiding career discontinuation.
Another perspective for increasing the women's participation ratio and preventing their career discontinuation is a reversible working hours adjustment system introduced in the Netherlands. The women's participation ration in the Netherlands used to be lower than that in Japan, but it has since surpassed Japan and continues to rise. The IMF paper introduced above suggests that the Netherland's system, whereby an employee with service of one year or longer with the employer can request an adjustment of his or her working hours between full-time and part-time, which is reversible, depending on his or her life-cycle (2000 Working Hours Adjustment Act), can be a model for Japan.
Adams and Kirchmaier, as described above, argue that promoting full-time employment is an important "pipeline" for producing women at the top. On the other hand, they also indicate that cultural factors which lead to such values as the division of roles between men and women have a similar degree of impact as does the participation ratio. Keys to the promotion of women's active participation are bold, effective policies as well as a drastic revision of our sense of values concerning work and family life.
* Translated by RIETI.
September 7, 2013 Nihon Keizai Shimbun
