Home Economy The Japanese labor market has a lesson for the Federal Reserve: women can surprise you

The Japanese labor market has a lesson for the Federal Reserve: women can surprise you

by SuperiorInvest

Japan's economy has hit the headlines this year as inflation returns for the first time in decades, workers get pay rises and the Bank of Japan raises interest rates for the first time in 17 years.

But there is another longer-term trend in the Japanese economy that might be of interest to American policymakers: Female employment has been rising steadily.

Working-age Japanese women have been entering the workforce for years, a trend that has continued strongly in recent months as a tight labor market pushes companies to work to attract new employees.

The jump in female participation has come partly by design. Since around 2013, the Japanese government has tried to make both public policies and corporate culture more friendly to women in the workforce. The goal was to attract a new pool of talent at a time when the world's fourth-largest economy faces an aging and shrinking labor market.

“Where Japan did well over the past decade was creating care infrastructure for working parents,” Nobuko Kobayashi, a partner at EY-Parthenon in Japan, wrote in an email.

Still, even some of those who were present when the “womenomics” policies were designed have been caught off guard by the number of Japanese women now choosing to work thanks to policy changes and changing social norms.

“We all underestimated it,” said Adam Posen, president of the Peterson Institute for International Economics, who advised the Japanese government as it instituted policies aimed at attracting more female workers. Posen thought at the time that they could get about 800,000 women into the workforce, far fewer than the roughly three million who have actually entered (although many of them work part-time).

It's a surprise that could serve as an important reminder to economic officials around the world. Economists often try to guess how much a nation's labor force can expand by extrapolating from history, and tend to assume that there are limits to the number of people who can be attracted to the labor market, since some are likely to stay at home like caregivers or for other reasons.

But history has served as a poor guide in Japan over the past decade as social standards, marriage rates and fertility rates have changed. And the lesson from the Japanese experience is simple: women may be a larger potential workforce than economists usually realize.

“Clearly, women in Japan wanted to work,” Posen said. “This raises questions about what is a reasonable expectation for female participation in the workforce.”

That message could be relevant to the US central bank, the Federal Reserve.

How much room the U.S. labor market has to expand is a key question for the Federal Reserve in 2024. Over the past year, inflation has fallen in the United States and wage pressures have moderated, even as hiring has remained strong and economy has expanded rapidly. . This positive result has been possible because the country's supply of workers has been expanding.

Labor force growth has come from two big sources in recent years: Immigration has increased and labor force participation has recovered after falling during the pandemic. This is especially true for women in their prime working years, ages 25 to 54, who have been participating in the labor market at record or near-record rates.

Now economists wonder whether the expansion can continue. Immigration to the United States appears poised to persist: Goldman Sachs economists said the United States could add about a million more immigrants than usual this year. The question is whether participation will continue to increase.

At the moment, it appears to be broadly stabilizing over the past year. As the population ages and older people work less, many economists say the total number could remain stable and even decline over time. Given those trends, some economists doubt that the improvement in labor supply can continue.

“Further labor market rebalancing will have to come from slower growth in labor demand rather than continued rapid growth in the supply of workers,” an analysis by the Federal Reserve Bank of San Francisco concluded this year.

But in the late 2010s, economists also thought the U.S. labor market had little room to add new workers, only to be surprised to see people still returning from banking.

And while work rates for prime-age women have remained fairly stable since last summer, the Japanese experience raises the question: Could American women in particular end up working in greater numbers?

The United States once had a higher participation of working-age women in the labor force than other advanced economies, but it has now been surpassed by many, including Japan as of 2015.

Today, about 77 percent of working-age women in the United States have a job or are looking for one. That figure is about 83 percent for Japanese women, up from 74 percent a decade ago and about 65 percent in the early 1990s. Japanese women now work at rates that are roughly on par with of Australia, although some nations such as Canada still have higher female participation in the working-age workforce.

These changes occurred for several reasons. The Japanese government took some important policy measures, on the one hand, such as increasing the capacity of childcare centers.

The country's changing attitudes toward the family also helped free women to work. The average age of people marrying for the first time has risen steadily and fertility rates are at historic lows.

“Delaying marriage, delaying the fertile years, not getting married at all – that's the big social undercurrent,” said Paul Sheard, an economist who has long focused on the nation.

But there have been limits. There is still a tax penalty for second income earners in the country, and the quality of jobs held by women is not very good. They often receive lower wages and have limited hours. Women are also largely absent from management positions in Japanese companies.

Kathy Matsui, former vice president of the Japanese unit of the Goldman Sachs Group and the woman who spearheaded the idea of ​​femininity, has said the effort needs continued work.

Still, Japan's experience could offer clues about what lies ahead in the United States. Fertility and marriage rates are also low in the United States, for example, which could create room for work rates among young and middle-aged women to continue rising in the near term, although it plants the seeds for a population and a smaller economy in the future. . Remote or hybrid work arrangements could also make caregivers' jobs easier.

And some of the more family-friendly policies Japan has used could be a model for the United States, experts said.

“Where Japan did well in the last decade was creating care infrastructure for working parents,” said Ms. Kobayashi of EY-Parthenon, noting that children on daycare waiting lists They decreased to 2,680 this year from 19,900 five years earlier.

But Japan could learn from the United States' more flexible work culture, said Wendy Cutler, vice president of the Asia Society Policy Institute. This allows women to avoid leaving the labor market and interrupting their professional careers when they have children.

“Looking at the quality of these jobs is going to be increasingly important,” Cutler said.

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