Question: One of the priorities of the Abe government is to increase women in the workforce due to the shrinking labor supply. What do you think needs to be done here?
Smith: The lack of women in the workforce is not because companies are unwilling to hire. It’s largely a problem of retention due to a lack in performance-based pay. Women need to be rewarded for working efficiently so they can leave early. Women don’t quit because households or childcare needs compel them to; they quit mostly because the employment system rewards hours worked, not performance.
You are currently incentivized to work longer but not to work smarter. That is clearly visible in the labor productivity numbers. Japanese per capita gross domestic product (GDP) used to be substantially higher than the USA, but in 2012, per capita GDP in both Japan and France was broadly 30% below the USA. Lower French per capita GDP was largely explained by their working 24% fewer hours. But the Japanese reported working 9% more hours. The French were economically less rich because they chose to spend more time with their families; the Japanese were less rich despite spending little time with their families.
Question: What are some of the investment themes relating to Abe’s strategy to get more women into the workforce?
Smith: The number of women returning to the workforce is likely to remain high for the next several years. While these women are paid substantially less than regular employee men, their income is an incremental positive to household income. Women returning to work will make it look as though wages are falling, whereas what is really happening is a change in the mix. On a like-for-like basis, pay is going up for both regular and non-regular employees, at both big and small companies. That looks like good news for consumption generally.
We want to thank Nicholas Smith for spending time with us and for his insights. For more insights from Mr. Smith and some of the other strategists and economists we spoke with in Japan, please see our full roundtable here.
Important Risks Related to this Article
Information provided herein should not be considered tax advice. Investors seeking tax advice should consult an independent tax advisor. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance.