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OECD Urges Reforms for More Inclusive Growth in Japan

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By Taro Ichikawa | IDN-InDepthNews Report

TOKYO (IDN) - The 34-nation Organisation for Economic Co-operation and Development (OECD) has called for narrowing “gender inequality” as part of “reforms for more inclusive and stronger growth” in Japan. Presenting the OECD’s 2015 Economic Survey of Japan, the influential economic bloc’s Secretary-General Angel Gurría also pleaded for boosting productivity that, he said, was “key to unlocking stronger growth”.

Gurria said: “This is particularly salient for Japan, which must contend with an aged society and a shrinking working-age population. Ambitious structural reform – the third arrow of Abenomics – remains crucial if real GDP growth is to move towards the government’s target of 2 percent during the coming decade.”

Measures to boost productivity should be accompanied by policies to slow the decline in the labour force, argued Gurria, because Japan continues to face the challenge of an ageing workforce. By 2050, the working-age population is projected to fall by nearly 40 percent, making it crucial to maximise its potential.

The OECD Secretary-General pointed out that the female labour participation rate was still 20 percent below that of men. This signified one of the biggest gender gaps in the OECD, he said on April 15.

“The gender pay gap at median earnings is 27 percent, the third highest in the OECD, and only 2.1 percent of listed company board members are women, the second lowest in the OECD. Helping more women have careers can be a ‘triple-win’: stronger growth, less inequality, and a more manageable government debt burden,” said Gurria taking up cudgels on behalf of women.

Prime Minister Abe’s “womenomics” initiative, which aims to have women occupying 30 percent of leadership positions by 2020, was an important step, as were concrete ‘third arrow’ measures like increasing the number of childcare places by 2018.

Narrowing gender inequality also depended on breaking down labour market dualism, said the OECD Secretary-General. “While men make up 70 percent of regular workers, women account for 70 percent of non-regular workers. And non-regular workers are being paid only about 60 percent as much per hour as regular workers! Better targeting of public social spending would help tackle inequality and promote social inclusion. This can be achieved, for instance, by introducing an earned income tax credit for low paid workers.”

While the Japanese economy is expected to return to growth, fundamental structural reforms are needed to promote a more robust recovery, help ensure long-term fiscal sustainability and close the gap in living standards with the leading OECD countries, according to the latest OECD Economic Survey of Japan.

The Survey highlights the impact of Abenomics – the government's ongoing use of bold monetary policy, flexible fiscal policy and a reform-driven growth strategy – to revitalise the economy and defeat deflation. The OECD expects GDP growth of 1 percent this year and 1.4 percent in 2016.

"The unprecedented use of monetary expansion and flexible fiscal policies must be supplemented by rigorous implementation of Abenomics’ crucial ‘third arrow’ – structural reforms,” Gurría said. “Ambitious action is needed to raise productivity and boost Japan’s long-term growth potential, including by increasing women's role in the labour market and stimulating innovation, to ensure higher living standards while ensuring the public debt burden remains sustainable."

The OECD survey highlights productivity increases as the key to unlocking future growth, particularly given Japan's ageing population and already shrinking workforce. Labour productivity is surprisingly low – 25 percent below the average of the top half of OECD countries – considering that Japan has very high levels of secondary and tertiary education and R and D (research and development) spending.

To remedy this, says the OECD, policies should aim to increase the return on R and D investment through improvements to the innovation ecosystem. This will require better corporate governance, reduced product market regulation and more labour market mobility.

Given population ageing, Japan must make better use of all workers. The female labour force participation rate is still 20 percentage points below that of men, one of the biggest gender gaps in the OECD. Ensuring that female participation rates converge to those of men by 2030 would drastically limit the expected fall in labour supply and boost economic growth, says the Survey.

The OECD also calls for further remedial action in order to ensure fiscal sustainability in Japan over the long term. It points out that the gross government debt reached 226 percent of GDP (gross domestic product) in 2014, the highest level ever recorded in an OECD country.

“Given the budget deficit of around 8% of GDP, Japan’s debt ratio is set to rise further into uncharted territory. With public debt service now the biggest item in Japan's central government budget, a detailed and credible fiscal plan is essential to put the debt burden on a downward trajectory over the medium term,” the Survey adds.

Any such plan should include fiscal consolidation sufficient to achieve a primary surplus by Financial Year 2020, notably through efforts to cut healthcare costs and reduce the growth of social spending. Further increases in the consumption tax and a broadening of the base for personal income taxes will also be necessary, the Survey says. [IDN-InDepthNews – 23 April 2015]

2015 IDN-InDepthNews | Analysis That Matters

Photo: The Metropolitan Govt. Building (Tocho) in Tokyo | Credit: The World Factbook

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