Japan’s demographic weapon

As the annual World Bank and International Monetary Fund meetings got under way in Tokyo last week, Japanese leaders had to confront an unfolding demographic disaster. Japan’s National Institute of Population and Social Security Research recently forecast that by 2060, the country will have lost nearly one-third of its 2010 population of 128 million, and just half of this smaller population will be between 15 and 65 years old, the most productive age group in any economy.

These are the kinds of numbers usually produced by wars and epidemics, and they imply both a dramatic drop in the number of young people able to provide for their elders and a much greater debt burden for a country that is already carrying one of the world’s heaviest.

To solve this problem, Japan’s political leaders have three options: find some way to raise the country’s birthrate dramatically, open a long-insular society to a wave of immigrants or finally unveil the country’s secret weapon: the energy, talents and ingenuity of Japanese women.

Opening the country to a surge of immigrants makes sense, but Japan is not about to become an American-style melting pot, and this solution alone would be inadequate to the scale of the demographic challenge. Foreigners make up less than 2 percent of Japan’s population, and a United Nations report from 2001 found that Japan would need inflows averaging 609,000 immigrants per year until 2050 to maintain the percentage of its working-age population.

That is why Japanese policy makers should prioritize drawing more women into the workforce. For the moment, things are moving in the wrong direction. Japan slipped from 80th place in the World Economic Forum’s gender-gap rankings in 2006 to 98th in 2011, a worrying sign that a critical opportunity is being missed. When it comes to women in the workplace, Japan remains the Saudi Arabia of the developed world.

The first step toward reversing this trend could be to create work environments that are better suited to the needs of Japanese women, and that promote their talents. Government officials have taken modest steps in this direction, but culture and inertia remain powerful obstacles.

Still, the prize for getting this right is worth the effort. A 2010 Goldman Sachs study concludes that an increase in female labor-force participation rates to parity with men would add 8.2 million workers to Japan’s economy, virtually erase the projected decline in the country’s working-age population, and boost GDP by 15 percent.

The problem is not that Japanese women lack opportunities for higher education; the university enrollment rate for 18-year-old women exceeded that of men in 2005. But just 65 percent of women with college degrees are now working.

One problem is that working for Japanese firms often requires both long hours on the job and post-work socializing with colleagues, customs that make life harder for working mothers. But Japanese men, who spend less time caring for children than fathers in most other industrialized countries, could share more of the responsibilities of parenting. Better work-life balance would benefit both men and women. And increasing the availability of affordable child care would help, too.

Those who resist feminizing the workforce might argue that doing so would mean fewer children - and thus a new demographic complication. But the evidence suggests otherwise. OECD countries with higher female labor-force participation rates also have higher birthrates. Japan’s birthrate has already fallen to just 1.37 children per female, far below the level that would keep the population constant.

Beyond the cultural obstacles, Japanese policy makers could take many concrete steps. According to Japan’s Ministry of Health, Labor and Welfare, 54.7 percent of women were employed on a non-regular basis in 2011. Officials could encourage employers to offer women permanent, full-time positions, rather than all-too-common temporary contracts, which mean lower pay, less stability and a lack of opportunity for advancement.

More important, current tax policies that reinforce women’s over-representation in temporary contract work should be changed. Both the OECD and the Goldman Sachs studies identify rules that discourage women from working. A “special dependent” exemption that could be claimed by heads of households (mainly men) for dependents (mainly women) who earned less than about $12,000 per year was eliminated in 2004, but a “dependent” exemption still remains.

Policy makers could also find creative ways to increase the odds that women will return to the labor market after having children. They could close Japan’s salary gender gap - the widest of any OECD country except Korea - in part by establishing rules that reward performance rather than seniority. And they could help to create credible opportunities for women to rise to leadership positions.

Opening Japan to more immigrants could help it to meet its demographic challenge. But the more durable solution is already inside the country.

* The author is president of Eurasia Group. This column was co-authored by Susan Schwab, a professor of public policy at the University of Maryland.

by Ian Bremmer