Gender equality in Japan: Can ‘Womenomics’ deliver?

The gender pay gap in Japan is the third highest amongst the world’s major developed economies¹ . Traditionally, women gave up their careers at marriage or at the birth of their first child. This is partly due to culture but also due to relatively poor childcare provision and the typical environment of long working hours.

But things are changing, particularly as the Japanese government itself is pushing for reform. Prime Minister Shinzo Abe has been an advocate of equality with his so-called “Womenomics” plan. The need to have more women participate in the work force is a key solution to the falling numbers of male workers in Japan’s rapidly aging population.

Despite these reforms, job quality is still a concern. Casual and part-time employment continue to dominate job opportunities for many women.

In a series of articles, we look at the dynamics of gender inequality throughout a woman’s entire working life, taking four key capital markets as examples.

Beginning with Germany, and now looking at Japan, then later China and India, we identify the drivers of inequality, assess local company practices and highlight recommendations for investor engagement.

Macro snapshot: The motherhood penalty

Employees have become a scarce resource in Japan. Since 2000, there has been a 13% fall in the number of working-age people² . Japan is already the oldest country in the world in terms of population age and the birth rate is one of the lowest³ .

By 2040, more than a third of people in Japan will be over 65 years of age. The International Monetary Fund (IMF) assessed that this backdrop could potentially lead to GDP falling by a quarter over the next 40 years.⁴

Prime Minister Abe launched a series of goals in 2013 to encourage higher female participation in the workforce. The government has put in place clear targets to attract and retain women workers. These include policies to increase the number of childcare facilities and to provide a year’s paid parental leave for both parents after the birth of an infant. There is also a bonus entitlement if both parents take the leave.

As a result, the participation rate of working-age women has topped 69% – versus 65% in 2013.⁵  But the effectiveness of these policy moves has been watered down by other existing regulations, such as the strong financial disincentives in terms of tax, pension and insurance coverage.

We believe these are structured so that the unintended consequence has been to discourage one half of a couple – typically the woman – from seeking full-time work. The lack of enforcement and legal penalties for corporate inaction is also to blame for the slow progress of gender equality.

There is a huge incentive for Japan to rectify this. If the same proportion of working-age men and women were in jobs by 2025, the labour force would grow by 1.5 million, according to the OECD. This would add 0.8 percentage points to GDP per capita per year. A positive side-effect would be to widen the tax base and ease the dependency ratio.

In the workplace: Leave with no return

Women are highly educated in Japan. At the point of graduation when most companies hire new employees, the gender ratio of the pipeline is basically equal⁶ . The real impact of gender discrimination is felt once they get married or have their first child as females are still traditionally seen as the main caregiver and household manager. As a matter of fact, Japanese women spend five to six times more in unpaid domestic work than men – the highest rate among OECD countries⁷ .

Corporate culture is also in dire need of reform – especially the image of the ideal Japanese salaryman. They are expected to put work ahead of family, accept grueling hours, and take little holiday as a demonstration of strong loyalty and commitment to their company. In return for this, the post-war model was that companies provided life-time employment.

Going on maternity leave and taking time to raise a child is counter to this. As such, women returning from leave often face a break in their career path and/or are downgraded to lower positions. This explains why almost one out of two women don’t return to work after giving birth to their first child.⁸  And for the one who go back to work – 77% do so as non-regular workers, e.g. part time, temporary or contractor.

Social norms and peer pressure dissuade fathers from taking paternity leave. Despite the very generous paternity leave policy of 52 weeks, the uptake is very low. In 2016, out of the 3% of fathers who took the leave, more than 80% took less than a month and 57% took less than five days⁹ .

Companies continue to offer employees allowances and benefits covering household costs – but this is often subject to wives not earning more than a certain wage threshold. This is another reason why most women, at 56%, are dissuaded from accepting regular jobs.¹⁰

Now, out of the 71% of working mothers in 2017, only a quarter was employed on a full-time basis. Only 13% make it to managerial positions¹¹ . Differences in job status and career progression results in a gender pay gap of 24.5% – the third highest among OECD countries.¹²