Saturday, April 27, 2013

Will Abe address Japan's number one problem after all?



First Abe surprised me by actually following through with his monetary policy promises; he appointed Haruhiko Kuroda to the BOJ, and together they are embarking on the most ambitious attempt at "reflation" ever tried by a central bank. It remains to be seen if this will actually work, of course; Japan remains mired in deflation even after the announcement, casting further doubt on the effectiveness of the "expectations channel" of monetary policy. But Abe is trying, and that is the important thing.

Now, Abe is talking about an issue that I think is far more important than monetary policy - and one which I had even less hope that he would address. I'm referring to the status of women in the Japanese economy.

One of the essential things that differentiates Japan's economy from ours is that in Japan, women still form an economic underclass. Japan's labor market has an infamous "two-tiered" structure, in which there are two kinds of workers: "Real workers" and "contract workers". The former have (theoretically) lifetime employment guarantees, guaranteed yearly raises, bonuses, and full benefits, with the possibility of promotion to top management. The latter have low, stagnant salaries, few benefits, few guarantees, and little if any possibility of promotion. The former are mostly men. The latter are mostly women.

Not only is this a tremendous waste of talent, it discourages women from entering the workforce. For this reason, most Japanese mothers quit work when they have kids, and working Japanese women tend to have few kids. In addition to holding down Japan's GDP, this is often cited as one cause of Japan's low fertility rate.

Many of Japan's peculiarities seem less peculiar once you know this fact. For example, Japan's unemployment rate is famously low. But Japan's labor force participation rate is even lower than ours. Women make up much of the difference (teenagers and early forced retirees make up the rest).

Anyway, it has long been known that women's exclusion from the Japanese corporate system is one of the main things holding back Japan. In addition to boosting U.S. total GDP by getting more people into the formal workforce, women's increased economic equality has thought to have boosted American productivity by quite a lot. Japan has received no such boost. Pretty much everyone knows that Japan needs to make women more equal; everyone from Aung San Suu Kyi to the U.S. Embassy to the IMF harps on the point. A thousand articles have been written on the topic, but not much has changed.

Why has not much changed? Japan's protected economy, heavily subsidized "zombie" companies, and weak corporate governance insulate it from the Beckerian free market forces that probably helped advance gender equality in the U.S. in the 80s and 90s. In the absence of such market pressures, the most proven route to gender equality is the Swedish/French route, in which the government basically just tells companies "Thou shalt hire and promote women." This method has proven successful in those highly regulated, somewhat protected European countries.

However, Japan's politics has long been dominated not by France/Sweden-type social democrats, but by arch-conservatives. These arch-conservatives made their home in the long-reigning Liberal Democratic Party, which ruled uninterrupted for 55 years and squelched most efforts at social reform. Nobusuke Kishi, the founder of the LDP and its most important leader, was Shinzo Abe's grandfather.

During Abe's first term, he appeared entirely uninterested in addressing the problems of women's equality. His foreign minister and right-hand man was the late Shoichi Nakagawa, who once said:
"Women have their proper place: they should be womanly...They have their own abilities and these should be fully exercised, for example in flower arranging, sewing, or cooking. It's not a matter of good or bad, but we need to accept reality that men and women are genetically different."
So you can see why I have been skeptical about Abe's commitment to women's equality.

However, Abe may surprise me again. According to all reports, Abe is contemplating a big push to put more women in corporate boardrooms:

Japanese Prime Minister Shinzo Abe moved Friday to compel corporate Japan to promote more women to executive roles, asking business leaders to set a target of at least one female executive per company... 
“Women are Japan’s most underused resource,” [Abe] said... 
More details are expected in June, when the government is to unveil a “national growth strategy” of deregulation measures and other structural changes designed to make the economy more dynamic.
Just by saying this, Abe has surprised me, actually. But given his party's strongly sexist traditions, it is far too soon to declare a revolution. As he did with monetary policy, Abe must convince me with dramatic, unprecedented, massive action...and more importantly, he must convince Japan itself.

But if he does...then Abe will have outdone even his predecessor and patron, Junichiro Koizumi...and maybe even his own grandfather as well.

33 comments:

  1. It's extremely unlikely that "moar equality" will solve Japan's fertility problem - the actual number one problem in Japan.

    In fact, given developing world parameters on this sort of thing, it's likely to be counterproductive. I think a much better solution might be opening up Japan for immigration :).

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    1. It's extremely unlikely that "moar equality" will solve Japan's fertility problem

      And you base this assertion on...what?

      You think the examples of Sweden and France are totally irrelevant?

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    2. Your model is effective if you want to increase female labor force participation. Since he doesn't consider that a problem, you solution doesn't apply. He is right that, if your goal is dealing with fertility rates, putting women to work is counterproductive.

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    3. He is right that, if your goal is dealing with fertility rates, putting women to work is counterproductive.

      Actually, he and you appear to be the diametric opposite of right (i.e., wrong):

      http://neweconomist.blogs.com/new_economist/2006/04/the_economist_a.html

      Now, correlation doesn't equal causation, but it does disprove your causal mechanism. Looks like you lose.

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    4. I've also seen papers linking higher female participation in labour force with increased birth rate.

      If you want to have high female participation rates in labour forces and have fertility rates at above replacement level then you need to ensure that women are not discouraged from having kids.

      Improvemnts in childcare, healthcare, more encouragement to have children and greater emphasis on a shared role in the house are all part of the solution.

      In Europe these measures have been haltingly introduced. Certainly more so than Japan and the USA but that is maybe not hard. Halting reform is the by word and very few European states have made real efforts to create societies which facilitate to the greatest extent possible the having of children by their citizens.

      Like Japan most European states ignored the old fashioned practices and current social conditions which discouraged young couples and especially women from having a second child or even a third.

      Instead of reforming society Europe opted for immigration to boost birth rates but that didnt remove the obstacles.

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    5. "it does disprove your causal mechanism"

      According to the following paper, it doesn't.
      http://www.demogr.mpg.de/publications%5Cfiles%5C880_1068055127_1_PDF-Version.pdf

      via http://www.u-tokai.ac.jp/undergraduate/political_science_and_eco/kiyou/index/pdf/2011/06_kojima.pdf (Sorry, in Japanese except abstract)

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    6. Anonymous8:30 AM

      You didn't fully understand the first paper you linked to... I think this quote from it explains what people are talking about.

      Furthermore, the presence of country effects implies that possibly cross-country differences in public policies or labor market institutions might have caused high fertility and high female employment in some countries and low fertility and low female employment in other countries.
      The country effects, which are skimmed over in the summary of that paper, are actually the important part of the discussion here on this thread. What Noah is talking about is rearranging policy and institutions in Japan. And presumably the tradeoff between working and having children would then be less drastic (and then presumably more women get to choose both.) I think it's pretty obvious that in developed countries where it's made easier to work and have children, more women will choose to work, and more women will choose to have children.

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    7. "the tradeoff between working and having children"

      So there *is* a causal mechanism. I didn't deny that there could be a way to weaken or even reverse this effect. But, as you noted, such a change requires some policy efforts plus (probably) change in mindset of the people, and shouldn't be regarded as some universal rule which single scatter graph can serve as a proof.

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  2. Impressive stuff if he follows through.

    I was not surprised to learn that the lack of support for female workers was likely depressing Japan's birth rate. You see the same thing in other well-off east Asian countries where the birth rate is depressed, such as Korea and Taiwan.

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    1. Well, Taiwan scores very high in the gender equality rankings (above the U.S.), so I wouldn't be so sure of that...

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    2. "You think the examples of Sweden and France are totally irrelevant?"

      Yes. First, meta. We both think "culture" is typically a feint and unverifiable assertion in these kind of arguments, so let's ignore it for now (although perhaps here it's much more applicable than in arguments about GDP/growth/"creativity"/labor market stuff etc.). However, it's surprising you're so skeptical about formalized macro models and so trusting of informal demographic models. It made me think of Rothbard's quote that economists advocate markets in all the domains they don't understand, but once they look closely at a domain they see all manner of potential government improvements on the market solution (George on land, Friedman on money). Of course, this is well explained by the priors econ 101 endows the average student with. Perhaps if you gave this topic more thought you'd be more skeptical of any easy solution as you more appropriately are with macro.

      Anyway, on to substance France has a successful fertility police bolstered by (perhaps unsustainable) immigration policies and *very* generous maternal leave. However, the policies don't generalize well at all. Sweden's one datapoint that *still* hasn't reached replacement fertility even with massively redistributional policies. The same is true *all over Europe. Even so, in a deeper sense before you advocate widepsread social change you probably should have a higher standard of proof than two countries who have experienced recent upturns in fertility that may or may not coincide with other recent policy changes.

      Back to meta: it's pretty clear you'd benefit from a course on development economics. One of the most best policies to decrease fertility to increase resource transfers/educational opportunities for women. There are about a billion papers on this, and it's sad that development economics has faded from graduate econ education so much that these didn't immediately spring to your mind when you wrote this post.

      While I'm no longer up to date on the literature you so disdain, when I last checked the European country that had the most success in actually raising (domestic) fertility was the Netherlands, which de facto pays women to take time off form work when they get pregnant and subsidizes fertility directly.*

      According to the "female happiness" literature (I think Wolfers wrote a paper on this in 2012 or 2011), they love it (whoulda thunk?). IIRC, those results were model driven so they're probably false in the big picture, but it's amazing that you ignored the stylized facts of basic demographic models before you posted (I have higher expectations for this free-to-read blog that I can stop reading at any time!).

      *which come to think of it, would probably be an economist's first recourse solution without mood affiliation.

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    3. Since I'm in a rush, the asterisked aside refers to the second to last full paragraph.

      Also, as a matter of common sense: what's the psychology here? Do you really believe that if more women were working in Japan, they'd feel free to have more kids? Why would this be the case? Furthermore, I think you're violating a basic tenant of feminist economics and assigning zero value to housework simply because it's not calculated in GDP.

      Those GDP/per household, low crime, general pleasantness statistics do not spring from the ground like a summoned monolith or emerge (entirely) from the Japanese genetic endowment. They are the product of thousands of hours of parental investment.*

      *I'm actually of two minds about this because I've worked in Japan and I thought a lot of the housewivery/secretaries were useless, but I try not to let the small sample size my eyes have collected contaminate what I know about econ. Plus, "seen and unseen" and all that other nonsense.

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    4. However, it's surprising you're so skeptical about formalized macro models and so trusting of informal demographic models.

      Oh, I'm not. But since increasing women's equality is a great thing to do anyway, we should do it, and also hope that the fertility success of France and Sweden can be reproduced.

      It made me think of Rothbard's quote

      Nothing ever makes me think of Rothbard's quote about anything, since I've never read Rothbard...I attribute much of my clear-headed rationality to that fact... ;-)

      BTW, I'm not really sure I understand most of the rest of what you're saying...

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    5. @Noah

      Well, Taiwan scores very high in the gender equality rankings (above the U.S.), so I wouldn't be so sure of that...

      Same relatively low female work-force participation rate, though.

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    6. Same relatively low female work-force participation rate, though.

      That's true!! I didn't know that. So maybe Taiwan could also raise its fertility by increasing women's labor force participation.

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    7. Hey Leon, your comments were tl;dr, but check this out:

      http://neweconomist.blogs.com/new_economist/2006/04/the_economist_a.html

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    8. Anonymous1:01 PM

      If only one parent is working then there is less money to pay for kids and less kids. If both parents can work then there is more money to pay for kids and more kids.

      I am not an economist so cannot link to graphs, but isn't that what it boils down too?

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    9. Anonymous11:30 PM

      I'm also wondering why women in Japan who don't work don't have kids. They may not have money but they have time (to cook, etc). Or maybe they just don't want to have kids.

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  3. Anonymous6:26 PM

    If Abe does follow through on this, I think it will be a great boon to the Japanese economy and Japanese women. But if they're trying to sell such reforms as a method of increasing the fertility rate, I worry they'll undo it once they discover that expanded women's rights have only a modest effect on baby-making. (Immigration is probably the only answer to Japan's population problems, and also the answer they are least likely to pursue. (But then again, I didn't expect Abe to promote women in the workforce, so maybe he has more surprises up his sleeve?))

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  4. Though I think under-utilization of female workers could provide a good source of growth medium-term growth in Japan, there aren't enough examples to decide whether or not it will make a difference in the country's fertility rate.

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    1. Probably not, but we can hope!

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  5. John S10:13 PM

    "Japan's protected economy, heavily subsidized 'zombie' companies"

    These are the roots of Japan's problems. Nothing will change until these issues are addressed. Everything else--Abenomics, more women on boards--is window dressing in comparison.

    You've lived in Japan, so you know how staying hours after work until your boss leaves is commonly accepted. This is an enormous drain on national productivity (and I don't care about official stats on how American workers work more hours, you and I know that leaving early--ie on time!--is a huge no-no in Japanese work culture).

    But how can such an inefficient system persist? B/c of the lack of competition for workers. There's no cost to employers for discriminating against women or tacitly mandating useless overtime when everyone else is doing it, or when profits don't matter because you can perpetually get the banks to evergreen your loans.

    Japan needs to open the doors to foreign competition and subject its firms to market discipline (by getting rid of subsidies and zombie credit). This will solve a range of problems, from discrimination in the workplace to forcing the restructuring of corporate disaster-zones like Sony and Panasonic.

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    1. These are the roots of Japan's problems. Nothing will change until these issues are addressed. Everything else--Abenomics, more women on boards--is window dressing in comparison.

      This may be true. Not sure, though.

      I do suspect that the only thing that will force these companies to change is a Japanese sovereign default.

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  6. Anonymous12:06 AM

    I wonder if part of what's behind Abe's thinking is that he's MORE interested in Japan regaining overall dominance (or at least a highly prominent, if not pre-eminent, role) on the world stage more than he is about retaining the "traditional role of women" in Japan. Not to say that they're still not huge players, but that there's this creeping sense that China's right about to overshadow them and they'll be left in the dust. Add in South Korea's ascendance, North Korea still making noises (and these are all just regionally), I get the sense that there's this innate paranoia among the Japanese that they'll be relegated to the back of the class.

    Partially, I'm basing this off of your previous posts on Abe as a supreme nationalist. With all the other stuff looming, maybe it seems to him that the only way to get Japan back on the heap for good is to engage ALL of Japan in the effort. Maybe he's a utilitarian nationalist and that's overriding any other concerns...

    *just throwing that out there*

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    1. This seems likely to me. But if so, more power to him!

      I'm kind of a Japanese nationalist too...in my own way. ;-)

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    2. Anonymous12:12 AM

      exactly! if that's what it takes to remove the two-tiered structure you talked about in this piece, I'm all for it :)

      btw, love reading your posts on this topic (and, I gotta admit, that Django Unchained one was genius - passed that around - as a Notherner, it FINALLY gave voice to a lot of items that have been bothering me for a while)- it doesn't really get any coverage (from what I normally read), so reading your analysis and breakdowns on it are fascinating. Thanks!

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    3. Thanks to you too! Glad you liked the Django post...

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    4. Anonymous9:52 AM

      I'm sure you already read Krugman's take on this, but thought it would be worth posting up here since it seems relevant:
      http://krugman.blogs.nytimes.com/2013/05/09/the-moral-equivalent-of-space-aliens/

      (I would have posted the FT article he linked/referenced, but didn't have access to read it, so wasn't able to verify the contents...)

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  7. The OECD report summary on 'Closing the Gender Gap: Act Now" makes it sound like the OECD forecast for improvement in Japan on this issue is a baseline forecast (ie. not dependent on Abe).

    http://www.oecd.org/gender/Closing%20the%20Gender%20Gap%20-%20Japan%20FINAL.pdf

    the last sentence of the summary: "...gender parity in labour force participation is projected to increase GDP in Japan by almost 20% over the next 20 years."

    The summary statistics in the report do seem to support your point that Japan is an extreme outlier in the developed world and does indeed have a two tier labor force.

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  8. This is a good piece of information on the role of women in Japan's workforce. One would have expected that in an advanced country like Japan, the lot of women would be different from what is reported here. Well, I wish the womenfolk all the best as they march on to get their rightful place.

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  9. Replying to Leon:

    "Back to meta: it's pretty clear you'd benefit from a course on development economics. One of the most best policies to decrease fertility to increase resource transfers/educational opportunities for women. There are about a billion papers on this, and it's sad that development economics has faded from graduate econ education so much that these didn't immediately spring to your mind when you wrote this post."

    This is dead wrong. That discussion applies to poor countries with sky-high fertility rates, not to rich countries with fertility rates well below replacement. That the same policy leads to radically different results shouldn't be a surprise.

    On a related note, France has been successful by running multiple, effective policies, one of which was flat rate cash payments to parents raising children. The DPJ tried this in Japan, and it was wildly unpopular. Even people who should have known better complained that the rich didn't need/deserve the money and the poor would just spend it on gambling. No matter how much you explain that progressive taxation means that rich folks are paying serious money in taxation and are small in number, so the administrative cost of figuring out family income and indexing payments would be on the same order of magnitude as the savings, and you could just make tax rates a bit more progressive to collect the money back from the rich; and no matter how much you explain that punishing a whole group for the sins of some of its members is very evil, it just doesn't get through peoples heads. Sigh.

    And then the DPJ imploded. Sigh, again. Being both a progressive and a Japan observer leads to severe depression. Sigh.

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  10. "Japan's protected economy, heavily subsidized "zombie" companies, and weak corporate governance insulate it from the Beckerian free market forces that probably helped advance gender equality in the U.S. in the 80s and 90s."

    That's a rather bazaar non-sequitor. "Free markets" have nothing to do with gender equality, and markets function quite comfortably with brutal gender inequities. The difference is that the US had massive feminist movement that radically altered America's conceptions of gender roles and forced through government legislation to help equalize power between genders. Japan's radical social movements were crushed first by the American occupation shortly after WWII, when the US through General MacArthur forced Japan at gunpoint to fire and ban all socialists and communists from elected office and civil service. MacArthur also banned the Socialist and Communist parties, helping rehabilitate the Fascists and Nazi-collaborators MacArthur had just defeated. This had a long-term impact on the politics of Japan and precluded the kind of left-wing social movements that, funnily enough, would help capitalism now.

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  11. I would just add something on a side aspect of your blog entry, about the french and swedish approach to gender equality, which maybe could be relabeled as european actually: Women in Europe have historically gained their position during both WWI and II, because, as the warfare took men out of their positions, women had to work to sustain their families. Moreover, in the particular case of France, women had a role in the fight against the occupation, and the people who took over the power in the aftemath of the WWII were often from this group, which resutlted in our "conseil national de la resistance" political program, which lays at the basis of most of our social benefits today.

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