Why women work the way they do in Japan: Roles of fiscal policies

Abstract

Women work less often and earn significantly less than men in Japan. We use panel data to investigate employment and earnings dynamics of single and married women over the life-cycle and build a structural model to study the roles of fiscal policies in accounting for their behavior. We show that eliminating spousal deductions, social insurance premium exemptions and survivors’ pension benefits for low-income spouses would significantly raise the labor supply of women and their earnings. More women would opt for regular jobs rather than contingent jobs, accumulate more human capital, and enjoy higher income growth. The government would earn higher net revenues and there is a welfare gain when additional taxes are transferred back.

Keywords: Female labor force participation, life-cycle, human capital accumulation, spousal deductions and exemptions, survivors’ benefits, two-tiered employment system, Japan.

JEL Classification: D15, H2, H31, J22, J24