Economics

Womenomics: Is Japan’s economy lacking women?

Japan’s impressive labour market data masks the low number of women employed or actively looking for work, known as the participation rate. We look at what might happen as this number rises.

24 October 2018

Piya Sachdeva

Piya Sachdeva

Economist

Women in the workforce on the rise

The Japanese labour market boasts some of the world’s best statistics. For example, unemployment currently stands at 2.5%, a 25-year low, while the number of jobs per applicant has risen to 1.6, a multi-decade high. The labour participation rate of the working age population (aged 15-64) is higher at 77.5% than the OECD average of 72.1%.

Consistent with the picture painted by these numbers, firms report severe labour shortages across all sizes and industries in the Tankan survey, a quarterly release by Japan’s central bank that provides a general measure of business activity

However, these figures mask the disparity in gender participation in the labour market.

Chart 1 below shows that there has been a striking increase in the participation rate for females since the beginning of the Prime Minister Abe administration but that the level of participation is still much lower than it is for males. This is also the case when compared to other developed market economies. Indeed, the female inactivity rate is higher in Japan than Spain, UK, Sweden, US, Germany.

What would happen if the female participation rate rose?

If the female participation rate rose by 5% (to around US levels) and all these inactive females joined the labour force as unemployed, this would raise the overall unemployment rate to 6.8%. This shows that female participation presents an inactive resource in the economy and has much further to rise. 

Working on Womenomics 

Adding these women to the workforce could have a significant impact on economic growth and lift the potential growth rate of the economy. This is part of the reason that raising the participation rates of females (as well as older workers) is still very much on Prime Minister Abe’s policy agenda, as highlighted in his recent party leadership election campaigning. “Womenomics” is the catch phrase that describes his efforts to do this; a spin-off of the widely recognised “Abenomics”, the prime minister’s three-pronged economic approach to rejuvenate the economy. 

Women and wages

However, with more women in the workforce, the supply of labour will become greater which will put downward pressure on wages. Recent wage data provides some evidence of building wage pressure consistent with low overall employment. However, the rising participation of women in the workforce (which will take time to filter through to wage growth) is likely to contribute to keeping a lid on wages in the long-term, along with other firmly entrenched cultural factors. 

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