Japan’s Women to the Rescue

Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

Among economists (most of whom are male), there is a tendency to treat diversity and gender equality as “soft” issues - worthy social goals perhaps, but secondary to the real business of economic growth, job creation and productivity.

But these soft issues have jumped to the top of the long-term growth agenda in Japan, the world’s third-largest economy, where Prime Minister Shinzo Abe is working to shake the nation out of its 20-year deflationary slump.

So far the world’s attention has focused on Mr. Abe’s bold macroeconomic policies to lift demand and growth in the short run.  These policies have been strikingly successful, confirming the validity of Keynesian remedies for an economy suffering from insufficient demand when interest rates are stuck at their zero lower bound. As a result of higher deficit spending and a vast quantitative easing program by the Bank of Japan, the Japanese economy is growing at 4 percent, the highest rate among advanced economies, and the stock market has soared by 80 percent over the last six months.

Now, after his recent impressive electoral victory, Prime Minister Abe has signaled his intention to move forward with the “third arrow” of his policy quiver â€" significant structural reforms to increase Japan’s long-term growth potential.  His list reads like a neoclassical economist’s list of “usual suspects,” including deregulation, industrial restructuring, corporate tax reform and trade liberalization â€" all worthy objectives.  But in a departure from tradition, he is also championing reforms to expand economic opportunities for women.

Mr. Abe believes in numerical targets, and he has established several of them to increase the participation and advancement of women in the workplace.  He wants to eliminate day-care waiting lists by creating 200,000 new day-care openings in authorized public facilities by 2015, with another 200,000 by 2017.  He wants businesses to double their child-care leave to three years.  He wants 30 percent of leadership positions in government and business to be held by women by 2020.  He is calling on Japanese corporations to appoint at least one woman to their boards.  And he is considering both changes in tax laws that discourage mothers from working and new training subsidies to help them return to the workplace following child-care leave.

These initiatives are not motivated by softhearted political correctness but by hard-headed economic logic. Japan needs to expand its work force, which is shrinking rapidly as a result of a sagging birth rate and an aging population. The International Monetary Fund estimates that Japan’s working-age population will fall by almost 40 percent by 2050.  The share of citizens older than 65 is expected to jump from 24 percent in 2012 to 38 percent in 2050, when the ratio of the working population to the elderly population will be 1 to 1.

“Japan is growing older faster than anywhere else in the world,” the I.M.F. reports.  Unless the nation can shore up its work force, it faces a long-term drag on economic growth at a time of soaring obligations for old-age entitlements.

Japan has one of the largest gender gaps in the world.  Even though Japanese women are highly educated â€" indeed, the university enrollment rate for 18-year-old females now exceeds that for 18-year-old males â€" the female employment rate is about 25 percentage points lower than the rate for men, and ranks among the lowest in the developed countries.

Japan also has the largest gender pay gap of any country in the Organization for Economic Cooperation and Development, with the exception of South Korea. On average, Japanese women earn about 72 percent of the compensation of men for equivalent jobs. The gender pay gap rises during childbearing and child-rearing years indicating a “motherhood pay penalty”.”  This penalty is larger in Japan than in any other O.E.C.D. country, including Korea.

In the 2012 Global Gender Gap Report of the World Economic Forum, Japan ranked near the bottom â€" 102 out of 135 countries â€" on an index measuring gender parity in economic participation and opportunity. Japan has consistently had the worst ranking of any developed economy on this index since it was introduced in 2006.

There are several reasons for Japan’s poor performance. Strong cultural norms value stay-at-home mothers. Tax distortions reinforce these norms and penalize two-worker households.  Long working hours with overtime requirements make it difficult to balance work and family responsibilities.   Child-care services are in acute short supply.  There are long waiting lists for public child care, and a limited number of private providers because of burdensome regulations that Mr. Abe has pledged to ease.

Women are often caught in a Catch 22: they cannot secure a job until a child-care slot is available, and they are not eligible for such a slot until they have a job.  And rigid immigration laws make it impossible for Japanese families to sponsor foreign workers to provide domestic help. A Japanese woman cannot get a visa for a foreign nanny, but a Japanese nightclub owner can get a visa for a foreign female entertainer.

About 70 percent of Japanese women leave the work force after their first child. Only about one-third of Japanese mothers with young children work, compared with 50 to 60 percent in the United States, Britain and Germany, and 75 percent in Sweden.  Nearly three-quarters of college-educated working women in Japan voluntarily leave their jobs for six months or longer, more than twice the incidence among their counterparts in the United States (31 percent) and Germany (35 percent). Most of the Japanese women who quit work for family responsibilities want to rejoin the work force but have a hard time doing so and face serious penalties in future wages and promotions.

The gender gap is costly. The I.M.F. estimates that if Japan’s female labor participation rate climbed to the average of the Group of 7 industrial economies, Japan’s per-capita economic output would be 4 percentage points higher. If employment rates for Japanese women were to reach parity with those for Japanese men, Goldman Sachs estimates Japan’s work force would gain eight million people and its gross domestic product would be 14 percent larger.

Given the magnitude of these effects, it is not surprising that the recent I.M.F. assessment of the health of Japan’s economy specifically welcomed policy initiatives to increase female employment.  It is also not surprising that a group of Japanese business leaders has established a high-level task force to work with the Japanese government and the World Economic Forum to foster business practices and policies to increase economic opportunities for women and to improve Japan’s ranking on the forum’s index.

To be sure, narrowing Japan’s gender gap won’t be easy. It is entrenched in a wide array of cultural barriers, government policies and corporate workplace practices. Political resistance and inertia are still formidable. Despite Mr. Abe’s call to put women in leadership roles, to date his own Liberal Democratic Party has been lackluster in recruiting female candidates for Parliament.

The main reason to think that Japan’s structural changes to encourage the employment and advancement of women will succeed is that there is no alternative.  Japan’s demographic challenges are too severe and the untapped economic potential of Japanese women is too large to ignore. As Mr. Abe astutely remarked in a speech last spring, women are Japan’s “most underutilized resource.”

Obama’s Backup Plan on Colleges

White House officials are well aware that their plan to link federal financial aid to college performance faces hurdles. College presidents have generally resisted attempts to measure outcomes, and Congressional Republicans have generally resisted any domestic-policy proposal from President Obama.

But the White House has something of a backup plan. Even if Mr. Obama (or his successor, given the plan’s long timeline) cannot persuade Congress to change the rules for awarding federal aid by 2018, his administration can still collect and publish the data on college outcomes.

Mr. Obama’s first choice is that this data - on tuition, graduation and retention rates, student makeup and graduates’ earnings - help determine how much federal money the colleges receive. The backup plan is that parents and students will be able to use the data to decide where to enroll and, in the process, reward top-performing colleges and punish laggards. The White House plans to publish ratings based on this data by 2015.

Whether this backup plan works will depend greatly on the details.

Much of the data the administration plans to use in its ratings is already public. Mr. Obama’s Education Department already publishes a “college scorecard” with a wealth of information. The Education Department also has a search engine called the College Navigator. Private groups, like Washington Monthly, also publish data on graduation rates and other measures. (The magazine’s latest version is scheduled for release next week.)

Looking at these Web sites, you can discover, for example, that the University of Washington, Seattle, and the University of Texas at El Paso seem to have impressively high graduation rates, given the makeup of the student bodies. Baylor University and Montana State University, on the other hand, have lower graduation rates than one would expect, given the students who enroll there.

Yet it is not at all clear that such information has any significant influence on students’ and parents’ decisions about where to enroll. How often have you heard somebody talk about graduation rates when choosing a college?

Several studies have found that low-income students, in particular, end up attending colleges with low graduation rates - and many then fail to graduate. Only about one in three low-income students with the academic records to be admitted to one of the country’s 238 most selective colleges attend one, according to a recent study by Caroline M. Hoxby of Stanford and Christopher Avery of Harvard.

The New York Times Source: “The Missing ‘One-Offs’: The Hidden Supply of High-Achieving, Low Income Students,” by Caroline M. Hoxby and Christopher Avery; National Bureau of Economic Research.

And students with identical backgrounds are less likely to finish college when they attend one with a lower graduation rate, according to a large study by William G. Bowen, Michael S. McPherson and Matthew M. Chingos.

To be clear, money is not the only reason that students choose to attend colleges with low graduation rates. More selective colleges can often be less expensive for low-income students, because they can offer more financial aid, notes Sarah Turner, a University of Virginia economist.

A larger reason for these often self-defeating decisions is a lack of good information. Many students and parents do not seem to understand the vast variation in college quality.

That is where Mr. Obama’s backup plan comes in. He and his aides want to close this information gap and help people make better decisions, officials say. But they should not underestimate the difficulty of the task.

Theirs is hardly the first plan to publish comparative data about colleges on the Internet. So far, though, the information has failed to break into the mainstream. Figuring out why - and what kind of information might fare better - may be the first task facing Mr. Obama’s education aides.

The Affordable Care Act and Part-Time Work

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Among the various attacks on the Affordable Care Act, one of the more coherent â€" a low bar, given what’s out there â€" is that it is causing small employers to create part-time jobs so as to remain under the 50 full-time worker cutoff for the employer mandate. The problem for those who want to come at the law from that angle, however, is that though the incentive exists, the evidence does not.

As Paul Van de Water and I pointed out in Politico the other day, if employers were responding to the incentive the way the critics claim, we should see involuntary part-time work growing as a share of total jobs, as workers who want full-time jobs would be stuck with part-time ones. But both involuntary and overall part-time work are slowly declining as a share of all jobs.

Still, it is legitimate to ask whether the slow decline in the share of part-timers is occurring more slowly in this recovery because of the incentive to stay under 50 full-timers. So I built a simple statistical model of the relationship between the share of involuntary part-time work and the unemployment rate. I then ran the model through the first half of 2009, and predicted, using the actual unemployment rate, the shares of involuntary part-time work.

Involuntary Part-Time Work: Actual and Predicted

Sources: Bureau of Labor Statistics, author’s analysis

If the law were keeping more than the usual number of full-time workers stuck in part-time jobs, then the predicted trend would be significantly below the actual one. In fact, the two trends hug each other quite tightly, further evidence that part-time employment is much where we would expect it to be at this stage of recovery, given the high level and slow decline in the jobless rate.

At the end of the day, no one’s saying the incentive does not exist or that it won’t show up somewhere down the road in the data. But there are good reasons to believe it will be small, and it’s not there yet.

Moreover, there’s no question that the United States needs to reform what has been an unsustainably wasteful health care delivery system, which both costs more than in other countries and covers a smaller share of the population. The Affordable Care Act already appears to be moving us in the right direction with few side effects. The smart move now is to implement it and keep a close watch out for consequences, both intended and otherwise.

The Affordable Care Act and Part-Time Work

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Among the various attacks on the Affordable Care Act, one of the more coherent â€" a low bar, given what’s out there â€" is that it is causing small employers to create part-time jobs so as to remain under the 50 full-time worker cutoff for the employer mandate. The problem for those who want to come at the law from that angle, however, is that though the incentive exists, the evidence does not.

As Paul Van de Water and I pointed out in Politico the other day, if employers were responding to the incentive the way the critics claim, we should see involuntary part-time work growing as a share of total jobs, as workers who want full-time jobs would be stuck with part-time ones. But both involuntary and overall part-time work are slowly declining as a share of all jobs.

Still, it is legitimate to ask whether the slow decline in the share of part-timers is occurring more slowly in this recovery because of the incentive to stay under 50 full-timers. So I built a simple statistical model of the relationship between the share of involuntary part-time work and the unemployment rate. I then ran the model through the first half of 2009, and predicted, using the actual unemployment rate, the shares of involuntary part-time work.

Involuntary Part-Time Work: Actual and Predicted

Sources: Bureau of Labor Statistics, author’s analysis

If the law were keeping more than the usual number of full-time workers stuck in part-time jobs, then the predicted trend would be significantly below the actual one. In fact, the two trends hug each other quite tightly, further evidence that part-time employment is much where we would expect it to be at this stage of recovery, given the high level and slow decline in the jobless rate.

At the end of the day, no one’s saying the incentive does not exist or that it won’t show up somewhere down the road in the data. But there are good reasons to believe it will be small, and it’s not there yet.

Moreover, there’s no question that the United States needs to reform what has been an unsustainably wasteful health care delivery system, which both costs more than in other countries and covers a smaller share of the population. The Affordable Care Act already appears to be moving us in the right direction with few side effects. The smart move now is to implement it and keep a close watch out for consequences, both intended and otherwise.

College Costs: Rising, Yet Often Exaggerated

“Soaring college costs” is one of those phrases for which journalists and speechwriters seem to have a save-get key. It’s become conventional wisdom that the cost of attending college has risen far more than the cost of just about any other major item in family budgets. Expect to hear more such talk in the commentary about President Obama’s speech on higher education on Thursday - and perhaps even in the speech itself.

But the conventional wisdom is at least partly wrong.

The cost of attending college has indeed increased more quickly than inflation in recent years, but it has not risen as fast as many people imagine. The main reason for the misunderstanding is the fact that the list price of college - especially the list price of elite private colleges - receives far more attention than the actual price. The list price is the one that colleges highlight in their brochures and that media accounts often mention; the actual price, which takes financial aid into account, reflects what families truly pay and, by any imaginable definition, matters more.

Source: College Board Expressed in 2012 dollars.

Over the last 20 years, the actual price of a year at a private college, including tuition, fees, room and board, has risen at an annual average of 1.6 percent on top of inflation, according to the College Board. In nominal terms - that is, not controlling for inflation - the increase has been about 4 percent a year.

At public four-year colleges, the inflation-adjusted average annual increase has been somewhat higher, thanks mostly to state budget cuts: 2.3 percent (which translates into almost 5 percent a year in nominal terms). At public two-year colleges, also known as community colleges, costs have fallen relative to inflation, at an annual rate of 0.3 percent over the last 20 years.

These numbers are, of course, averages that hide some variation. For many high-income families, the costs have risen more rapidly than the averages suggest, because those families have not received as much financial aid. For many low-income families, costs have increased less than the averages show. Looking at public colleges, Dylan Matthews of The Washington Post wrote this week that the tuition increases were “concentrated on students in the upper middle and upper classes, with students from families making under $32,500 a year largely spared.”

Again, college has become more expensive in recent years. And prices have increased somewhat faster over the last decade than they did over the previous decade, the College Board data show. These cost increases stem from a combination of factors, some of which are probably unavoidable and some of which different government policies have the potential to change. For years, many university officials have resisted efforts to hold down costs and resisted government efforts to impose more accountability on higher education.

But the cost increases in higher education are not as large as they are often made out to be. Higher education, in truth, has similarities with many other service industries where costs have also risen. Health care is the most obvious example. Prices have also increased fairly rapidly, according to the Labor Department, for funeral services, sports tickets, day care, legal advice and tax preparation. Over time, the costs of items that depend on skilled human labor typically go up.

College Costs: Rising, Yet Often Exaggerated

“Soaring college costs” is one of those phrases for which journalists and speechwriters seem to have a save-get key. It’s become conventional wisdom that the cost of attending college has risen far more than the cost of just about any other major item in family budgets. Expect to hear more such talk in the commentary about President Obama’s speech on higher education on Thursday - and perhaps even in the speech itself.

But the conventional wisdom is at least partly wrong.

The cost of attending college has indeed increased more quickly than inflation in recent years, but it has not risen as fast as many people imagine. The main reason for the misunderstanding is the fact that the list price of college - especially the list price of elite private colleges - receives far more attention than the actual price. The list price is the one that colleges highlight in their brochures and that media accounts often mention; the actual price, which takes financial aid into account, reflects what families truly pay and, by any imaginable definition, matters more.

Source: College Board Expressed in 2012 dollars.

Over the last 20 years, the actual price of a year at a private college, including tuition, fees, room and board, has risen at an annual average of 1.6 percent on top of inflation, according to the College Board. In nominal terms - that is, not controlling for inflation - the increase has been about 4 percent a year.

At public four-year colleges, the inflation-adjusted average annual increase has been somewhat higher, thanks mostly to state budget cuts: 2.3 percent (which translates into almost 5 percent a year in nominal terms). At public two-year colleges, also known as community colleges, costs have fallen relative to inflation, at an annual rate of 0.3 percent over the last 20 years.

These numbers are, of course, averages that hide some variation. For many high-income families, the costs have risen more rapidly than the averages suggest, because those families have not received as much financial aid. For many low-income families, costs have increased less than the averages show. Looking at public colleges, Dylan Matthews of The Washington Post wrote this week that the tuition increases were “concentrated on students in the upper middle and upper classes, with students from families making under $32,500 a year largely spared.”

Again, college has become more expensive in recent years. And prices have increased somewhat faster over the last decade than they did over the previous decade, the College Board data show. These cost increases stem from a combination of factors, some of which are probably unavoidable and some of which different government policies have the potential to change. For years, many university officials have resisted efforts to hold down costs and resisted government efforts to impose more accountability on higher education.

But the cost increases in higher education are not as large as they are often made out to be. Higher education, in truth, has similarities with many other service industries where costs have also risen. Health care is the most obvious example. Prices have also increased fairly rapidly, according to the Labor Department, for funeral services, sports tickets, day care, legal advice and tax preparation. Over time, the costs of items that depend on skilled human labor typically go up.

The Government and the Entrepreneurs

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

Entrepreneurship seems like the quintessential private sector activity.  An individual or a small group of colleagues decide to set up a business and raise some capital.  If things go well, sales grow and they can hire more people.  The business grows based on retained profits - or they may be able to attract funding from venture capital or some other risk-taking investors.  Success brings legitimate big rewards to the people who are willing to risk an equity investment, which could rise in value or become worthless, and to those who work hard to make the business growth possible.

What does any of this have to do with the government?

According to an authoritative series of reports on entrepreneurship around the world, the government has a key impact not just on how many new businesses are created, but also - and perhaps more importantly - on the nature of these firms and their ability to grow.

The reports in question are the Global Entrepreneurship Monitor series, which has been running since 1999. I’ll focus here on the 2012 Global Report (from which the quotes below are taken).

Tracking, monitoring and measuring entrepreneurship is not easy, and the Global Entrepreneurship Monitor team deserves a lot of credit for developing a sensible methodology and sticking to it.  They survey around 2,000 adults in a random representative sample, and they talk with at least 36 experts in each country.  Their goal is ambitious: “GEM provides a comprehensive view of entrepreneurship across the globe by measuring the attitudes of a population, and the activities and characteristics of individuals involved in various phases and types of entrepreneurial activity.”

The focus is on “the incidence of start-up businesses (nascent entrepreneurs) and new firms (up to 3.5 years old) in the adult population (i.e. individuals aged 18-64 years)” (see Page 14).

No measure is perfect, but the strength of this approach provides insight into some fascinating questions.  Where do people want to create new businesses?  And when do entrepreneurs seek to make these businesses grow, rather than lurk under the regulatory radar?

These are important questions not just for the United States, where we pride ourselves on new enterprises being created, but also in all countries.  All societies want jobs and preferably good jobs at high wages.  Ideally also, there is a process of productivity improvement, meaning the amount that people can produce goes up every year.  (This can be consistent with maintaining a sustainable environment or even using fewer resources, although I will readily concede that is not the path most of the world is currently on.)

The reports are rich in detail, but three points jump off the page regarding the role of government.

First, when the overall environment for business is bad, there are many entrepreneurs.  For example, while there is a great deal of variation shown by the data within Africa, it is also clear that this is a difficult place to do business, because, for example, regulation is unpredictable and property rights can be hard to defend against powerful people.

Lack of human capital is also a weakness.  You need capable engineers, managers and many others to help companies grow.  The education system in many African countries is not in good shape.

Yet, there are plenty of potential entrepreneurs in the study: “Sub-Saharan Africa reported the highest intentions of any geographic region (53 percent), which is consistent with their positive perceptions about opportunities and their belief in their capabilities” (Table 2.2).

The explanation is simple.  In such economies, entrepreneurship is a fallback option, when it is not possible to get a decent job in larger business.

“As per capita income increases, larger established firms play an increasingly important role in the economy,” the report says. “This provides an option for stable employment for a growing number of people, serving as a viable alternative to starting a business.”

Second, the negative effects of macroeconomic policy can crush new business creation even in places with plenty of human capital and good perceived opportunities.

For example, the prolonged recession in Southern Europe has reduced the perceived opportunities for potential entrepreneurs: “The Southern European countries show not only a consistently lower level of opportunity perceptions compared with the Nordic countries, but they have mostly showed declines,” the study finds.

Perhaps this will turn around - entrepreneurs are good at dealing with adversity (and that’s the point from Africa).  But it’s hard to break into a market when customers are squeezed and investors are cautious.

The Global Entrepreneurship Monitor reports make a fine but appealing distinction: do you see opportunities, and do you plan to do anything about it?  These are separate issues.  If your current job is good enough, you will stick with it.  Or perhaps you don’t have the skills necessary, in your own mind, to make the leap to start a company.

It would not be a surprise if entrepreneurs help countries like Portugal to recover from the euro crisis.  But this is going to take awhile.

Third, the most difficult question is for what the report calls the innovation-driven economies, most of which are already among the richest countries in the world.  What, if anything, should the government do to promote entrepreneurship?

Perhaps the answer is: not too much.  All kinds of plausible schemes are put forward to help entrepreneurs at various stages of their development.  No doubt some of these are effective, particularly when they involve private sector mentors and building networks of contacts.  Also, helping companies at an early stage reach foreign customers can be helpful, so, for example, a business in Portugal does not have to worry so much about local or even regional macroeconomic conditions.

But what strikes me from the report is its data on the fear of failure.  Part of what drives these numbers may be cultural, but there must also be economic incentives at work here, like the consequences of going bankrupt for a company or an individual.  Compared with other countries, the fear of failure is high in Japan and also in South Korea.  This fits with other evidence from those places.  (For further thinking on why this matters, I recommend “Entrepreneurship and the Stigma of Failure,” a paper by Augustin Landier.)

The fear of failure is even higher in Italy and Greece.  Although we should worry about how precisely we can compare such attitudes across countries, the United States has one of the lowest fears of failure among rich countries.

Reducing the fear of failure for potential entrepreneurs is not any kind of panacea for economic development. Malawi, a poor country, has a very low fear of failure.

Government is responsible for the overall infrastructure in a country, and this includes access to education, decent roads and other transportation links.  There is also a case for supporting basic technology development, like at the university level, for example, because of the spillovers or externalities throughout the economy. (I work at M.I.T., which benefits greatly from such support and which has had a major impact on new business creation.)

In innovation-based economies (as the Global Entrepreneurship Monitor classifies them), what governments really need to do is to encourage people - entrepreneurs and the equity investors who back them - to take risk and ensure that failure is seen in a positive light, rather than as some kind of stigma.

The message should be: Go out and start a business, based on your best idea.  Find a technology with a new application or develop a different way to make customers happy.  If it doesn’t work out, you have still developed important skills and made a major contribution to society.