Japan’s labor market has a lesson for the Fed: Women can surprise you

The Japanese economy has been in the news this year as inflation returned for the first time in decades, workers booked wage increases and the Bank of Japan raised interest rates for the first time in seventeen years.

But there is another, longer-term trend underway in Japan’s economy that could be of interest to U.S. policymakers: female employment has been steadily rising.

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 hire new workers.

The jump in women’s participation has been partly by design. Since about 2013, the Japanese government has been trying to make both government policies and corporate culture friendlier to women in the workforce. The aim was to attract a new source of talent at a time when the world’s fourth-largest economy faces an aging and shrinking labor market.

“Where Japan has done well over the past decade is in building the healthcare infrastructure for working parents,” Nobuko Kobayashi, a partner at EY-Parthenon in Japan, wrote in an email.

Yet even some who were around when the “women’s policy” was designed are taken aback by how many Japanese women are now choosing to work thanks to policy changes and evolving social norms.

“We all underestimated it,” said Adam Posen, the president of the Peterson Institute for International Economics, who advised the Japanese government on implementing the policy aimed at attracting more female workers. Mr. Posen thought at the time that they might be able to get as many as 800,000 women into the workforce, far fewer than the about three million who have actually joined (albeit many of them are part-time).

It’s a surprise that could serve as an important reminder for economic officials around the world. Economists often try to guess how much a country’s labor force can grow by extrapolating from history – and they tend to assume there are limits to how many people can be lured into the labor market, since some are likely to stay home as caregivers or for other reasons.

But history has served as a poor guide in Japan over the past decade, as social norms, marriage rates and fertility rates have shifted. And the lesson of the Japanese experience is simple: women can be a larger potential workforce than economists typically expect.

“It’s clear that women wanted to work in Japan,” Mr. Posen said. “It raises questions about what is a reasonable expectation for women’s labor force participation.”

That message could be relevant to the central bank of the United States, the Federal Reserve.

How much room the U.S. labor market has to expand is a key question for the Fed in 2024. Over the past year, inflation in the United States has fallen and wage pressures have eased, even as the workforce has remained strong and the economy has grown rapidly . . That positive outcome was possible because the supply of labor in the country has increased.

Labor force growth in recent years has come from two major sources: increased immigration and labor force participation is recovering after a fall during the pandemic. This is especially true for women in their work fine between the ages of 25 and 54, who have entered the labor market at record or near-record rates.

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

Currently, growth appears to be leveling off overall over the past year. Given the aging of the population and the fact that older people work less, many people work say economists that the total number could remain stable and even decrease over time. Given these trends, some economists doubt whether the improvement in labor supply can continue.

“Further restoration of labor market equilibrium will need to come from slower growth in labor demand, rather than continued rapid growth in labor supply,” according to 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 attract new workers — and they were surprised when people kept coming back from the sidelines.

And while employment rates among women of childbearing age have remained relatively stable since last summer, the Japanese experience begs the question: Could American women in particular eventually work in greater numbers?

The United States once had a higher female labor force participation rate among working-age women than other advanced economies, but this has now been surpassed by many, including Japan since 2015.

Today, about 77 percent of women of childbearing age in the United States are employed or looking for one. That number is about 83 percent for Japanese women, compared to about 74 percent a decade ago and about 65 percent in the early 1990s. Japanese women now work in shares roughly on par with Australia’s, although some countries such as Canada still have higher employment rates of working-age women.

These changes emerged for several reasons. The Japanese government has taken a number of important policy steps, such as increasing the capacity of child care centers.

The country’s changing attitude toward the family also played a role in freeing women for work. The average age at which people first marry has been steadily increasing and fertility rates are at a record low.

“Delaying marriage, delaying childbearing, not getting married at all — that’s the big societal backdrop,” said Paul Sheard, a longtime economist who has focused on the nation.

But there have been limits. Over there is still a tax penalty for second earners in the country, and the quality of the jobs women hold is not great. They are often paid lower and for limited hours. Women are also largely absent from leadership positions in Japanese companies.

Kathy Matsui, the former vice chairman of Goldman Sachs Group Inc.’s Japan division. and the woman who spearhead of womenomics as an idea, has said the effort needs continued work.

Still, Japan’s experiences may provide clues to what lies ahead in the United States. For example, fertility and marriage rates have also fallen in America, which could create room for the labor force participation of young and middle-aged women to continue rising in the short term, although this does sow the seeds for a smaller population and economy. . Remote or hybrid work arrangements can also make it easier for caregivers to work.

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

“Where Japan has done well over the past decade is in building the healthcare infrastructure for working parents,” said EY-Parthenon’s Ms. Kobayashi, noting that the waiting lists of children on daycare waiting lists have decreased from 19,900 five years earlier to 2,680 this year.

But Japan could learn from the more flexible work culture in the United States, said Wendy Cutler, vice president of the Asia Society Policy Institute. This can help women avoid leaving the labor market and disrupting their career paths when they have children.

“Looking at the quality of these jobs will become increasingly important,” Ms Cutler said.