One of the interesting phenomenal observed in developed nation is high female labor force participation rate and relatively low fertility rate. Japan has a considerable proportion of its aging population affected by its low fertility rate, while Sweden still has a relatively healthy population structure with slightly above average fertility rate among OECD nations since 2002. Low fertility rate and aging population has gradually become a serious problem for the labor supply. Both countries have conducted policy reforms to boost the fertility rate as well as to encourage more women to engage in the labor force. The female labor force participation rate in Japan and Sweden still shows significant gaps.

This research conducts a vector autoregressive analysis aiming to examine the influence of fertility rate, gender wage gap, parental leave gender gap and child allowance ratio as driving factors on female labor force participation rate in Japan and Sweden. The purpose is to analyse how each factor influence the female labor force participation rate in Japan and Sweden. The main findings are: (i) the larger proportion of government spending on child allowance tends to reduce the proportion of female employment in Japan and Sweden. (ii) The persistent gender wage gap harms female labor force participation. (iii) Increasing fertility significantly influences on females' withdrawal from the labor force. (iv) An increase in the gap in parental leave rates between males and females has a relatively small negative impact on female labor force participation in both countries.