Removing barriers to women’s labor force participation

After decades of steady improvement, the labor force participation rate of American women peaked in 2000 and has declined since. As of September 2017, 25–54 year old women’s labor force participation rate was 75.2 percent (compared to 88.6 percent for men), below its 2000 peak of 77.3 percent.

This changing trend is a central economic concern. Since 1970, most of the increase in the typical household’s income has been due to women’s increasing labor market participation. By one calculation, GDP in 2013 was $2 trillion – or roughly 14 percent – higher because of the increase in women’s participation and hours above 1970 levels. By the same token, now that women’s participation is trending downwards, an important tailwind for families’ living standards has been removed.

The American experience of rising and falling women’s participation is not universal. One striking example of a different path comes from Japan, where 25–54 year old women have steadily increased their participation rate over the last two decades. Japanese women participated at a rate 10 percentage points below their U.S. counterparts in 2000, but have since caught up and exceeded U.S. participation by two percentage points. In recent years, Prime Minister Shinzō Abe has emphasized the macroeconomic importance of women’s participation through his “Womenomics” agenda, seeking to extend these gains.

What happened in Japan that allowed it to chart such a different course? In a Hamilton Project at Brookings report published this week, we explore the lessons to be learned from these starkly different experiences.

Because Japan’s population is substantially older than that of the U.S., one might wonder if aging played a role. However, we found that this accounted for little to none of the improvement in prime-age women’s labor force participation in Japan. A different demographic shift over the 2000 to 2016 period was somewhat more important. The average age of first marriage rose from 27 to nearly 30, helping the share of never-married women (who are more likely to participate in the labor force) to rise by 5 percentage points, but this still had a relatively small impact on overall participation. Instead, it was the increase in participation for married women, and especially for women in their late 20s through 30s, that drove much of the overall gains.

Changes in public policies and cultural attitudes were likely responsible for some of the improvement. Over the last few decades, the Japanese government mandated and then increased the generosity of paid parental leave and government-funded childcare, both of which can help mothers to remain in the labor force. In addition, Japanese labor laws have been liberalized in the last 20 years, allowing for women to participate in a broader set of industries and with more flexible work arrangements.

However, the story of Japanese women’s labor market engagement—particularly relative to the United States—is not one of unalloyed success. Despite their higher rate of labor force participation, employed Japanese women are less likely than American women to be in leadership roles and more likely to hold irregular or part-time employment. These jobs tend to pay less and offer fewer benefits.

Women’s labor force participation and the quality of women’s labor market opportunities are dual objectives, both contributing to economic growth. Working within this framework, The Hamilton Project’s recent book, entitled The 51%: Driving Growth through Women’s Economic Participation, put forward policies to both increase women’s labor force participation and improve their economic outcomes.

Women’s labor force participation and the quality of women’s labor market opportunities are dual objectives, both contributing to economic growth.

Parental leave and child care have important roles to play. The economics literature implies that short- to moderate-duration paid parental leave increases women’s labor force participation, enabling workers to better balance family and employment responsibilities. Evidence on the limited current child care support for American families suggests that our current policies are poorly designed and could be reorganized to target young children and low-income households.

Reforms to tax policy are also important. Currently, our tax code does too little to promote work, and in some important respects unnecessarily discourages labor force participation, particularly that of women. The lesson of Japan is the importance of lifting participation for the group most out of the labor force. In Japan, that was married women, in the United States, it is women with less education. Expanding the Earned Income Tax Credit would increase its effectiveness in promoting work for many low-income families. Moving towards individual taxation of dual-earner families—likely by implementing a deduction for secondary earners—would increase the incentive to work for many married women.

At the same time, policies aimed at fair scheduling, pay transparency, and pay discrimination can help ensure that women are full participants in the economy, not a marginalized group. Lifting participation is important, but doing so without ensuring full participation will both leave economic gains unrealized and leave individuals and households with less income gains than feasible.

Regardless of the particular reforms being considered, it is important to understand that women’s economic opportunities are vital to our shared economic progress. The overall economy, families, and women all benefit when barriers to women’s economic participation are removed, allowing for a fuller use of women’s talents.