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Japan's labor market has a lesson for the Fed: Women may surprise you

Japan's economy has dominated headlines this year as inflation returns for the first time in decades, workers win wage increases and the The Bank of Japan reports interest rate for the first time in 17 years.

But there is another, longer-term trend in the Japanese economy that could be of interest to U.S. policymakers: Women's employment is steadily increasing.

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

The increase in female participation is partly intentional. Since around 2013, the Japanese government has worked to make public policies and corporate culture more favorable to women in the workforce. The goal 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.

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

Yet even those who were there 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 evolving social norms.

“We all underestimated it,” said Adam Posen, president of the Peterson Institute for International Economics, who has advised the Japanese government as it implemented policies to attract more female workers. Mr. Posen thought at the time that they might be able to attract 800,000 women into the workforce, far fewer than the total number of women. about three million who actually joined (although many of them are part-time).

It's a surprise that could serve as an important reminder to economic leaders around the world. Economists often try to guess how much a country's workforce can grow by extrapolating from history – and they tend to assume that there are limits to the number of people who can be attracted to the job market, since some are likely to stay at home as housekeepers or for family reasons. other reasons.

But history has not been a good guide in Japan over the past decade as social norms, marriage rates and fertility rates have changed. And the lesson from the Japanese experience is simple: Women could constitute a larger potential workforce than economists usually expect.

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

This 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 grow is a key question for the Fed in 2024. Over the past year, inflation has declined in the United States and wage pressures have eased, even if hiring remained strong and the economy grew rapidly. . This positive result was possible thanks to the increase in the number of workers in the country.

Labor force growth has come from two main sources in recent years: immigration has resumed and labor market participation recovered after falling during the pandemic. This is particularly true for women in their main job aged 25 to 54, who are participating in the workforce at record or near-record rates.

Today, economists question whether the expansion can continue. Immigration to the United States appears poised to persist: Economists at Goldman Sachs said the United States could welcome about a million more immigrants than normal this year. The question is whether participation will continue to increase.

At the moment, it seems that overall it has been stabilizing for about a year. Given the aging of the population and the fact that older people work less, many say the economists that the overall number could remain stable and even decrease over time. Given these trends, some economists doubt whether improvements in labor supply can continue.

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

But in the late 2010s, economists also thought the U.S. labor market had little room to recruit new workers — only to find themselves surprised when people returned to the sidelines.

And even though participation rates among prime-age women have remained relatively stable since last summer, the Japanese experience raises the question: Could American women in particular end up working in greater numbers?

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

Today, about 77% of prime-age women in the United States are employed or looking for employment. This number is around 83 percent for Japanese womenup from about 74 percent a decade ago and about 65 percent in the early 1990s. Japanese women now Work in shares that are roughly equivalent to those of Australia, although some countries such as Canada still have higher participation of working-age women in the labor market.

These changes occurred for several reasons. The Japanese government has taken important policy steps, including increasing the capacity of daycare centers.

The country's changing attitudes toward the family also played a role in freeing women for work. The average age of people marrying for the first time has increased steadily and fertility rate are at record levels.

“Delaying marriage, delaying childbearing years, not getting married at all, that’s the big societal context,” said Paul Sheard, an economist who has long focused on the nation.

But there were limits. There it's still a tax penalty for the second income in the country, and the quality of jobs held by women is not excellent. They are often paid less and for limited hours. Women are also largely absent from management positions in Japanese companies.

Kathy Matsui, former vice president of the Japanese unit of Goldman Sachs Group Inc. and the woman who femininity at the forefront as an idea, said that the effort needs continuous work.

However, Japan's experience could give some idea of ​​what awaits us in the United States. Fertility and marriage rates are also falling in the United States, for example, which could allow work rates for young and middle-aged women to continue to rise in the short term, even if it sows the seeds of a smaller population and economy in the future. . Remote or hybrid working arrangements could also facilitate the work of caregivers.

And some of the most family-friendly policies used by Japan could serve as a model for the United States, experts say.

“Where Japan has done well over the past decade is in building child care infrastructure for working parents,” said Ms. Kobayashi of EY-Parthenon, noting that children registered on nursery waiting lists fell to 2,680 this year, compared to 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 dropping out of the job market and disrupting their career path when they have children.

“It will be increasingly important to look at the quality of these jobs,” Ms. Cutler said.

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