Womenomics in Japan

“Womenomics” is a key pillar of Prime Minister Shinzo Abe’s economic growth strategy. In 2013, just 64 percent of Japanese women aged 15–64 were participating in the labor force — a low rate by OECD standards.

As Japan’s labor force is already in decline, it is wasteful that women, and particularly those with higher educations, have been underutilized. To address this, Abe has set a target to increase the ratio of female managers to over 30 percent by 2020. In response, several large firms have set similar numerical targets.

But some are skeptical. As the ratio of female managers (including section chiefs) in Japanese firms was just 11 percent in 2012, it will be difficult to triple this figure in eight years. If firms randomly increase the number of female managers regardless of their ability, this may be costly or discouraging to their male counterparts.

Why is raising the percentage of female managers so important for economic growth?

The current one-to-nine ratio between female and male managers indicates a serious misallocation of human resources, given that male and female management abilities do not differ. It is often said that the lack of female managers is not attributable to discrimination on an individual basis, but that there simply are not enough female candidates. But such logic depends on the nenko jyoretsu system, whereby seniority within the firm is largely determined by how long one has worked there rather than merit.

So current employment practices, such as women being forced into temporary or secretarial streams and out of work when they have children, have resulted in significant underutilization of female human resources.

The extremely low female manager ratio is a result of outdated labor market practices. Seniority-based promotions used to be efficient when the industrial structure was dominated by manufacturing. This is no longer the case, but the memory of Japan’s successful economic past has led to a strong inertia in Japanese firms. The older generation also has a vested interest in maintaining seniority-based wages.

Japanese employment practices are based on the need for multi-skill formation in the firm. Employees are frequently shifted from one job to another in the process of climbing the occupational ladder to managerial positions. This is accompanied with on-the-job training, which is time consuming and, in the case of large firms, often means that an employee must relocate. Most Japanese employees have an implicit employment contract that guarantees long-term employment and seniority-based wages on the condition that employees are subject to the firm’s decision on what jobs they will do and where they will work. This employment style is a hangover from the social norm that husbands would earn money while wives would manage the household. Until the end of the 1980s most Japanese families followed this “social norm.” Today this model is still subsidized by the tax and social security system.

Current employment practices are a major obstacle for married women who wish to work full time. ‘Full-time work’ in Japan does not mean eight hours per day — it requires constant overtime. This practice has been an important means of adjusting down labor inputs during recessions in order to avoid lay-offs. But if both the husband and wife are working overtime, who will take care of the children? In this sense, under current employment practices, there is a trade-off between increasing women’s workplace participation and raising birth rates. In addition, when a firm orders either partner to relocate, families have to choose between family separation and one partner quitting their job. In most cases women leave their job.

A major factor behind the extremely low ratio of female managers in Japan is that it is necessary to stay in a particular firm for a long time to secure a promotion. The average length of female employment is shorter than that of their male counterparts, due mainly to women’s disproportional responsibility in the home. Thus if promotions were not based on seniority the gender disparity among managers would be smaller.

Whether or not a move away from seniority-based promotions is feasible depends on the type of skills required. If the necessary skills are firm-specific and can be formed only through on-the-job training, age-related promotion is inevitable. But if the necessary skills are general, or will easily become obsolete through information technology changes, seniority need not matter. Though general skills are becoming more prevalent as information and communication technologies develop, many Japanese firms still find it difficult to change traditional promotion practices.

Thus the easiest way to achieve the target of 30 percent female managers, and unfortunately what some firms are doing, is to create ‘nominal female managers with no authority’ while maintaining current employment practices. But the alternative would be better — discarding the current internal promotion system and recruiting qualified managers, either male or female, Japanese or foreign, from outside of the firm.

Abe’s 30 percent female manager ratio is not a target for its own sake: it aims to transform Japanese employment practices to a more market-based system. This would entail promoting the principle of the same wage for the same job instead of the seniority-based wages; establishing a compensation scheme for professional jobs that is independent of the length of working hours; and developing a tax and social security scheme that does not implicitly support a particular division of labour within the family. These policy targets can only be achieved through structural reform of Japanese labour markets.

Naohiro Yashiro is a visiting professor of economics at the International Christian University, Tokyo. This is reprinted with permission from the East Asia Forum.