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Gender Parity and Economic Performance

BERKELEY – For the first time in its history, a woman is in charge at the International Monetary Fund. And, under Managing Director Christine Lagarde’s leadership, the Fund is “mainstreaming” gender parity as a driver of economic performance.

Women’s rights have long been recognized – though all too often not respected – as human rights. But the view that women’s rights are a key determinant of national economic prosperity is relatively new – and supported by a growing body of research by the IMF, other international organizations, and scholars around the world.

As Lagarde wrote recently, whether women have the same opportunities as men to participate and advance in labor markets is a fundamental question for economic growth. Unfortunately, despite considerable gains in many countries, labor markets around the world remain divided along gender lines, with progress toward parity having stalled.

Women make up a little more than half of the world’s population. Gender gaps in health and education have largely disappeared, even in low-income countries. In developed countries, there are more women in tertiary education than men. And women’s employment rates increase, and gender-based employment gaps decrease, as women’s educational attainment levels rise.

Yet, worldwide, only about half of working-age women are employed, and women’s labor-force participation rates have not changed much in two decades. Women account for most unpaid work in the informal sector; and, even when they are formally employed, they earn significantly less than comparably educated men in similar jobs. In developed and developing economies alike, women are markedly underrepresented in senior-level business positions and entrepreneurial ventures.

According to the World Economic Forum’s index of gender parity in economic participation and opportunity, which assesses gender gaps in labor-force participation rates, pay levels, and senior managerial and professional positions, even the best-performing countries have gender gaps of 15%-25%, with gaps of 60%-70% for the worst performers.

Economic logic, backed by compelling evidence, indicates that raising women’s labor-force participation rates to comparable male levels boosts GDP – by 5%-6% in the United States, 9%-14% in Japan, and 12% in the United Arab Emirates, according to recent estimates. The OECD calculates that achieving gender parity in labor-force participation rates would increase GDP by 12% in developed countries over the next 20 years. Likewise, McKinsey estimates that US GDP was 25% larger in 2011 as a result of the increase in women’s labor-force participation rate from 1970 to 2009.

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Gender parity in pay and opportunities for advancement also matters for how economies perform. Compared to their share of the labor market, women worldwide are overrepresented in low-status, low-wage sectors and occupations. In poor developing countries, a disproportionate share of women hold temporary, low-paying jobs in the informal sector, with no benefits. Yet women’s work, whether paid or unpaid, is one of these countries’ most important poverty-reducing forces.

In developed and developing economies alike, part-time work in the formal sector continues to be a predominantly female domain – often the only solution to balancing work and family responsibilities. Yet significant gender gaps in pay persist even within the formal sector for the same occupations, even when controlling for individual workers’ characteristics, including their education levels.

For example, among OECD countries, the average gender wage gap is around 16%, with gender differences in occupations, working hours, education, and experience explaining only about 30% of the difference (and about 60% in the US and Germany). Despite dramatic gains in women’s educational attainment levels, in the US their earnings remain lower than men’s for similar skill levels in nearly all occupations, including those that are predominantly held by men and those that are predominantly held by women.

Throughout the OECD, the wage gap starts small for young women entering the labor force; but it grows with age, increases with childbirth, and is larger among top earners and those with high levels of educational attainment. Motherhood increases the likelihood of part-time work, which undermines long-term earnings and prospects for career advancement. The OECD estimates an average “wage penalty” of 14% for women who have children.

Some of the causes of gender disparities in labor-force participation rates, pay levels, and advancement opportunities differ between developed and developing countries and require different policy remedies. In its 2012 World Development Report, the World Bank describes several policies to increase women’s labor-force participation in developing economies, including greater access to health services, education, credit, transportation, and electricity, as well as stronger property and inheritance rights. The OCED proposes a wide range of policies to promote gender parity in developed and emerging-market economies, with particular emphasis on child-care and family-leave policies.

Under prevailing social norms in both developed and developing countries, women are still expected to bear the primary responsibilities of caring for children, the elderly, and other family dependents. Approaches like Sweden’s generous family-leave policies, and business practices like flexible working hours that help women (and men) reconcile family and work responsibilities, are essential to achieving gender parity over the long run.

Ignoring half of the world’s workforce means realizing only half of the world’s economic potential. Senior policymakers should heed Lagarde’s challenge to adopt policies that boost the participation, pay, and advancement of women in the labor force. The results will be faster and more inclusive growth – not to mention a more balanced world that comes closer to fulfilling the promise of equal opportunity for all.

Laura Tyson, a former chair of the US President’s Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley.

Copyright: Project Syndicate, 2013.

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