Improving gender diversity can result in larger economic gains

International Monetary Fund IMF has said that improving female participation in economic activities can result in larger economic gains than previously thought. The Fund in a research paper released discussed at the Bali Annual Meetings said “while progress has been made in increasing female labor force participation (FLFP) in the last 20 years, large gaps remain. The latest Fund research shows that improving gender diversity can result in larger economic gains than previously thought. Indeed, gender diversity brings benefits all its own. 

“Women bring new skills to the workplace. This may reflect social norms and their impact on upbringing and social interactions, or underlying differences in risk preference and response to incentives for example. As such, there is an economic benefit from diversity, that is from bringing women into the labor force, over and above the benefit resulting from more (male) workers. The study finds that male and female labour are imperfect substitutes in production, and therefore gender differences in the labor force matter. The results also imply that standard models, which ignore such differences, understate the favourable impact of gender inclusion on growth, and misattribute to technology a part of growth that is actually caused by women’s participation. 

“The study further suggests that narrowing gender gaps benefits both men and women, because of a boost to male wages from higher FLFP. The paper also examines the role of women in the process of sectoral reallocation from traditional agriculture to services and the resulting effect on productivity and growth. Because FLFP is relatively high in services, sectoral reallocation along development paths serves to boost gender parity and productivity.

It said “a key result of the work developed in this paper is that, because women bring new skills to the workplace, gender diversity is likely to be beneficial to productivity growth. There is thus a connection between the extent of productivity growth observed in a country and that country’s progress in boosting FLFP. For example, while Ireland’s FLFP has grown by about 20 percentage points since 1990, contributing to its strong productivity gains, total factor productivity (TFP) growth was negative in Morocco, a country where FLFP stagnated at 25 per cent. This paper’s estimates of the complementarity between women and men in production suggest that, had Morocco increased FLFP as much as Ireland did over the past few decades, total factor productivity (TFP) growth might have been boosted by some 0.4 percentage points per year, and GDP would also be a third larger. 

“In countries where FLFP has grown fast, such as Brazil or the Dominican Republic since the early 1990s, female employment was supported by an expanding services sector, which grew from generating about half the jobs in the economy to supporting two-thirds of economy wide employment. By contrast, to take the example of Egypt, FLFP has been stagnant over this period, with only 16 per cent of working-age women participating in the labor market, and a services sector that barely supports half of the economy’s employment. This suggests that the barriers to female labor force participation in Egypt are equivalent to an additional tax rate of about 50 per cent on women’s labor income. Removing such barriers would improve welfare by 25 per cent, and fully equalising male and female labor force participation could increase GDP by some 60 per cent. Gains of a similar magnitude would be achievable in other highly unequal countries such as Pakistan and India. Barriers to female participation encompass discrimination, differential investments in human capital, and deficient parental leave policies, to name a few. In 18 countries in this paper’s sample, for example, husbands can legally prevent their wives from working. In 104 countries, laws remain on the books that bar women from specific jobs, while 59 countries have no laws of any kind against sexual harassment at work (World Bank 2018). 

“The key message of therefore is that obstacles to women entering the labor force are even more costly than initially thought, and benefits from closing gender gaps are likely to be larger than initially thought. A range of (macro- and microeconomic) data suggest that women and men complement each other in the production process. The implication is that there is a value to diversity: adding more women to the labor force should induce larger gains than an equal increase in male workers. These higher gains are preserved even when considering that home production would decline when women work in the market economy. This paper’s results also imply that standard models, which ignore gender composition, understate the favorable impact of gender inclusion on growth and misattribute to technology a part of growth that is caused by women’s participation. 

Findings also suggest that greater gender diversity is likely to boost male incomes. This makes discrimination against women in labor markets not only economically inefficient but also directly costly to men. The persistence of sizable gender gaps reflects pervasive barriers (akin to taxes on female labor), albeit ones that vary across regions and countries”.

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