Promote Women's Participation to Improve Productivity

Visiting Fellow, RIETI

This article will examine how we can promote women's participation in economic activities in Japan from the perspective of creating a society where diverse people can bring out the best of their capabilities. Today, the idea of considering women's empowerment as a major strategy for attaining economic growth is rapidly gaining ground in Japan and abroad. At the Asia-Pacific Economic Cooperation (APEC) Ministerial Meeting in 2011, the member countries put forward a gender initiative with a strengthening of links between women and the economy as the common goal. Meanwhile, Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), has urged Japan to improve labor productivity, which he identified as an important factor in revitalizing the nation's economy. Drawing particular attention to the need to promote women's participation in economic activities, he stated that Japan must redress gender inequality in employment, as evidenced by the fact that women account for a disproportionately large share of "non-permanent employees" with a term employment contract as opposed to "permanent employees" with an indefinite term employment contract. He also urged to promote the prevalence of family-friendly workplaces. The Japanese government, for its part, has launched the Ministerial Council on the Promotion of Economic Revival through Women's Active Participation.

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The major question is how we interpret the current situation and thereby define the path to this new goal. One important index of women's empowerment in society is the United Nations' Gender Empowerment Measure (GEM) that indicates the extent to which women participate in decision-making in economic and political activities. Japan finds itself in a humble position according to this gauge, ranking 57th among 109 countries in 2009. This, compared to the fact that Japan ranks 10th in the Human Development Index (HDI, measuring countries' achievements in education and health), shows that women's political and economic participation remains notably low despite the fairly high level of human capital development. In particular, women account for only about 7% of managerial and supervisory positions in Japan, compared to 30% or more in the United States and most European countries. Among the OECD member economies, Japan ranks the lowest along with Turkey and South Korea.

The GEM is strongly correlated with labor productivity per hour. However, many Japanese companies have been measuring labor productivity on a daily basis. The latter unit of measurement, in which longer work hours result in greater productivity, tends to underestimate the productivity of women for whom working long hours is usually not a practical choice. In contrast, measuring productivity per hour provides a fair evaluation for women and serves to bring forth their contribution.

The figure shows the relationship between the GEM and gross domestic product (GDP) per hour worked for OECD member countries. As we can see, the GEM and GDP per hour worked are positively correlated. GDP per hour worked is calculated by dividing each country's GDP, adjusted by purchasing power parity, by the total number of hours worked by all workers. All of the 17 countries outperforming Japan in GDP per hour worked also do the same in GEM scores. This means that the GDP growth of Japan, which has a low GEM score, is being suppressed by the limited participation of women in economic activity.

Relationship between GDP per hour worked and GEMRelationship between GDP per hour worked and GEM

What are the major factors that inhibit women's economic activities in Japan? According to the Ministry of Health, Labour and Welfare's survey on the employment status of women, the big three obstacles hampering employment of women, as seen from the view of personnel officers in surveyed companies, are "the need to give consideration to family responsibilities," "short duration of employment," and "difficulty of making women work overtime or late-night shifts." As such, companies believe that problems lie on the side of women. However, these three factors are all attributable to the lack of diversity management in Japanese employment practices.

For instance, the problem concerning family responsibilities arise because Japanese companies assume traditional gender roles, i.e., men are primarily responsible for work and women for family. Because of this assumption, Japanese companies uniformly tend to consider women's work as a means of earning supplementary household income, thereby establishing institutional systems and practices to keep their wages low.

This has a significant influence on the number of years of continuous employment. In Japan, more than 60% of premaritally employed women leave employment for marriage or for child rearing. Survey findings have shown that in addition to the workplace environment unsupportive of work-life balance (WLB), the lack of prospect for future career advancement strongly affects their leave decisions. I believe this is a case of self-fulfilling prophecy. That is, companies confine women to low-wage tasks with little prospect for career advancement, assuming that they will quit after a short period of time. This effectively deprives women of their motivation to continue their employment and, as a consequence, they quit as anticipated. The problem of constraints on overtime work also stems from the traditional Japanese employment practices in which long work hours are a norm for permanent employees and flexible work arrangement is not an available choice.

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However, Japanese companies have become diversified over the years, and today we see some companies achieving higher labor productivity by promoting women's participation. In an attempt to identify empirically the characteristics of such companies, I have statistically classified Japanese companies into several types based on the pattern of their use of WLB measures, using data obtained from the International Survey on Work-Life Balance conducted by the Research Institute of Economy, Trade and Industry (RIETI) in 2009. I also examined how productivity levels measured by gross profit margin per hour worked differ across different types of companies when all other factors, such as capital, labor input, and industry, are held constant. As a measure of productivity, gross profit margin—rather than operating profit—is used for a specific reason. Earlier studies have shown that the greater the ratio of female employees to total employees, the greater is the operating profit. These studies attributed the increase in the operating profit to economic rent obtained by paying women wages lower than what they should be paid for their productivity, as operating profit represents profit after deducting personnel costs.

In the face of increasingly fierce price competition brought on by economic globalization, many companies have resorted to generating economic rent in the form of wage discrimination against women and non-permanent employees as a means to reduce their personnel costs. It is believed that such corporate behavior has resulted in a negative externality: what Mieko Takenobu, professor at Wako University, calls "recession by employment deterioration."

Gross profit margin, which includes wages paid to employees who generate added value while excluding costs of labor classified as a component of production cost, is a more desirable measure of profitability and fairer for employees in the sense that the effects of economic rent in the form of discriminatory wage differentials are eliminated.

WLB measures at workplaces are categorized into two types, namely, the offering of child and family care leave policies beyond the statutory requirement, and the establishment of flexible working systems such as flextime work, telecommuting, and shorter work hours. An analysis of companies with 300 or more employees found that two types of companies—those I labeled as "Promoters of Comprehensive WLB Measures" that implement both types of WLB measures and "Successful Child and Family Care Supporters"—attained more than twice the productivity of "Do-nearly-nothing Employers" that have almost no WLB measures in place.

Among companies offering WLB policies primarily on child and family care programs, those classified as "Unsuccessful Child and Family Care Supporters" has productivity as low as that of Do-nearly-nothing Employers. Two key characteristics distinguishing successful companies with child and family care support from their unsuccessful counterparts are that the former is more active than the latter in establishing a headquarters or department devoted to the promotion of work-life balance measures, and that they have a higher tendency to have manifestation of a policy that promotes capabilities of employees irrespective of gender. Meanwhile, it has been found that unsuccessful companies, those that lack such management policies, are offering child and family care support programs primarily as part of employees' welfare programs while not promoting female human resource utilization.

Furthermore, it has been also found that: 1) when the percentage of women in management or supervisory roles is constant, an increase in the percentage of women in permanent employment positions leads to a decrease in productivity, and 2) when the percentage of women in permanent employment positions is constant, an increase in the percentage of women in management or supervisory roles leads to an increase in productivity. In essence, this means that companies where women in permanent employment positions have a better chance to be promoted to managerial/supervisory positions tend to also have higher productivity.

As a complement to my findings above, Associate Professor Isamu Yamamoto and Lecturer Toshiyuki Matsuura, both of Keio University, have shown a causal order between productivity and WLB measures such that companies pursuing positive WLB measures by establishing a WLB promotion headquarters or department attain higher productivity after a certain period of time following the establishment of such headquarters/department.

Thus in Japan, there certainly exist companies that are achieving high productivity by promoting women's economic empowerment. However, the aforementioned two successful types of companies—Promoters of Comprehensive WLB Policies and Successful Child and Family Care Supporters—together account for only 14% of Japanese companies with 300 or more employees, whereas roughly half of them are classified as "Do-nearly-nothing Employers."

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Dr. Amartya Sen, a Nobel Prize Laureate in Economics, advocates the concept of economic development as a means to promote the development of people's capabilities to achieve, as opposed to one that calls for utilization of human capital as a means to achieve economic development. The concept of valuing diversity is similar to this. In order to promote women's economic empowerment, we must depart from the conventional viewpoint that takes the traditional Japanese employment practices as given and assumes that problems lie on the side of women. We must also change corporate behavior to seek female and non-permanent employees as a source of economic rent. Companies should be required to disclose the percentage of women in management and other relevant employment information, and based upon this data, the government should provide guidance to employers for improvements and companies should make efforts to expand career opportunities for all employees regardless of gender or employment status. We should thus develop a society where more people are motivated to create diverse kinds of value added, thereby revitalizing society.

>> Original text in Japanese

* Translated by RIETI.

July 16, 2012 Nihon Keizai Shimbun

August 3, 2012