Occupational Choice Model

5. An occupational choice model shows that significant income losses can be caused by misallocations of women in the labor force. Cuberes and Teigner (2014) simulate an occupational choice model, with several frictions on economic participation and wages of women, and show that gender gaps in entrepreneurship and labor force participation significantly reduce per capita income. In this general equilibrium model, agents are endowed with a random entrepreneurship skill that determines their optimal occupation. Agents choose to work as either employers, self-employed, or employees. However, female labor market frictions prevent an optimal choice by women among these activities.³ These frictions may reflect discrimination, differences in optimal choices of women, or other demand and supply factors.

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GDP Losses due to Economic Gender Gaps in Selected Countries

(In percent of GDP)

Citation: IMF Staff Country Reports 2018, 176; 10.5089/9781484362358.002.A002

Note: Losses are estimated for a particular year for each country and can thus be interpreted as a one-off increase in GDP if gender gaps were to be removed.Source: Cuberes and Teigneir (2014)

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6. The results show that Sri Lanka is currently losing out on a significant share of income due to gender gaps in the labor market. The costs associated with gender gaps in labor force participation and entrepreneurship are currently as high as 20 percent of income per capita compared to a situation where women have the same level of labor force and entrepreneurship participation as men (figure on the previous page shows countries for which the loss in GDP from existing gender gaps is at least 15 percent).

Simulations and Demographics

7. Reducing the gender gap in Sri Lanka could also help offset the negative impact of the demographic transition on growth. Sri Lanka is in the midst of a demographic transition with its population growth slowing, and the United Nations population division shows that its dependency ratio, defined as the size of the non-working-age population to the working-age population (ages 15–64), has already started to rise (left panel on figure below). With a lower share of the population in the labor force, real GDP per capita growth in Sri Lanka would decline, everything else held equal. However, it may be possible to reverse this trend by integrating the pool of educated women in the labor force, especially those with an A-level degree or lower.

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Sri Lanka: Demographic Transition and Growth

Citation: IMF Staff Country Reports 2018, 176; 10.5089/9781484362358.002.A002

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8. Simulating the implication of an increase in the dependency ratio for men and women suggests that policies to eliminate gender gaps could also offset the negative demographics effects. Cuberes, Newiak, and Teigner (2017) model the implications of a (relative) decline in the labor force by placing a restriction on both the male and female workforce to capture the increase in the dependency ratio for men and women over time. The effects of these declines are then explored under four scenarios: (1) no change in gender gaps in the labor market; (2) a constant decrease in gender gaps over time, with their elimination in 50 years; (3) a constant decrease in gender gaps over time, with their elimination in 100 years; and (4) a constant decrease in gender gaps over time, with their elimination in 150 years. The results show that decreasing gender gaps in the labor market could substantially mitigate the economic cost of population aging, even with relatively slow decreases in gender gaps.

9. In the case of Sri Lanka, simulation results show that there will be an overall income gains of about 16 percent in 2040 if gender gaps are closed in 50 years. Under this scenario, the income gains would be about 21 percent in 2065 when the gender gap is completely closed. Policies to speed up gender gap declines would, of course, yield higher gains.⁴

Econometric Estimations

10. Cross-country econometric analysis has also identified significant economic and fiscal gains from closing gender gaps. At the G-20 Summit in Brisbane, Australia in 2014, the G20 nations pledged to reduce the gap in participation rates between men and women by 25 per cent by the year 2025, the so-called “25 by 25” target (G20, 2014). Applying this target to all countries, a study by ILO (2017a) reveals that reducing gender gaps in the labor market could increase the global labor force by 204 million by 2025, equivalent to an increase of 5.4 per cent (table below). Holding unemployment rates and male participation rates constant, this would boost global employment by 189 million (or 5.3 per cent), which could in turn increase global GDP by 3.9 per cent or US$5.8 trillion (equivalent to raising average global GDP growth over the next eight years by almost half a percentage point). The achievement of such a goal could also unlock large potential tax revenues. For example, global tax revenue could increase by US$1.5 trillion given currently projected government revenue shares in GDP, most of it in emerging (US$990 billion) and developed countries (US$530 billion).

11. Accordingly, Southern Asia, one of the regions with the largest gender gaps, would see the highest benefits in terms of growth. According to the ILO, countries in Southern Asia could increase their average annual GDP growth by over a percentage point by reaching gender parity by 2025. While country-specific estimates are not available, the regional analysis suggests that Sri Lanka could increase GDP around the same magnitude.^5,6 Of course, in order to estimate the economic impact of the “25 by 25” scenario, a number of assumptions were necessary. The first is obviously that the female participation rate increases such that the gap between the male and the female participation rate, by country, decreases by 25 per cent by 2025. The second is that each additional woman in the labor market succeeds in finding a job at the same rate as those currently in the labor market, i.e. the female unemployment rate remains unchanged. Finally, it assumes that these additional women attain 80 per cent of the average labor productivity in the respective year and country to take into consideration prevailing sectoral and occupational segregation, i.e. the fact that women are currently employed in lower productivity sectors and occupations.

Effects of Reducing Gender Gaps in the Labor Market by 2025

Note: GDP shows the percentage difference in projected additional GDP in 2025, using PPP exchange rates. Sources: ILO (2017) and ILO estimation based on ILO’s Trends Econometric Models, November 2016

Effects of Reducing Gender Gaps in the Labor Market by 2025

Country/Region	Labor Force		Employment		GDP
	Millions	Percent	Millions	Percent	Percent
World	203.9	5.4	188.6	5.3	3.9
Developing countries	7.8	2.1	7.1	2.0	2.0
Emerging countries	175.5	6.3	162.4	6.2	4.8
Developed countries	20.6	3.3	19.0	3.3	2.6
Nothern Africa	11.4	13.0	9.1	11.8	9.5
Sub-Saharan Africa	11.1	2.2	10.1	2.1	2.2
Latin America and the Caribbean	17.4	5.0	15.8	4.9	4.0
Nothern America	4.8	2.5	4.5	2.5	2.0
Arab States	7.8	11.8	6.0	10.2	7.1
Eastern Asia	27.3	3.0	26.2	3.0	2.5
South-Eastern Asia and the Pacific	15.9	4.1	15.0	4.0	3.5
Southern Asia	92.7	11.1	87.7	11.0	9.2
Nothern, Southern, and Western Europe	5.7	2.6	5.1	2.6	2.0
Eastern Europe	4.5	3.3	4.2	3.3	2.6
Central and Western Asia	5.3	6.6	4.8	6.5	5.7

Note: GDP shows the percentage difference in projected additional GDP in 2025, using PPP exchange rates. Sources: ILO (2017) and ILO estimation based on ILO’s Trends Econometric Models, November 2016

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Effects of Reducing Gender Gaps in the Labor Market by 2025

Country/Region	Labor Force		Employment		GDP
	Millions	Percent	Millions	Percent	Percent
World	203.9	5.4	188.6	5.3	3.9
Developing countries	7.8	2.1	7.1	2.0	2.0
Emerging countries	175.5	6.3	162.4	6.2	4.8
Developed countries	20.6	3.3	19.0	3.3	2.6
Nothern Africa	11.4	13.0	9.1	11.8	9.5
Sub-Saharan Africa	11.1	2.2	10.1	2.1	2.2
Latin America and the Caribbean	17.4	5.0	15.8	4.9	4.0
Nothern America	4.8	2.5	4.5	2.5	2.0
Arab States	7.8	11.8	6.0	10.2	7.1
Eastern Asia	27.3	3.0	26.2	3.0	2.5
South-Eastern Asia and the Pacific	15.9	4.1	15.0	4.0	3.5
Southern Asia	92.7	11.1	87.7	11.0	9.2
Nothern, Southern, and Western Europe	5.7	2.6	5.1	2.6	2.0
Eastern Europe	4.5	3.3	4.2	3.3	2.6
Central and Western Asia	5.3	6.6	4.8	6.5	5.7

Note: GDP shows the percentage difference in projected additional GDP in 2025, using PPP exchange rates. Sources: ILO (2017) and ILO estimation based on ILO’s Trends Econometric Models, November 2016

Gender Responsive Budgeting⁸

13. Gender responsive budgeting is an approach to budgeting that uses fiscal policy and administration to promote gender equality. Gender-responsive budgeting (GRB) in a broad sense can involve both the adoption of fiscal policies related to gender equality and gender-responsive public financial management (PFM).⁹ Thus, fiscal policy and PFM practices are complementary. GRB efforts are intended to commit governments to weighing the benefits and costs of policies that would promote gender equality, and to include appropriate measures in the budget in response to this evaluation. The key point is not whether an initiative is labeled as “gender budgeting” but whether fiscal policies and PFM practices and tools are formulated and implemented with a view to promoting and achieving gender equality objectives, and allocating adequate resources for achieving them. It is important to note that GRB is not primarily an issue of additional resources for gender development, nor is it confined to specifically targeted programs for women. GRB is an analysis of the entire budget process through a gender lens to identify the gender differential impacts and to translate gender commitments into budgetary commitments. This section discusses a conceptual framework for Sri Lanka by focusing on: (i) the fiscal policies that are related to gender objectives; and (ii) the PFM practices that allow these policies to be operationalized efficiently and effectively.

14. Sri Lanka joined the Commonwealth’s gender budgeting pilot project already in 1997.¹⁰ Various budgets since then have mentioned the importance of reducing the gender gap and have committed various initiatives, but not necessarily with systematic attention to female labor force participation. In fact, there were no proper implementing or monitoring mechanism to ensure that budgetary allocations were made to the ministries and provincial councils with systemic gender budgeting approaches. The 2018 budget commits to supporting female labor force participation (Annex II) but a mapping of specific measures to the stated outcomes would be more effective in yielding results.

15. Going forward, the Sri Lankan authorities are considering implementing gender budgeting in twenty ministries on a pilot basis in the near future. In November 2016, the Cabinet approved of the plan to establish gender mainstreaming program in every ministry which would be implemented under the supervision of the Additional Secretary/Director of each relevant ministry.¹¹ To make the gender responsive budgeting a success this time, the authorities have mobilized gender focal points in ministries as well as in provincial councils. While this is a step in the right direction, it will also be necessary to provide the necessary training to the focal points at the ministries and provincial councils to implement gender budgeting. The Ministry of Finance should play a stronger leadership role in institutionalizing gender within the conceptual and decision-making framework of budgeting and PFM.

16. In this context, some of the policy instruments can be considered as follows:

I. Fiscal policy instruments. Fiscal policy instruments of relevance to gain gender equality include the use of tax and tax benefits to increase the supply of female labor, improved family benefits, subsidized child-care, other social benefits that increase the net return to women’s work, and incentives for businesses to encourage the hiring of women (IMF, 2017a,b). Implementation of adequate fiscal reforms can help Sri Lanka increase its fiscal space. As a result, finances can be channeled towards more productive uses such as social spending in education, health and social safety net. Social protection and social security systems can, in turn, support greater female labor market participation (FLFP) and enhance inclusive growth. As mentioned earlier, these policies are increasingly relevant for Sri Lanka given the shrinking demographic dividend with ageing populations and higher old-age dependency ratios. In particular:

• Subsidies and tax incentives. On the demand side of the labor market, initiatives include public subsidies and tax incentives to businesses to encourage the hiring of women, including from underrepresented or minority groups. However, it is also necessary to assess the fiscal costs of these measures. In Sri Lanka, the new IRA has a clean framework that does not specify any specific tax policy positions directed towards FLFP. However, the new IRA has both a basic relief (in the amount of LKR 500,00 for each year) and an increased employment income relief (in the amount of 700,000) that can be offset against employment income, which can be a motivation to females to join the labor force as there would be no tax payable on income up to this level of combined relief.

• General expenditure policies. On the expenditure side, policies to support female labor supply include improved family benefits such as paid parental leave, subsidized child-care, and other social benefits that increase the net return to women’s work. Policies can also specifically target low-income families while having a gender perspective. For low-income families, there are various tax reliefs, such as the earned income tax credit, for example in the United States (US), or a combination of tax and transfers in the UK and other G7 countries.

• Building human capital through better health. Universal access to free health care services for seven decades has resulted in a decline in mortality rates, especially among women. Nonetheless, district-wide disparities are high, with the highest mortality rates in the plantation and the North-east districts. Utilization of health care services such as antenatal and postnatal care and immunization, and institutional births are near universal, but the rising cost of drugs in an unregulated market creates hardships for the poor. Greater focus on these areas are needed (ILO, 2016; Solotaroff et.al., and World Bank, 2013).

• Closing skills mismatch through education: Girls have higher enrollment and retention rates in secondary education and higher performance levels at public examinations. The percentages of female students in universities and non-vocational tertiary education are higher than that of male students. However, wide gender imbalances in enrollment in technological courses including information technology in higher education and technical-related courses in vocational education institutions limit their access to high skilled and remunerative employment in technology-related fields. To mitigate skill mismatches and shortages, educational initiatives may be needed to narrow the skill gap. An expansion of the technical and vocational education and training (TVET) programs along with strengthening the National Vocational Qualification system, with island-wide accreditation of providers could boost skill development (ADB, 2015, ILO, 2015, 2016 and 2017b; World Bank, 2013).

• Fair and equivalent coverage for women under social insurance programs. Reforms of social security and pensions systems can take account of women’s relatively intermittent work history, the greater incidence of part-time work, lower earnings, and the need for parental leave.

• Child-care provision. Vision 2025 identifies improving access to good quality and affordable child care facilities as a key factor to facilitate female FLFP. Revenue based fiscal consolidation can make space for government initiatives to support schemes that make child care affordable. Studies have shown that providing childcare subsidies to women can be broadly budget neutral as higher income tax payments from women compensate the childcare subsidy cost (Kolovich et.al, 2017). Many countries have also started to make child-care provisions, for example, the Egyptian authorities increased budget resources to public nurseries in 2016 and they are developing an integral strategy to improve the quality of child care services. Canada amended its child care benefit regime in 2016 with the new Canada Child Benefit to provide increased support to low and middle- income families (compared to previous benefit, which was universal). The UK, in 2015, increased childcare support for low-income working parents by providing tax allowance for childcare. In Sri Lanka, the authorities are considering the introduction of an easy credit system with banks for private entrepreneurs to run day care centers. Authorities are also considering redefining the selection of the target group that is receives various state subsidies. By defining the target group through a proper criterion, necessary funds can be saved which can then be channeled to provide child care benefits.

• Safe transportation: Among other issues Vision 2025 identifies transportation as an element to boost FLFP- an issue that has also been raised by both the WB and ILO. Improvements in providing safe transportation for women is critical to lower the risk of the gender based violence that is highly prevalent on transportation and in public spaces.¹² Recently, several countries have proactively initiated safe transportation programs. Among the most important results of Mexico City’s gender budgeting is that public transport buses limited to women only were set up in conjunction with the Viajemos Seguras (Let’s Travel Safely) Program. The aim was to ensure that women could travel safely around the city, which is essential for their well-being and their integration into work life (Fragoso and Enríquez, 2018). In Kerala, the 2017–18 Gender and Child Budgeting plan calls out two target areas: (1) skill development, employment generation, and livelihood security with a priority to vulnerable women, and (2) preventing violence against women. To achieve these goals, the budget includes planned allocations aimed at supporting entrepreneurship, skills training and development, child care, and gender-friendly infrastructure, among other programs (Kolovich and Loungani, 2018).

II. Public Financial Management. PFM tools that can be used to promote FLFP include gender budget statements, gender impact assessments, performance-related budget frameworks, and gender audits. The Ministry of Finance plays a key role in promoting and coordinating gender budgeting, and associated analytical tools. PFM institutions play an enabling role in operationalizing gender-responsive fiscal policies, such as those discussed above. PFM systems can be adapted to achieve improved gender outcomes at the various stages of the budget cycle which include the setting of fiscal policy goals and targets; the preparation of the annual budget and its approval by the legislature; the control and execution of the approved budget, and the collection of revenues; the preparation of accounts and financial reports; and the independent oversight and audit of the budget. It is important that fiscal policies relating to gender be fully integrated into the above-mentioned framework, at all stages in the cycle. Gender-responsive budgeting does not require a new approach to budgeting, rather an explicit recognition of the existence of gender elements paired with an adaptation and reinforcement of existing institutions and tools. The key point is to define the critical entry points of the cycle for gender-related issues, including the tools to assess policies, and the assurance that the policies approved by the government are funded and implemented efficiently and effectively.

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Stages of the Budget Process

Citation: IMF Staff Country Reports 2018, 176; 10.5089/9781484362358.002.A002

Source: IMF (2017a)

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17. Several countries have recently adopted innovative PFM initiatives to promote gender equality in the labor force. Examples include:

• In Morocco the “Gender Report” has become a cornerstone of Morocco’s gender budgeting initiative, which identifies key areas where gender gaps existed, offers assessments, and sets goals for future performance. The report has evolved over time. The earliest versions, from 2005–2007, included gender-based analysis of government policies and programs. The 2008 version examined performance indicators for operating and capital budgets. Subsequent Reports added an evaluation of measurable indicators of human rights. Some ministries report sectoral- and sex-disaggregated data such as a breakdown of staff by sex or expenditures on women’s programs (Kolovich and Shibuya, 2016).

• Uganda introduced a Gender and Equity Compliance Certificate into their Public Finance Management Act in 2015. The Act calls upon all ministries, departments, and agencies to ensure that their budget frameworks and Ministerial Policy statements address gender oriented goals. Their budgets would be approved once a certificate was issued to reflect that gender oriented goals were addressed (Stotsky et.al, 2016).

Other Policies

18. Some policies that are non-fiscal in nature also have gender related objectives, e.g., equal opportunities legislation (IMF 2015a,b). Some of the measures are discussed below in the context of Sri Lanka:

• Labor Legislations: The constitution of Sri Lanka supports non-discrimination in employment and occupation. Nonetheless, improving FLFP in Sri Lanka also requires enhanced review and enforcement of clauses in labor laws, anti-harassment measures, and maternity leave—especially related to leave provisions in the private sector. Recommended activities include the following (Solotaroff et.al, 2018; and ILO, 2016):

  • Review labor laws for clauses that restrict women’s access to employment. For example, proper benefits and remuneration from flexible work arrangements such as part-time work, telework, working from home, and/or working at night can be introduced through legislative reforms to enable greater employment opportunities for women (either by amending the clauses under the current Shop and Office Employees Act No. 15 of 1954 or issuing a new act).

  • Ensure that laws are correctly interpreted for part-time and flexible work arrangements with benefits;

  • Expand application of maternity leave legislation to improve benefits and enforcement in the private sector and introduction of paternity leave; and

  • Enhance safety regulation and labor monitoring audits of the workplace.

• Access to Financial Services: In general, access to finance is not an issue in the urban areas. However, women who live in the plantation sector predominantly in the North-east provinces, and in other “pockets of poverty” in Sri Lanka need a greater presence of financial institutions. Strengthening women’ access to finance would help promote entrepreneurship among women and contribute to their participation in the labor market. Several recent studies have also shown the positive impact of female CEOs on firm profitability, management, and innovation (Christiansen et.al., 2016). In the case of Sri Lanka, access to finance should not only compose of microfinance institutions but also formal financial institutions.