Greater Workplace/Employment Flexibility Key to Tackling Low Fertility Problem in Face of Declining Population

Visiting Fellow, RIETI

Japan's efforts to increase fertility rate have until now focused on enhancing compatibility between employment and childrearing. However, recent empirical studies indicate that creating a flexible work environment is more important. Appropriate policy measures should be taken to enable and encourage married couples to share their time together. Creating a society that offers comfortable work-life balance will lead to an increase in fertility rate.

Quality of goals set out by society is in question

With the advent of a decreasing population, policy efforts to increase fertility rate are becoming increasingly important in Japan. Developing such policies requires a clear vision of what kind of society is being sought, in addition to finding out what specific measures are effective in raising fertility rate. For instance, one way to address the problem would be to develop a policy toward forming a society where children grow up healthy and can realize their potential to the fullest.

This implies questioning the "quality" of policy responses to dwindling fertility rate. In what follows, I would like to examine how this quality is related to theories, government policies, and empirical studies concerning the problem of low fertility.

One of the most influential economic theories related to childbirth is that of University of Chicago Professor Gary S. Becker. This theory is built on two related underlying theories, one of which is his theory of the quality of children. Quality here, whether of children or workers, refers to "quality as human capital," such as education and health.

Based on this definition of quality, Becker's theory assumes parents who consider the happiness of their children as part of their own happiness, and thus argues that parents who intend to give higher quality to their children by spending more on their education and upbringing tend to have fewer children. From this theory, it can be expected that the government can raise fertility rate without compromising the quality of children by adopting measures to alleviate financial burden on parents for their child's education and upbringing.

Childcare allowance also lightens parents' per-child financial burden. However, since it is disposable income not assigned to a specific purpose, there is no guarantee the money will actually be spent for improving child quality. In this regard, the childcare allowance system is different from the aforementioned measures designed to alleviate the costs of a child's education and upbringing.

The other underlying theory used by Professor Becker is the theory of opportunity costs. For instance, if taking a job leave for childrearing results in a decrease in present and future income, this decrease becomes the opportunity costs of childrearing. The higher the opportunity costs, the greater the likelihood is that a woman will postpone or avoid childbirth in order to continue her career.

If a social environment is created wherein a comfortable work-life balance can be found, fertility rate can be expected to increase as opportunity costs decline and women are able to continue their careers after childbirth. Government measures to help married couples attain better compatibility of work with childrearing, such as the introduction of a statutory parental leave system and the promotion of childcare coverage, can be defined as policies designed to alleviate the opportunity costs of childrearing.

Three patterns in the experiences of developed countries

Mika Ikemoto, senior researcher at the Japan Research Institute, assumes a different type of quality. Specifically, she defines quality as the process in which the choice of becoming a parent leads to the fostering of rich human relationships. She therefore places emphasis not on measures that simply benefit those choosing to become a parent, but those that create a social environment in which married couples can build fulfilling human relationships as they learn about childrearing through interacting with their child and with others in the community. Parents feel joy that more than compensates for the burdens of childrearing by growing alongside their children.

In a society where cases of child abuse exist, it is difficult to assume as Professor Becker does that parents consider the happiness of their children as part of their own happiness. This is why Ikemoto focuses on policy measures to create a social environment in which parents and children can share happiness and enjoyment as they grow together, such that their happiness become complementary.

Ikemoto points out that government policy to increase the capacity of childcare facilities is increasing time children spend in those facilities and decreasing the time parents spend with their children, thus inadvertently depriving parents of the joy of raising their children. She emphasizes the need to respect parents' rights to engage in fulfilling childrearing experiences and calls for policy measures that support them.

I have been empirically demonstrating the importance of balancing work and family life, a policy goal that is consistent with Ikemoto's vision and overlaps with policy measures to help working parents attain higher compatibility between work and family roles. One instance of this effort is an analysis of Organisation for Economic Co-operation and Development (OECD) countries that have faced the problem of fertility decline at below-replacement level. In the 1970s, the total fertility rate (TFR) declined in almost all developed countries, but the subsequent trend in fertility was quite different among the OECD countries. Particularly well-known is the reversal in the correlation between female labor force participation rate (FLPR) and TFR. Before 1980, countries with higher FLPR tended to have lower TFR. This relationship was reversed in the 1980s however, and the prevailing tendency from the 1990s onward has been for countries with higher FLPR to also have higher TFR.

We can identify three distinct groups of countries in regards to the pattern of fertility trends since 1980. The first consist of Scandinavian countries such as Sweden and Denmark. These countries promoted female employment before 1980 and already had a greater than 80% labor-force participation rate for women aged 25-34 in 1980. While subsequently maintaining that FLPR, the TFR of these countries which had fallen to a relatively low level by 1980 has either recovered (Denmark) or has been maintained (Sweden). Consequently, Scandinavian countries today generally have a high TFR relative to other OECD countries.

The Netherlands and English-speaking countries such as the United States, United Kingdom, and Australia constitute the second group. In these countries the FLPR continued to rise after 1980 while the TFR either increased (the Netherlands and U.S.) or decreased only modestly (UK and Australia).

The third group includes Japan and southern European countries (Italy, Spain, Portugal, and Greece), in which the TFR fell sharply in connection with the increase in FLPR. Fertility rates in these countries, once relatively high, are now anchored at a low level relative to other OECD countries.

Differences among the three groups are thought to stem from differences in the degree to which work-life balance has been achieved in those countries. Work-life balance can be achieved in two ways. One is through the realization of flexible employment and workplace environments, such as the introduction of jobs with flextime or "high-quality" short-time work hours (equivalent to regular part-time employment in Japan). The Netherlands and English-speaking countries have a high degree of achievement in this area. The other way of achieving work-life balance is through support programs designed to help working parents resolve conflicts between work and family roles. This includes parental childcare leave with income compensation and the extent of childcare coverage, with the Scandinavian countries excelling in this aspect. Japan and southern European countries lag behind in both aspects.

Based on indices available from 2001 OECD Employment Outlook, I rated 18 OECD countries regarding these two aspects of work-life balance, and examined how the extent of work-life balance achievement affects the relationship between FLPR changes and TFR changes in these countries. The following facts were found.

First, a rise in FLPR leads on average to a decrease in TFR, but this is not the case in societies where people have sufficient flexibility to balance their work and family lives. Such societal factors are thought to have caused the difference in TFR from 1980 onward between the first group of countries (the Netherlands, U.S., UK, and Australia) and the second (Japan and southern European countries).

Second, support programs designed to help working parents resolve conflicts between work and childrearing roles have helped restore or maintain the TFR in countries with a relatively high FLPR. This has been demonstrated primarily by Scandinavian countries.

Third, statistically speaking, workplace/employment flexibility is twice as effective as support measures in changing fertility rate.

Time jointly spent between spouses increases willingness to give birth

These findings suggest that the Japanese government's policy has been ill-focused, giving high priority to childcare allowances and measures to enhance compatibility between employment and childrearing such as increasing daycare center capacities and establishing the statutory parental leave system. It should be noted however that I have also shown the statutory parental leave system to be effective in increasing fertility rate in Japan, where labor market reentry is quite difficult.

Yet what is important is that the impact of realization of a social environment permitting greater workplace/employment flexibility is greater than the impact expected from the measures to enhance compatibility between employment and childrearing. This is an area where both government and industry in Japan have failed to make sufficient efforts, lagging far behind many other countries. Seeking greater workplace/employment flexibility may appear to be a roundabout approach to addressing the problem of low fertility. However, this flexibility has made it easier for people to balance work and family lives, reduced opportunity costs of childrearing without reducing the joy thereof, and helped relieve working parents from the psychological burden of simultaneously maintaining a demanding job while taking care of their children. Thus, it would be fair to say that greater workplace/employment flexibility has been instrumental in maintaining or raising fertility level.

Another facet of work-life balance in addition to the social aspect determined by employment and labor market situations is how individuals or families select how they work and spend time with their family. In a separate study, I analyzed panel data for married Japanese women and showed that the level of wives' marital satisfaction has a significant impact on their degree of desire to give birth to a first and a second child. The study also found that factors having a strong impact on wives' marital satisfaction primarily concern how married couples live their everyday lives, namely the extent to which they dine and relax together on weekdays, the number of hours they talk to each other in a week, and the husband's share of childrearing. On the other hand, changes in the husband's income have only a limited impact. As such, findings from this study have also demonstrated that it is mainly the quality factors associated with the way a married couple spends time together, and not economic factors, that help increase wives' marital satisfaction and willingness to give birth.

Questionnaire survey results often cite financial problems as the top factor discouraging women from giving birth. Therefore, the government tends to emphasize financial assistance such as childcare allowances. Such measures, even if they may be effective to some extent in increasing fertility rate, lack the vision of fostering future generations in that they do not consider quality-related factors.

What sort of quality Japan should pursue remains an open question. However, empirical findings underscore the importance of realizing a social environment in which people enjoy the freedom to choose from ample options, and in which choosing a life with children brings parents a great sense of fulfillment. This link between childrearing and fulfillment is missing in contemporary Japanese society, which is why Japan continues to face the problem of low fertility.

>> Original text in Japanese

* Translated by RIETI.

December 21, 2006 Nihon Keizai Shimbun

July 10, 2007