Work-Life Balance Practices, Performance-Related Pay, and Gender Equality in the Workplace: Evidence from Japan

Work-Life Balance Practices, Performance-Related Pay, and Gender Equality in the Workplace: Evidence from Japan* This paper uses unique firm-level panel data from Japan and provides new evidence on the possible impact on gender equality in the workplace of human resources management (HRM) practices. Specifically we consider a number of work-life balance (WLB) practices that are developed in part to enhance gender equality as well as performance-related pay (PRP) that is one of the most often discussed changes in the Japanese HRM system in recent years. Our fixed effect estimates indicate that daycare service assistance (onsite daycare services and daycare service allowances) has a gradual yet significant positive effect on the share of women in the firm’s core labor force and the proportion of female directors. However, transition period part-time work is found to result in a decrease in the proportion of female directors (or exacerbating gender inequality in management). Turning to PRP, the fixed effect estimates suggest that a switch from the traditional wage system that rewards workers for their long-term skill development through on-the-job training within the firm to PRP that makes pay more sensitive to shorter-term performance will result in a fall in the proportion of female directors. We also find that the adverse effect on gender equality of PRP is fully mediated by having a more objective performance evaluation system; a more transparent decision making process; and a more systematic, explicit and formal training program. This finding can be interpreted as evidence pointing to gender discrimination in the workplace. In designing, developing and revising public policy instruments to achieve Prime Minister Shinzo Abe’s ambitious policy goal of “increasing the share of women in leadership positions to at least 30% by 2020 in all fields in society,” policy makers may need to pay particular attention to heterogeneous efficacy of specific WLB practices and the adverse effect of PRP as well as the mediating role played by management by objectives (MBO), information sharing, and systematic training program. JEL Classification: M5, J16