Women as a force for economic change


October 2016 | 6 min read

While the world struggles to find new sources of growth, one solution to revive sputtering economies requires neither drilling nor innovation and could add up to USD 12 trillion to the global economy within a decade. In theory, companies and societies should be clamoring to embrace such an economic panacea - getting more women to work. But the reality is far from ideal: women worldwide still face huge hurdles in the workforce, despite the irrefutable benefits.

Economic case for narrowing the gender gap

A 2013 IMF study says gender gaps in the labor market have resulted in losses in GDP per capita of up to 27% in some markets. Additionally, the IMF found that raising female labor participation levels to match that of men would significantly raise GDP – notably, by 5% in the US, 9% in Japan, 12% in the UAE and 34% in Egypt.

Persistence of the gender gap

Only 50% of the world's women are gainfully employed, much less than 75% for men. The gender gap (the difference between working men and women) exists across the world - from Saudi Arabia and India (both over 45%) to Canada and France (both under 10%). Women also still earn on average 24% less than men globally. The reasons for these vary across regions, but certain factors are universal.

Female labor participation deficit relative to men by country (15 - 64 years)

Gender gap in %

Source: OECD Employment database, March 2014

Educational opportunity not always root cause for employment segregation and gender pay gap

While equal-education opportunities are a good first step in addressing the gender gap, they do not necessarily translate into equality in labor force participation. Despite the progress made in education equality, women tend to be under-represented in fields related to science, engineering, manufacturing, construction, and IT. Women also earn far fewer advanced degrees than men, causing a segregation employment gap - women account for just 30% of all researchers and 33% of IT workers. Conversely, the majority of female employment is concentrated in domestic work, education, and health and social work. This disparity is further exacerbated by implicit bias, which has manifested into persistent wage gaps worldwide. A UN study says the difference in hourly wages between sexes tends to be the greatest in the financial and insurance sectors.

Science-related research is one of several fields where women are under-represented

Women's and men's share of the total number of researchers by region, 2011

Source: UN, as of 2015

The glass ceiling: Women are under-represented in corporate leadership

Getting more women into work is only a partial victory if they are confined to lower levels of the corporate hierarchy. According to MSCI, women held 18.1% of all directorships among MSCI World companies. For emerging markets, this figure falls to 8.4%. An MSCI study claimed that there is no qualification gap to explain this phenomenon; in fact, female directors have better educational qualifications than their male counterparts.

So what gives? The intangible barrier preventing women from climbing to the top, or "glass ceiling" is best reflected by the ratio of men versus women in leadership positions and their qualifications.

Ratio of men vs. women in leadership positions and their qualifications

MSCI World Directors as of August 15, 2015

Source: MSCI ESG Research, as of November 2015

This male-friendly paradigm for corporate leadership is not without costs. As UBS pointed out in the report Gender Diversity Matters, gender-diverse companies - those with women in at least 20% of senior leadership positions - were more profitable than their less gender-diverse peers. The same study also revealed that companies with a higher number of female leaders tended to outperform the MSCI World equity index. The benefits of gender-diverse leadership on corporate performance are proven, leading asset owners and global advocacy groups to call for women to make up at least 30% of boards and directors.

Maternity and domestic burden universal challenges for women

The universal reason for women either abstaining from the workforce entirely or only taking up part-time work, which results in lower pay, poorer job security and fewer promotions, is their obligation to child rearing. As such, the different female employment rates by country are often linked to family-friendly policies. A UN study showed that Nordic countries consistently scored higher participation rates for mothers than other European countries, a credit to their best-in-practice family policies.

In Japan, the absence of holistic family policies has deterred women from re-entering the workforce, undermining the government's target for women to occupy corporate management positions.

Average maternal employment rates by number of children in EU countries by family policy regime, in %

Source: UN (calculated using data from Eurostat 2015)

Governments and corporations key to narrowing the gender gap

For governments, the optimal policy mix extends to the spheres of education, family planning, and fiscal and labor policy measures, all of which should be designed to address the specific needs of each region. But there are universal changes that would realize meaningful gains in female workforce participation and could be made today. The first step is to address maternity, the one common denominator across nations. Best-in-practice policies suggest that paid parental leave rather than maternal leave can contribute to improving women participation rates in the economy. Likewise, ready access to subsidized and high-quality childcare plays a major role in encouraging new mothers to stay in the workforce. Gender-related corporate policies are also needed, like aspirational quotas, incentives, mentorship and sponsorship programs, to promote women into leadership positions and to narrow the wage gap.

Lasting solutions require costs, trade-offs and shift in mindset

According to the McKinsey Global Institute, closing the gender gap within a decade will cost as much as USD 2 trillion or 1.7% of global GDP. Lasting solutions and sustainable progression require a fundamental shift in mindset and cultural attitudes - the buy in of the broader society and government that these measures are for the greater good. And they will involve costs or trade-offs over the short and longer term at the family corporate and fiscal levels. The strength of the outcome will also vary by country and the extent to which social attitudes are entrenched and incentives are in place to enforce these policies.

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