RIETI Report April 22, 2022

Tax and social insurance benefits for low-income spouses stand as obstacles for women’s participation and wage growth in Japan

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In this edition, we present topics related to the employment and earnings dynamics of women in Japan over their life cycle and how the existing gender gap in earnings can be modified by removing fiscal policies disincentivizing employment and skill accumulation. The policy changes could also improve the government’s fiscal situation.

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This month's featured article

Tax and social insurance benefits for low-income spouses stand as obstacles for women’s participation and wage growth in Japan

KITAO SagiriSenior Fellow (Specially Appointed), RIETI

MIKOSHIBA MinamoPh.D. student, Graduate School of Public Policy, The University of Tokyo

Japan ranks 120th among 156 countries in terms of its gender gap, with women earning significantly less than men. This column uses survey data to investigate the employment and earnings dynamics of women in Japan over their life-cycle, and finds that tax exemptions and social insurance benefits for low-income spouses significantly dampen women’s labour supply and earnings. There is significant room to improve women’s participation and earnings by removing the fiscal policies that disincentivise work and skill accumulation. The policy changes would also mean that the government could raise more tax revenues without causing a welfare loss.

Some policies could act as barriers to women’s labour supply, holding back their income growth, and preventing an economy from utilising its full capacity (Borella et al. 2019, Doepke and Tertilt 2008).

In Japan, women's earnings are significantly lower than men's. Using individual data from the Japan Panel Survey of Consumers (JPSC), we track the labour market experience of women born in the 1960s through 2018 and analyse their employment and earnings dynamics (Kitao and Mikoshiba 2022). As shown in Figure 1(a), women’s labour participation rates exceed 70% in their mid-20s, but declines to 50% in their early 30s, followed by a gradual increase.

The Japanese labour market is characterised by a two-tiered employment system, which consists of regular and contingent employment. On average, regular jobs are more stable and pay much more than contingent jobs, while the latter include part-time and temporary jobs, and dispatched labour, often based on fixed-term contracts. As Figure 1(b) shows, the decline in the labour participation rate of women until their mid-30s is explained by the fall in the number of regular employees, while the increase after their 30s is explained by the rise in the number of contingent employees.

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