Chapter 1. Introduction

Author(s):
Kalpana Kochhar, Sonali Jain-Chandra, and Monique Newiak
Published Date:
September 2016
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Women make up a little more than half the world’s population but represent only 40 percent of the global labor force (World Bank 2011). Women’s contributions to measured economic activity, growth, and well-being are far below their potential, with serious macroeconomic and social consequences. Despite significant progress in recent decades, labor markets across the world remain divided along gender lines, and gender equality remains an elusive goal.

Gender inequality in the economic arena manifests itself in numerous ways: female labor force participation is lower than male participation; women account for most unpaid work; and when women are employed in paid work, they are overrepresented in the informal sector and among the poor (Elborgh-Woytek and others 2013). They also face significant wage differentials vis-à-vis their male colleagues, which, because they generally spend less time in the labor market, result in lower pensions and a higher risk of poverty in old age. In many countries, distortions and discrimination in the labor market restrict women’s options for paid work, and among those who do work, few attain senior positions or engage in entrepreneurship. Women also shoulder a higher share of unpaid work within the family, including childcare and domestic tasks, which can limit their opportunity to engage in paid work and constrain their options when they opt to do so.

The challenges of promoting growth, creating jobs, and improving women’s participation in the labor force are closely intertwined. Economic growth and stability are necessary to broaden women’s employment opportunities, but at the same time, their participation in the labor market is an important driver of growth and stability. In rapidly aging economies in particular, higher female labor force participation can mitigate the negative impact of a shrinking workforce on potential growth. Greater opportunities for women can also contribute to broader economic development, for instance through higher levels of school enrollment, including for girls, given that women are likely to invest more of their income in educating their children. Implementing policies that remove labor market distortions and level the playing field for all will give women more opportunities to develop their potential and to participate in economic life more fully should they choose to do so.

Trends in Female Labor Force Participation

As noted, women comprise about 50 percent of the working-age population but represent only 40 percent of the global labor force. Female labor force participation rates—the proportion of women over age 15 working or actively looking for work—have hovered around 50 percent for the past two decades, compared with an average of almost 77 percent for men in 2014. Of course, global averages mask significant cross-country and cross-regional differences in both levels and trends: In 2014, female labor force participation varied from a low of 22 percent in the Middle East and north Africa to more than 61 percent in east Asia and the Pacific and almost 64 percent in sub-Saharan Africa. In Latin America and the Caribbean, the rates increased significantly during this period, by some 13 percentage points, whereas they declined in south Asia and stayed broadly constant in Europe and central Asia.

Differences between male and female labor force participation rates have narrowed, but the gap remains high in most regions of the world. The average gap has declined since the 1990s, but this is largely due to a worldwide decline in male labor force participation. The gender gap in participation varies strongly by region. In 2014, the highest gaps were observed in the Middle East and north Africa (53 percentage points), followed by south Asia (50 percentage points) and Latin America and the Caribbean (26 percentage points), with much lower gaps seen in North America and sub-Saharan Africa (less than 13 percentage points) (Figure 1.1). In addition, women dominate the informal sector, characterized by vulnerability in employment status, a low degree of protection, mostly unskilled work, and unstable earnings (ILO 2012; Campbell and Ahmed 2012).

Figure 1.1.Gender Gap in Labor Force Participation

Percentage points, difference between male and female participation rates, ages 15 and over)

Sources: World Bank, World Development Indicators database; International Labour Organization, Key Indicators of the Labour Market database.

Women contribute substantially to the general economic welfare by performing large amounts of unpaid work, such as child-rearing and household tasks, which is often unaccounted for in GDP. On average, women spend twice as much time as men on household work and four times as much time on childcare (Duflo 2012). This frees up time for male household members to participate in the formal labor force while simultaneously constraining women’s ability to do the same. In Organisation for Economic Co-operation and Development (OECD) countries, women spend about two and a half hours more each day on unpaid work (including care work), regardless of the employment status of their spouses (Aguirre and others 2012). Furthermore, men tend to engage in the kind of occasional household work that fits with their formal work schedules, whereas women generally assume responsibility for routine household tasks that must be performed regardless of other work pressures. As a result, both genders tend to spend the same total amount of time working—the sum of paid and unpaid work, including travel time—although more of women’s time is uncompensated (OECD 2012). This disparity between market and household work, in combination with women’s lower earning potential, tends to reinforce established gender dynamics within households (Heintz 2006).

In most countries, when women do engage in paid employment, their representation in senior positions and their participation in entrepreneurial activities remain low. For example, as of October 2015, in the United States the share of women among chief executive officers in Standard & Poor’s 500 companies was 4.4 percent.1 In 2015, in the member countries of the European Union only about 38 percent of firms had a woman among their principal owners. In 2015, only about 23 percent of national parliamentary seats across the world were held by women. When women do hold higher public office, they are more likely to occupy ministries with a sociocultural focus than with an economic or strategic function (OECD 2012). Moreover, microlevel evidence suggests that gender stereotypes may hamper women’s overall ability to win elected political office.2

Barriers, Disincentives, and Unequal Opportunities

In many countries, a lack of basic legal rights is the main barrier preventing women from joining the formal labor market or becoming entrepreneurs. Women are sometimes legally restricted from heading a household, pursuing a profession, or owning or inheriting assets. Such legal restrictions significantly hamper female labor force participation and pose a drag on female entrepreneurship (World Bank 2015).

Despite progress in closing gender education gaps, literacy rates remain lower for women than for men, especially in south Asia and the Middle East and north Africa. Educational gaps are higher for older generations even though gender gaps in education have largely closed for the younger generation in many parts of the world: in primary education, female enrollment is 93 percent that of males even in the least developed countries; female to male enrollment averages almost 98 percent in secondary education in middle-income countries; and women are now on average more likely than men to study at the postsecondary level in middle- and high-income countries. Women’s access to health care is also constrained in many areas, particularly for maternal health services. Indicators of female health, such as maternal mortality and adolescent fertility, have improved significantly in recent decades, but the death ratios for women in childbirth remained high in south Asia (almost 2 in 1,000) and in sub-Saharan Africa (more than 5 in 1,000) in 2015.

There are also gender gaps in access to social and financial services, which has implications for women’s economic productivity. Worldwide, women have less access than men to banking and other financial services. For instance, fewer than 53 percent of women have an account at a financial institution in middle-income countries, compared with almost 62 percent of men (Demirgüç-Kunt and others 2015).

There is a significant gender wage gap, even within the same countries and occupations and when taking into account other possible drivers of the gender wage gap such as education levels. For OECD countries, the gender wage gap—defined as the difference between male and female median wages divided by male median wages—was estimated at 16 percent in 2010 (OECD 2012). The tendency of women to cluster in certain (lower-paying) occupations and to work reduced or part-time hours, combined with disparate work experience, explains about 30 percent of the wage gap on average. The gender wage gap is narrow for young women in OECD countries, but it increases steeply during childbearing and child-rearing years, pointing to a “motherhood penalty,” estimated at 14 percent. Within emerging market and low-income economies, there is greater variation in the size of the gender wage gap. The gap is relatively high in China, Indonesia, and South Africa. It is narrower in the Middle East and north Africa, largely because the few women engaged in wage employment are often more highly educated than their male counterparts. In several countries, the wage gap is more significant between women and men with more education (OECD 2012) and between women and men who are self-employed or entrepreneurs. One explanation is that women devote less time to their (paid) work.

Women’s Vulnerability to the Economic Cycle

During the global financial crisis of 2007–09, gender-based employment gaps shrank in most OECD countries,3 while women in emerging market and low-income countries were hit particularly hard. In the OECD countries, women benefited because employment stayed more robust in the services sector, where female employment is concentrated, than in male-dominated industries such as construction and manufacturing. For example, in the United States, during 2007–12, male employment losses totaled 4.6 million, almost twice as high as female losses (Kochhar 2011). However, as after previous recessions, the pattern changed when the recession ended: between 2009 and 2011–12, female unemployment continued to rise, while unemployment among men either declined or stayed constant (OECD 2012).4

In many low-income countries, women and girls are particularly vulnerable to the effects of economic crises. The global financial crisis disproportionately affected female workers in Latin America and the Caribbean: women accounted for about 70 percent of layoffs in Mexico and Honduras (Mazza and Fernandes Lima da Silva 2011). Many workers—male and female—found it necessary to engage in lower-paid and riskier work in response to the crisis, but women and girls were more likely to take risky, unprotected, and often informal employment (Stavropoulou and Jones 2013).5 Youth unemployment rose in many countries as a result of the crisis, and this also disproportionately affected young women. In north Africa, the female youth unemployment rate increased by 9.1 percentage points, compared with 3.1 percentage points for young males (Stavropoulou and Jones 2013).

Why Gender Inequality Matters Economically

Without doubt, gender equality is in itself an important development goal. But there is also ample evidence that when women are able to fulfill their full labor market potential, broad and significant macroeconomic gains can follow (Loko and Diouf 2009; Dollar and Gatti 1999; McKinsey 2015; Cuberes and Teignier 2016). Potential losses in GDP per capita that can be attributed to gender gaps in the labor market can reach an estimated 27 percent in certain regions (Cuberes and Teignier 2012). Aguirre and others (2012) estimate that raising the female labor force participation rate to the level for males would boost GDP by 5 percent in the United States, 9 percent in Japan, 12 percent in the United Arab Emirates, and 34 percent in Egypt. Based on data from the International Labour Organization (ILO), Aguirre and others (2012) estimate that, among the 865 million women worldwide who have the potential to contribute more fully to their national economies, 812 million live in emerging market and low-income nations.

In rapidly aging economies, higher female labor force participation can boost growth and mitigate the impact of a shrinking workforce. For example, in Japan, annual potential growth could rise by about ¼ percentage point if female labor participation were to reach the average for the Group of Seven advanced economies, resulting in a 4 percent permanent rise in GDP per capita compared with the baseline scenario (IMF 2012). Higher female labor force participation would also mean a more skilled overall workforce, given women’s higher rate of postsecondary education in many countries (Steinberg and Nakane 2012).

Creating more and better opportunities for women to engage in paid work and a greater ability to control their income and assets can also contribute to stronger economic growth in emerging market and low-income economies, and such growth can in turn foster greater improvements in women’s disadvantaged conditions (Stotsky 2006). According to the ILO, women’s work, both paid and unpaid, may be the single most important poverty-reducing factor in developing economies (Heintz 2006). As noted, women are more likely than men to invest a large proportion of their household income to educate their children. Accordingly, greater labor force participation and higher earnings for women could result in higher expenditures on schooling for children, including girls—potentially triggering a virtuous cycle when educated women become role models for young girls (Aguirre and others 2012; Miller 2008).

Eliminating gender gaps in employment and wages would allow companies to make better use of the available talent pool, with potential growth implications (Barsh and Yee 2012; CAHRS 2011). There is evidence that having women on boards and in senior management positions has a positive impact on companies’ performance and profitability.6 For example, companies that employ female managers may be better positioned to serve consumer markets dominated by women (CED 2012; CAHRS 2011), and more gender-diverse boards may enhance corporate governance by including a wider range of perspectives (OECD 2012; Lord Davies 2013). In financial firms, involving more women in decision-making positions may temper many male traders’ tendency to undertake high-risk financial transactions (Coates and Herbert 2008).

Policies to Promote Female Labor Force Participation

Providing women with equal economic opportunities and unleashing the full potential of the female labor force, with significant prospective growth and welfare implications, will require an integrated set of policies to promote and support female employment. Research suggests that well-designed, comprehensive policies can be effective in boosting women’s economic opportunities as well as their actual economic participation.

Fiscal policies, including how labor income is taxed and the nature of government spending on social welfare, can be structured to encourage women to enter the workforce, rather than discouraging them as current policies now do in many countries. In many advanced economies, tax systems strongly discourage women from working by means of high tax wedges on secondary earners. These include such family taxation and family-related tax elements as mandatory joint filing, dependent spouse allowances, and tax credits conditional on family income. These are still widespread, although many OECD countries have moved toward taxation of individuals’ income rather than of family income in order to prevent the tax wedge applied to secondary earners—often, married women—from being higher than for single, but otherwise identical, women. In short, replacing family income taxation with individual income taxation eliminates the penalty on secondary earners within a family and creates incentives for more women to work.

Similarly, policies that subsidize high-quality childcare and encourage paternity leave—not just maternity leave—can make it easier for new mothers to more readily return to the workforce. Equalizing access to education for women is perhaps the single most important step many countries can take to enhance the participation of women in the economy. Removing gender-based legal obstacles and restrictions is another important policy step to broaden the ability of women to work and receive the same economic rights and opportunities as men. Examples include eliminating restrictions on women’s rights to inherit and own property, open and control a bank account and obtain credit, and pursue a profession.

Fiscal policies, including how labor income is taxed and the nature of government spending on social welfare, can be structured to encourage women to enter the workforce, rather than discouraging them as current policies now do in many countries. In many advanced economies, tax systems strongly discourage women from working by means of high tax wedges on secondary earners. These include such family taxation and family-related tax elements as mandatory joint filing, dependent spouse allowances, and tax credits conditional on family income. These are still widespread, although many OECD countries have moved toward taxation of individuals’ income rather than of family income in order to prevent the tax wedge applied to secondary earners—often, married women—from being higher than for single, but otherwise identical, women. In short, replacing family income taxation with individual income taxation eliminates the penalty on secondary earners within a family and creates incentives for more women to work. Similarly, policies that subsidize high-quality childcare and encourage paternity leave—not just maternity leave—can make it easier for new mothers to more readily return to the workforce.

Fundamentally, the key to fostering gender equality in the economy is increased involvement of women in the labor market and in positions of responsibility and power. When girls and women expect to be equal partners in the economy, they set their aspirations accordingly, both in the workplace and in the household. Equal employment opportunities and career paths will in turn bring more women into high-level positions of responsibility in the public and private sectors and will support greater sharing of joint family and household responsibilities among men and women. The entire economy will benefit as a result.

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This chapter draws on Elborgh-Woytek and others (2013).

http://fortune.com/2015/06/29/female-ceos-fortune-500-barra/?iid=sr-link9. Among a sample of 60 Fortune 500 or similarly sized companies, only 18 percent of entry- or mid-level female staff members aspired to a top-level management position at the company—the “C-suite”—versus 36 percent of male staffers (Barsh and Yee 2012).

In a field experiment in West Bengal, India, Beaman and others (2009) find that men had a strong prior bias against the effectiveness of women politicians, ranking them significantly worse than male politicians for the same overall performance. However, men who had been exposed to female politicians earlier in their lives were much less biased.

Israel, Korea, Poland, and Sweden were the exceptions.

Based on analysis of U.S. recessions, Stotsky (2006) notes that in general during recessions, unemployment rises faster for men than for women, which reduces the gender gap in unemployment; in economic upturns, men’s unemployment drops faster than women’s, increasing the gap.

Although evidence on the gender-specific impact of the crisis with respect to child labor is mixed, “girls are more likely to be involved in highly vulnerable forms of work including domestic work and transactional or commercial sex work” (Stavropoulou and Jones 2013, p. 31).

In their analysis of companies with a focus on innovation, Dezso and Ross (2011) find that female representation in top management can improve performance. McKinsey (2008) shows that companies with three or more women on their senior management teams score higher on all nine organizational dimensions (including leadership, work environment and values, coordination, and control) that are positively associated with higher operating margins. This result is supported by an earlier study by Catalyst (2004) that finds a positive correlation between gender diversity and financial performance (return on equity and total return to shareholders).

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