Increase Female Labor Force Participation to Boost Fertility

Demographics is a major topic here on APAC Trends and no country illustrates the perils of aging demographic profiles more than Japan. We have previously argued that reversing the dampening economic effects of aging societies - smaller labour forces, larger welfare bills - requires greater integrattion of women into the labour force and this outlook is supported by a labor force survey from the Organisation of Economic Co-operation and Development.

In their analysis, they posit a distinct relationship in OECD member countries between female labour force participation and fertility rates, i.e. the number of children per woman. Essentially, this shows that the more women in the labour force, the greater the amount of children a woman will have.

OECD Countries: Female Labour Force Participation and Fertility Rates, 1985-2012

Source: IMF Asia-Pacific Outlook: April 2015

To boost participation, available policy choices include providing affordable, flexible child care services and enacting parental benefit provisions. Public policies can also be geared toward reducing the opportunity cost for women of working as a regular employee. In particular, the current system in Japan, which allows an income tax deduction for a spouse, creates a disincentive for female labor participation and could be replaced with a requirement for individual tax filing.

Thankfully, there are examples of success. Scandinavian countries also faced the demographic challenge of a shrinking population and low female labor participation in the 1970s. They implemented policies regarding benefits—available to both men and women—including comprehensive parental leave provision, access to child care facilities, and the statutory right to paid maternal and paternal leave. As a result, the gender gaps in both wage and labor force participation are among the smallest today.

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