Can Japan’s ‘New Dimension’ Measure Reverse Its Low Fertility Rate?

Despite Japan’s efforts to reverse the stagnant fertility rate, it has struggled to overturn the trend. For the past three decades, Japan’s fertility rate has been below 1.5. The most recent statistics in 2022 recorded the lowest level, 1.26. While Japan’s population was 124.9 million as of 2022, it is expected to decrease by approximately 30 percent to 87.0 million by 2070.

Japan’s prime minister Kishida Fumio proposed the “New Dimension” Measure on June 13, 2023, to address the prolonged low fertility rate. This commentary examines the potential of Japan's "New Dimension" Measure to reverse the low fertility rate and discusses future challenges.

The “New Dimension” Measure to Combat Stagnant Fertility Rates

Kishida’s “New Dimension” Measure reflects the government’s belief that the fertility rate needs to be increased by the 2030s, at which point population decline could prove irreversible.

The “New Dimension” Measure consists of four main pillars described below. The first pillar is to expand child allowance payments issued by the government. Presently, the monthly child allowance is 15 thousand yen (approximately 100 USD) for children under three years old and 10 thousand yen (approximately 67 USD) for those up to junior high school age. Under Kishida’s proposal, these figures would double to 30 thousand yen for the third child and subsequent siblings and expand eligibility to high school students. Additionally, while families with household heads earning 12 million yen (approximately 80,000 USD) or more annually are not eligible for child allowance under the current system, Kishida proposes to abolish the income threshold. To bring this proposal to fruition, the government must amend the Child Allowance Law and allocate the necessary amount, with a particular focus on the ongoing deliberations regarding funding.

The second is to extend social insurance coverage to maternity expenses. Maternity expenses are not covered by social insurance in the current system. The third pillar is introducing a daycare program for all children. Parents with no jobs cannot use daycare centers now, but the new measure would expand eligibility for using daycare centers to all children, irrespective of parental employment status. The fourth is enhancing childcare leave benefits. Under the current system, parents taking childcare leave receive approximately 80 percent of their after-tax income. The new measure will have parents receive approximately 100 percent of their after-tax income for up to 28 days, provided both parents to take childcare leave.

The Prospect for Post-Reform Fertility Rate

Implementing the measure would require a substantial increase in government expenditures to support families. Compare with other countries in the Organization for Economic Cooperation and Development (OECD), Japan's trajectory of social spending in families as a percentage of GDP is noteworthy. Despite having the lowest figure among OECD countries at 0.5 percent in 2010, it has experienced a remarkable fivefold surge, currently at 2.5 percent. This figure has now reached an average level among OECD countries. The new measure would increase it to approximately 3 percent and align Japan with some of the highest spenders, such as France and Sweden.

Can Japan’s new measure reverse its low fertility rate? As mentioned above, while Japan has dramatically increased social expenditures on families over the last two decades, this surge has not elicited a corresponding shift in its total fertility rate. The second table summarizes selected academic studies from around the world on the effects of family policies on fertility rates with reference to Shintaro Yamaguchi’s book and the EBPM (Evidence-Based Policy Making) Database. Representative studies on the expansion of financial assistance show that the effects are positive but limited. For instance, a 2013 study led by Alama Cohen revealed that child allowances, even if doubled, only lead to an increase in the probability of childbirth by 19.2 percent. Since Kishida’s proposed expenditures would double payments for just the third child and subsequent siblings, its effect will likely be limited. Taiyo Fukai’s study on Japan and the Stefan Bauernschuster-led study on Germany imply that expanding access to childcare is more efficient than increases in financial assistance. However, the target for Kishida’s new daycare program is narrow and the overall effect of the new measure is likely to be small.

The Way Forward

What, then, should Japan focus on to address the problem? First and foremost, Japan’s government should strive to involve more men in housework and childcare. As shown in Figure below, there is a strong correlation between total fertility rates and men’s contributions to housework and childcare. As of 2021, while the female average daily hours of housework and care is 6.9 hours, the male one is just 1.6 hours. Despite having one of the world’s best parental leave systems, the share of housework and childcare by Japanese men has been relatively flat and increased only slightly over the past two decades.

When household and childcare duties predominantly fall on women, it often compels them to make a difficult choice between pursuing their careers or embracing motherhood. A recent study led by Henrik Kleven calculates child penalty, defined as the effect of having a first child on women's employment relative to men’s. Although the child penalty rate is 25.2 percent for the United States, 33.5 percent for the United Kingdom, 26.4 percent for France, and 10.5 percent for Sweden, Japan's rate is 44.5 percent, the highest among major advanced countries.

Secondly, promoting civil union is also important, given most children in Japan are born to married couples. The fertility rate among married couples has remained stable over the past two decades, but the growing number of unmarried individuals causes an overall low fertility rate. One major obstacle hindering marriage is low and uncertain income levels. Japan’s government should take steps to elevate and secure the income of young individuals. Generally speaking, non-regular employees face lower and less certain income than regular employees in Japan. The Employment Status Survey shows married men make up a lower percentage of non-regular employees compared with regular employees. Take ages 30 to 34 in 2022 for example—the percentage of non-regular employees is 20.0 percent but regular employment is 56.2 percent. In addition, the marriage rate in Japan has been gradually declining over the past decade, but the decline among non-regular employees has been significant.

Lastly, immigration reform could be another potential solution. It is well-known that immigration, in addition to contributing to population increase, also drive fertility rates in more economically developed countries. However, Japan is known for its highly homogenous society, and immigration reform could prove politically sensitive given the irreversible nature of such policies. In addition, a weakening yen and relative decline in economic strength would appear to make Japan less appealing to potential immigrants. Ensuring gender equality and labor market reform could make Japan more attractive for immigrants, but this would require a package of policy initiatives that would likely be introduced incrementally and in tandem with fertility rate reforms.

Conclusion

Japan’s government under Prime Minister Kishida has resolved to reverse the low fertility rate. However, the “New Dimension” measure appears to lean heavily toward financial assistance. Existing evidence suggests that the effect of such measures is likely to be limited. Other policies such as efforts to foster gender equality in housework and childcare responsibilities, increase wages for young workers, and encourage immigration could have more lasting impact. Finally, recognizing that it will take time to increase the fertility rate, the government should take interim steps to minimize the impact on economic growth by encouraging older individuals to remain in the workforce, and enhancing the sustainability of the social security system. These steps will help make Japan more resilient as it strives to increase the birthrate in the future.

Yohei Kobayashi is a visiting fellow with the Japan Chair at the Center for Strategic and International Studies in Washington, D.C. He is a chief analyst from Mitsubishi UFJ Research & Consulting (MURC).