Women’s Empowerment and Its Economic Impact

Part 4: Increase of Potential GDP from Women's Labor Force Participation

Consulting Fellow, RIETI

How does women's labor force participation affect the macro economy? Japan's working-age population has begun to dwindle after peaking at 67.93 million people in 1998 (Labor Force Survey). Mobilizing currently unemployed women into the workforce is expected to supplement the decline in the working-age population.

In 2012, the Council for Gender Equality pointed out that putting some 3.42 million Japanese women who are willing to work but not in the labor force into the workforce could increase the nation's total compensation of employees by approximately seven trillion yen (approximately 1.5% of GDP). This is a conservative estimation, based on the premise that gender wage disparity would continue.

In its 2007 report, Goldman Sachs stated that closing the gap between male and female in labor force participation has the potential of boosting Japan's GDP by 16%. This is a very high figure due to the assumption that the female employment rate comes to the same level as the male employment rate, and that the GDP will increase at the same rate as that of the labor force participation rate.

A 2012 report by Chad Steinberg and Masato Nakane estimated that raising the labor force participation rate of Japanese women to the G7 level (excluding Japan and Italy) could raise the nation's per-capita GDP by 4% compared to the status-quo scenario, and increase the potential GDP growth by 0.2%. If the labor participation rate is brought to the Scandinavian level, the report estimates that the potential GDP growth would be 0.4% higher.

These studies have examined a unidirectional mechanism of a higher female labor force participation rate boosting the potential GDP. JILPT Vice Senior Researcher Satoshi Nakano conducted a simulation, taking into account the changes of wages/incomes resulting from increased labor input and their effect on consumption. The results show that, in a scenario assuming a 6% increase in the female labor force participation rate by 2030, the real economic growth rate would be 0.05% higher. Under the assumption that the female labor force participation rate is determined by the fertility rate and the ratio of pre-school children in childcare services, the simulation showed that it would be 2.6% higher in 2030, and that the real economic growth rate would be 0.003% higher (than the real economic growth rate of 0.84% estimated for the current-state scenario).

As the data show, there is a general consensus that, regardless of differences in calculation models and assumptions made, an increase in the female labor force participation rate would have a positive effect on the nation's GDP.

>> Original text in Japanese

* Translated by RIETI.

August 25, 2016 Nihon Keizai Shimbun

September 29, 2016

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