Tina Fordham is Managing Director and Chief Global Political Analyst at Citi, the first to hold this role in the financial services industry. With Citi since 2003, Tina advises institutional investors and corporations, typically at the C-suite level, about the implications of macro global political developments. She has been named in the “Top 100 Most Influential Women in Finance”, the “Top 19 Economists on Wall Street” and is a member of the World Economic Forum’s Strategic Foresight group.
On 5th May 2015, Citi released a new macro-economic report, Women in the Economy – Global Growth Generators. Tina Fordham from Citi takes us through the report.
Women as global growth generators
Performance of the world economy has been disappointing in recent years. According to the IMF, global real GDP growth in PPP-adjusted terms was a mere 3.5% per annum in 2010-14. Global growth is expected to pick up somewhat in the coming years, but to remain below the rates that were anticipated only a few years ago.
Average female labour force participation has stagnated over the past two decades, remaining at around 50%, even though education gaps have been closing. Women drive economic growth when given greater opportunity to participate equally in the labour force and can serve as growth accelerators. We characterise the potential for women to drive faster global growth as the “WG3 Effect”.
The OECD estimates that closing the gender gap in labour market participation could add 11.2% to GDP in Germany, 9.4% in France and 22.5% in Italy in the next fifteen years. Even reducing the gap by 50% over the same time period would lead to a 5.6%, 4.7%, 11.2% gain to GDP, respectively. Japan, South Korea and Italy, in particular, stand to benefit as their current participation rates for women rank very low relative to OECD peers. Source: OECD, “Closing the Gender Gap: Act Now”, (Paris: OECD Publishing, 2012), p.58
The WG3 Effect results from the interaction of a range of factors – policies, practices, laws, but also supportive public attitudes and the presence of senior female role models. We find that supporting policy measures can and do change outcomes, sometimes significantly.
In advanced economies, those that have the most to gain face demographic challenges stemming from fast shrinking and aging workforces or have underinvested in supporting women in the labor force relative to peers. Here, populations of educated women can also enhance competitiveness, improve the skill mix, increase the tax base per retired person, increase the tax base relative to debt load and help address pension sustainability.
Successful policy measures here should focus on removing tax disincentives for second earners, providing affordable childcare, allowing more leave for child and elder care responsibilities and providing more flexible work options. Policy prescriptions also include promoting cultural shifts away from gender stereotyping, which can lead women to choose education paths or professions with lower income potential.
In emerging markets, where overall gender-driven growth potential is far greater, there is wide variation of experience. Women are making strong gains in education in many countries, but not all. Policy supporting women’s and girl’s education is a crucial starting point.
We also know that education alone is not sufficient, so policymakers must tackle widespread legal barriers, poor infrastructure and personal safety issues that inhibit or prohibit women’s equal opportunity to participate in the economy. Transitioning women from the informal to the formal paid workforce should remain a priority for a wide range of countries. Only few of the required changes in policies and practices imply meaningful direct fiscal costs. Legislative changes are especially a cost-effective solution for boosting female labour force participation.
Some governments and leaders are now taking bold steps to encourage women into the labour force as a means to drive growth and are embracing policies to advance this change. Japan’s Prime Minister Abe’s adoption of “Womenomics” as a core component of his “Third Arrow” of reform is case in point.
However, international organisations are still leading the WG3 agenda. Efforts at the G20 and W20, APEC, UN Women, and international organisations such as the IMF, OECD, World Bank and World Economic Forum will draw increasing attention to the opportunity of gender driven growth and opportunity costs of not tearing down gender walls.
How increased participation of women in the labour market can affect economic growth
Viewing the potential from promoting women’s greater participation in the economy through the lens of greater labour force participation is only a convenient (and imperfect) proxy. The enormous potential that exists derives from the potential gains in the productivity of women.
That is, it is not so much about women ‘working more’ but about allowing and supporting women to realise their full productive potential in the economy, by enabling them to move freely from low-productivity, low-skilled and low-paid sectors and jobs to high productivity, high-skilled and high-paid sectors and jobs.
It is highly likely that the potential for increases in productivity for women is probably still large in many countries, for several reasons. First, the scope and quality of policies to boost women’s ability to participate in the formal economy vary widely across countries. Some countries still erect artificial barriers to female labour force participation and advancement.
These range from gender-based discrimination in nutritional intake during infancy and childhood, inculcation of gender-based stereotypes discouraging female interest in certain careers and professions during early socialisation, differential access to education and training, ‘old boy’ network effects biasing the outcomes of job applications and interviews and even restrictions on the independent physical mobility of women through bans on females driving a car or allowing women outside the home only in the presence of a close male relative.
Second, differences in policy are often quite closely related to differences in outcomes, including labour force participation, wage differentials between men and women, educational achievement, and the share of women in top jobs. The often close association between policies and outcomes suggests that improving on the current outcomes should be relatively straightforward – simply adopt the policies that have worked in other countries and drop the ones that are blatantly dysfunctional.
The potential for policies and practices – and therefore for economic opportunities for women – to improve is likely highest, on average, in the emerging markets. But the scope for improvement is by no means small in the advanced economies, evidenced by a still fairly large degree of dispersion in policies to support equal opportunities for women in the economy, and also in outcomes.
The UK and U.S. have some of the greatest gaps in the report: What forward thinking employers can do to address this
For companies, the challenges and opportunities are three-fold: First, to address equal pay, maternity and other components of the gender equality agenda, thereby increasing retention of female employees, and increase representation in management and at the board level.
Second, address concerns about gender equality within their supply chains, an issue likely to remain in the spotlight following such disasters such as the fire at the Rana Plaza factory in Bangladesh which killed over 1,200 women.
Third, capitalise upon the opportunity that increased spending potential that women with greater disposal incomes represent as well as their greater influence in household spending decisions.
Potential impact on economic growth if all the barriers identified in the report were removed
According to the OECD, if OECD countries saw full convergence of men and women (ages 15-64) in the labour force, these countries would benefit from an overall increase of 12% in GDP over the next 15 years. Source: OECD, “Closing the Gender Gap: Act Now” (Paris: OECD, 2012), p.58 The OECD estimates that closing the gender gap completely in labour market participation could add 11.2% to GDP in Germany, 9.4% in France and 22.5% in Italy in the next fifteen years. Some emerging countries could see increases of 20% in GDP or more in the same time period. For example, in 2010, Booz and Company estimated the potential GDP growth could be raised by 12% in the UAE, 27% in India, 34% in Egypt and 9% in Brazil by 2020 with equal labour force participation.
How organisations like the IMF and positive female role models like Christine Lagarde are supporting the female led growth agenda
International organisations are leading the WG3 agenda, even though some governments and leaders are now taking bold steps to encourage women into the labour force as a means to drive growth and are embracing policies to advance this change. Japan’s Prime Minister Abe’s adoption of “Womenomics” as a core component of his “Third Arrow” of reform is case in point.
However, international organisations are still leading the agenda. The 2014 Brisbane G20 Leader’s Summit embraced women as a driver of growth as a key component of the G20’s overall growth agenda. The G20 countries target closing the gender gap (reducing the gap in participation rates between men and women) 25% by 2025.
Turkey, as Chair of the G20 in 2015, recently launched the W20 alongside the G20, to ensure continued attention to the issue of gender-driven growth. The IMF is beginning to mainstream structural labour market reform and inclusive growth policy advice to include gender with an aim to increase opportunity for women’s participation in the labour force.
For the past four years, Asia Pacific Economic Cooperation (APEC) leaders from 21 countries elevated the issue of women in the economy and committed to address barriers to women’s participation, especially related to entrepreneurship, and measure progress in removing these barriers over time.
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