Pushing Forward Gender-Driven Growth
Gender and its relevance to macroeconomic policy is a relatively new field. And while work has been done on the data and analysis front in recent years, the topic is still in its early days. Tackling gender in the field of human rights and development dates back decades. Good data and analysis led to mainstreaming policy at places like the UN, the World Bank and the Regional Development Banks, the State Department and USAID, as with many donor governments around the world. This provides the IMF with a tremendous opportunity to do the same exercise when it provides economic assessments of countries around the world. The IMF has ramped up in recent years dialogue with member countries on issues like inclusive growth and labor markets, and more and more research is pointing to women as key to economic growth. To the extent that the IMF can "mainstream" gender might prove decisive to getting us there. IMF Managing Director, Christine Lagarde says:"More women at work means good news for the global economy" – I couldn’t agree more.
The IMF is pushing forward the gender driven growth agenda in an important economy right now: Japan. Japan’s last Article IV assessment highlighted the need to increase women’s participation in labor markets to stem demographic decline and drive future growth. Christine Lagarde personally advocates on this issue. Full integration of women in the Japanese economy is now gaining attention at the top level of government. Prime Minister Abe, who campaigned on increasing women’s participation in Japan’s economy to drive future growth, has claimed "women are Japan’s most underutilized resource." Prime Minister Abe has rightfully placed the issue of improving women’s participation in the economy as a growth imperative squarely on top of the policy agenda, the third arrow of "Abenomics".
In preparing for this speech, I sat down with a friend – a former IMF Mission Chief - to brainstorm about how the IMF could mainstream the issue of women as a driver of economic growth. Mainstreaming in other institutions took years to achieve, the work is not done yet, and it required support at the top of organizations and member governments. The mainstreaming of gender policies within institutions, programs, budgets and tax policies counts. This is really where the rubber hits the road. And the leadership does need to come from the top. That is why President Obama created the White House Council on Women in Girls early in his Administration, to place the issue at the highest level in the United States Government.
While Japan could be a model, too many countries are not addressing this deficit. As you know, Article IVs are like annual macroeconomic checkups for countries – yet – and I posed this to my friend from the IMF - we don’t often see references to inclusion of women in the economy in many other country reports. Japan, and other countries like Italy, where we see female labor participation rates well below other OECD peers, and where this issue actually was flagged as labor reform objectives in the latest Article IVs, are not the only countries where women’s economic participation is still too low. My friend responded candidly: IMF Mission Chiefs focus on other priorities and "are reluctant to push this particular topic," because many senior economic policy-makers "really don’t want to engage on this one," and because many Mission Chiefs see this as outside the mandate of the institution. The issue of further integrating women in the economy comes rife with many social and cultural overtones, which may be particularly problematic in those countries where women’s economic participation is still most limited, and so the reluctance to move away from the safety of tried and true topics pushes this topic off the agenda. All the more reason we need to push this conversation. Instead of focusing on the economic boost such integration would provide, the question of women in the economy is talked about only as a "development" issue. Yes – gender equality is a core development issue in its own right. Yes - it is also a "human rights" issue. We at the State Department are particularly aware of this imperative, as former Secretary Clinton frequently and passionately argued that "women’s rights are human rights."
But the narrative of women as drivers of economic growth remains a difficult sell, often eliciting defensive comments from senior economic policy-makers. I don’t need to tell you that that excluding half of your resources from the economy, half of the world’s consumers (who actually control about 80 percent of household spending decisions) and half of the world’s talent pool simply doesn’t make economic sense. Thankfully, more and more governments understand that the inclusion of women in the economy is an economic imperative in and of itself, particularly in our current growth challenged environment. But now some governments are looking to drive their own future growth and competitiveness by supporting policies that will grow women’s participation in the labor force. They need all the help they can get. Those agencies of government that often have the greatest impact – the ones that drive economic policy, budgets, taxing and spending – must embrace these issues.
This is true for both advanced and emerging economies, although each has distinctive characteristics and challenges. Research from our colleagues in the private sector has been illuminating. Goldman Sachs led some of the pioneering research on this issue over the past decade and a paper in April of this year entitled "Women’s Work: Driving the Economy," calculates how for advanced economies, demographic decline combined with increased numbers of educated and highly skilled women in the labor force can boost competitiveness and generate growth with little incremental cost. It’s low hanging fruit and can increase the tax base per retired person, increase the tax base relative to debt load, and help address the issue of pension sustainability, amongst other things. In emerging economies, Goldman’s earlier research showed that narrowing the gender gap in employment could push income per capita as much as 14% higher than their baseline projections by 2020, and as much as 20% higher by 2030. This is especially true in emerging economies with wide gender gaps, where the gender gap is reflective of systemic issues such as unequal access to education, capital, jobs and markets to achieve balanced growth.
My purpose today is to highlight the cutting edge work under way to address this admittedly complex issue, in both public and private sector institutions, and to make the case for broadening this excellent work. In doing so, I aim to shed light on the barriers that exist - and to essentially lay down the challenge of integrating women more effectively into all aspects of the economy to economic policymakers around the globe, and to those institutions that influence them most. Ultimately, the case will be made, and won, when leading institutions, from the IMF to Peterson, as well as private sector economists, engage to:
1) Systematically ensure the discussion of women’s economic participation becomes a standard and serious component of economic assessment – and including it in discussions of policy where it makes sense, such as tax and financial policy, budgeting and labor market reform, to name a few;
2) Improve the quantity and quality of data around women’s participation in the economy, demonstrating the obvious benefits from growth and competitiveness perspectives;
3) Mainstream the promotion of structural reforms and policy improvements that can address the barriers that prevent women’s economic inclusion to accelerate increased participation;
4) Challenge institutions and senior economic policymakers to make gender equality a top line public policy priority.
Much progress has indeed been made since 1995 in Beijing when then-First Lady Clinton convincingly made the case for empowering women. At the State Department, former Secretary Clinton made clear that empowering women is not only the right thing to do, but that it is the smart thing to do for economic growth. The Obama Administration, and the Department of State under the direction of Secretary Kerry, continues to empower women from a development, human rights, and economic perspective both here at home and around the world.
Of course we have not done this alone, and we are not alone in recognizing the significant economic force that women can bring to bear on our economies. Much of our work to date has been with our multilateral partners. The World Bank, with its long established tradition of looking at the microeconomic foundations of economic growth, has over the years generated much of the necessary data we now use to analyze the role of gender in development. In fact, the World Bank devoted its "2012 World Development Report" to an examination of gender equality and development. Of crucial importance, in 2001 the bank adopted a gender mainstreaming strategy which was accelerated more recently through the promotion of a "Gender Action Plan". Last year, more than 80 percent of all loans and grants funded "gender-informed" operations. All Country Assistance Strategies are now "gender-informed" – meaning that each one systematically considers gender in its design, implementation, expected impact and monitoring. And thanks to a notable Peterson Fellow and former head of the World Bank, Bob Zoellick, who ushered through many of these initiatives, the concept that "gender equality is good economics" is more broadly accepted around the world today.
The OECD, too, has provided a wealth of data and has been an exemplary partner, launching the OECD Gender Initiative in 2010 to examine existing barriers to gender equality in education, employment and entrepreneurship, with strong State Department encouragement, including personal support from the Secretary. A culmination of much of its research was the 2012 "Closing the Gender Gap" analysis, which benchmarks national gender gaps in 135 countries over time. The study showed a strong correlation between a country’s gender gap and its national competitiveness, amongst other things. Likewise, the OECD’s "2012 Social Institutions and Gender Index", launched at the State Department last year, went even further to examine the underlying institutional drivers of gender inequality in the economy – the thorny barriers that dig deep into the discriminatory social and cultural space and limit progress, including inequality in the family, limited female property rights, access to credit and political participation.
The World Economic Forum has similarly made valuable contributions to this discourse through its annual "Gender Gap Report", which measures gaps between men and women in economic participation, as well as other metrics. And many consulting firms, investment banks and corporations are exploring how women positively impact corporate culture, risk taking, consumption and boardroom decision-making. The scope of our collective work and our efforts to address this gap continue to expand, and we are hopeful. But we are not finished.
Today efforts to empower women in the economy are fast broadening and shaping the discourse beyond simply development to the macro-economic, and a growing body of quantitative research is making the case that this is the next frontier. And as Ambassador Melanne Verveer (the first U.S. Ambassador at Large for Global Women's Issues) aptly put it, "arguments based on GDP growth more persuasively speak to policy makers." We cannot underestimate the importance of getting this piece of the puzzle right; of establishing the positive narrative of women as drivers of economic growth. We find ourselves with the opportunity today to properly assess women’s role in macroeconomics, translate that into policymaking, and institutionalize it much in the same way we have done in the areas of development and human rights.
The IMF has published many papers over the years that have touched on these issues, but there is one I would like to highlight. In 2006, Janet Stotsky (who is here today) published a survey at the IMF on the impact of gender on macro-economic policy at a time when it was still a relatively unexplored issue – a testament to the early work the Fund had done in this area. She pointed out the need to further study the design of IMF structural adjustment programs to ensure the benefits of economic growth are equitably shared. She also pointed out that gender-based differences in behavior can influence macro-economic variables, like consumption, savings and investment and that reducing gender inequality could provide macroeconomic benefits. Stotsky highlighted that the IMF may be able to contribute to reducing gender inequalities by advocating greater gender neutrality in fiscal – especially in tax – legislation and financial sector legislation, and by ensuring that government budgets recognize the special needs of women and girls and the disproportionate poverty of female-headed households. Christine Lagarde recently brought these issues to the forefront of the IMF’s official voice: "We are all trying to remove obstacles and create opportunities that will allow women to achieve their full potential, and in so doing lift us all to a higher economic growth plane." The extent to which Christine Lagarde (and Minouche Shafik, Deputy Managing Director of the Fund, also here today) and their colleagues can further engage and mainstream this issue will prove decisive. Having strong champions of closing this gender gap at the top of the IMF may be just what will ensure that gender is no longer seen as out of place in the discussion of macroeconomy.
It’s a difficult task to define and create the right conditions necessary to unlock the full potential of women in the global economy. What is clear is that at the macro level, there is significant capacity for more work that can take us beyond how women have impacted growth thus far, and address what holds them back from further impacting growth across different economies.
Advanced Economies: The United States, Europe and Japan Experience
I’d like to focus on one key aspect of this issue: The differential participation of women and men in labor markets and begin with how things look in advanced economies, given that this issue is coming to the fore as a result of lower trend growth after the great recession as well as aging populations and other demographic shifts. The Economist in 2006 made, in their words, a back of the envelope assessment that the increase in female employment in the advanced world "had been the main driving force of growth in the past couple of decades. Those women have contributed more to global GDP growth than have either new technology or the new giants, China and India." A remarkable statement. Since then, a multitude of organizations have pieced together parts of the gender growth puzzle with the goal of quantifying the impact increased numbers of women in the workforce had had on economic growth, and envisioning what advanced economies might look like, given a different trajectory for female labor force participation rates.
According to a 2011 McKinsey report "Unlocking the Full Potential of Women in the U.S. Economy," there is about a 76% participation rate of American women (compared with, for example, 87% in Sweden), defined as either currently employed or actively seeking work. The report highlighted that between 1970 and 2009, we’ve seen a move from women holding 37% of all jobs to nearly 48%, an addition of almost 38 million more workers.
The same report estimates that, without these women contributing to economic growth, the U.S. economy would have been 25% smaller in 2011 – an amount equal to the combined GDP of Illinois, California and New York. Closing the existing gap between male and female employment rates in the United States moving forward could boost U.S. GDP by as much as 9%.
While the overall rate of female labor force participation in the United States is among the highest in the world, there are actually some interstate variations. McKinsey estimates that if the United States raised female labor participation rates to the average participation rate of the top 10 U.S. states, our economy would add 5.1 million women workers, the equivalent of a 3-4% increase in GDP. So even here at home, we still have some way to go – and exciting potential still to be unlocked.
The American labor force experience is highly correlated with higher educational achievements, and this is not unique to the United States. The OECD considered the impact of increased female educational attainment on economic growth between 1960 and 2008 for 30 countries and found the increase in relative educational attainment of women had a positive and significant impact on average GDP per capita. They concluded increases in educational attainment accounted for around half of economic growth in OECD countries in the past 50 years.
Turning to Japan, I give enormous credit to Kathy Matsui, chief economist of Goldman Sachs in Asia, who pioneered analysis of the potential growth impact of increased female labor force participation in Japan over a decade ago, and has been beating the drum ever since. Matsui first published research on "Womenomics" in 1999, identifying the causal link between Japanese women’s participation in the workforce and the opportunity women presented for driving potential growth. This was significant, given the backdrop of Japan’s shrinking population, high fiscal debt, deflation and increasing global competition. Given the high educational achievements of Japanese women, and the limited alternatives, better inclusion of Japanese women could easily generate economic growth – as she noted, "it’s hard to run a marathon on just one leg". Over the past decade the female employment rate rose to a record 60% in 2011, but compared to other developed nations, Japan’s ratio still ranks among the lowest.
Why is this a critical challenge? Looking forward, Japan’s total population is projected to shrink by 30% by 2055 – the sharpest among advanced economies. When Matsui published her "Womenomics 3.0" in 2010, she noted at the time, the number of pets in Japan outnumbered children under the age of fifteen.
On this same subject, a recent IMF paper – "Can Women Save Japan?" sought to quantify the impact women could have for Japan’s labor force. Female labor force participation is currently 24% percent lower than that of males. They estimated that an increase in the female labor force participation rate to 70% would result in GDP per capita growth rates of 5%. Japan last achieved 5% growth in per capita GDP in 1990. More ambitious increases in Japan’s female labor force participation rates that might match Northern Europe averages could generate another 5% in GDP per capita growth. In light of Japan’s aging population, lack of in-migration and consequential labor force decline, expanded inclusion of women into the workforce is essential to slow the natural rate of decline in the size of Japan’s labor force. This is true in other parts of Asia – Korea, for example, has a labor participation gender gap almost as large as Japan’s and could show comparable increases.
Turning to Europe, some private estimates have shown that a reduction in the employment gap between men and women has been an important driver of European economic growth in the last decade and that closing this gap could boost eurozone GDP by as much as 13% overall. The OECD estimates that closing the gender difference in labor market participation rates could add 11.2% to GDP in Germany, 9.4% in France and 22.5% in Italy. Even a gap reduced by 50% over the same time period would lead to a 5.6%, 4.7% and 11.2% gain to GDP, respectively. Italy, in particular stands out here, as their participation rates for women rank very low in the OECD, and I believe Minouche will touch on that later today. But Germany too could see initiatives targeting increase in the female labor force pay dividends in the coming years as they begin to grapple with their own demographic challenge. Scandinavia’s experience suggests that this type of outcome is achievable, given the right policy environment and wider cultural acceptance of equal female employment. Particularly in aging societies, closing this gap could help address pension sustainability as well as broaden the general tax base. Given Europe’s current growth challenges, this seems to be an obvious opportunity.
Turning to emerging markets, let me highlight a few regional labor force participation rates to give a sense of the opportunity. In 2011, the rate of female labor force participation for Latin American was 52%, for South Asia it was 35% and for MENA it was 26%, which is the lowest level in the world. I also want to distinguish here between the emerging markets and developing countries whose challenges with women in the economy span far beyond a mere growth challenge, where safety, and health and basic education and human rights issues weigh large, and where fighting for fundamental equality is of utmost concern.
One of the most compelling pieces of research on emerging markets was launched last year by Booz & Company entitled "Empowering the Third Billion" - a country-by-country analysis addressing what will happen when an estimated 1 billion women (The Third Billion) enter the global workforce over the next decade. This Third Billion could play as significant a role as the worker inflow from the billion-plus populations of China and India, but the report also highlights the lack of sufficient attention from governments, business leaders, and other key decision makers in many countries. Their estimates confirm that there is significant untapped economic growth potential from women’s economic empowerment in emerging economies and they rank countries on how effectively they are empowering women as economic agents in the workforce.
Booz & Company also estimates the potential growth of emerging economies, and they highlight that we could see growth in the U.A.E. boosted by 12% of GDP and Egypt boosted by 34% of GDP with equal labor force participation. And as with many studies of emerging market economies and mobilizing women, the consequential benefit of equal labor force participation would bring broader gains for all citizens in GDP per capita, health, early childhood development, security, and freedom.
Earlier work by economist Sandra Lawson, entitled "Women Hold Up Half the Sky", looked at the BRICS and N11 (Next 11 after the BRICS) countries, and highlighted that in countries with younger populations, rising gender equality is typically associated with the start of a period of rapid economic growth. The report also considered education and correlated macroeconomic effects, such as more working women, stronger human capital and productivity, higher returns to investment, more productive agriculture and concluded that education and economic growth go hand in hand. Conversely low female education has been shown to be a contributing factor to slower economic growth. Lawson ran the BRICS and N11 countries through models of potential GDP per capita given increased women’s labor force participation, with the sharpest improvement seen in India, with income per capital 10% higher by 2020 and 13% higher than her base case in 2030. In the N11 countries, the standouts were Egypt and Turkey, both at 14% higher than otherwise forecast. The BRICS and N11 have been the prime engine of global growth over the past few years. Lawson demonstrates just how significant the equalizing of labor force participation could be to drive future economic growth further within these countries, with the obvious subsequent growth benefit for the global economy. We must ask ourselves: how can we afford not to work towards this end?
What are the primary barriers?
Having just touched on the all important issue of education, I’d like to turn briefly to a few of the other primary – and well established - policy remedies to women’s economic participation. In general, and most specifically geared to advanced economies: policy makers who are looking to adjust access-to-work policies to level the playing field and enhance flexibility must adopt nondiscrimination policies and access to flexible work arrangements, and facilitate the transition from part-time work to full-time work. For example, in the Netherlands, the rapid increase in female labor participation was the result of a breakdown in barriers between full-time and part-time work contracts in the early 1980s.
We also need to look to enhanced support for child care and elder care, including parental leave benefits. For example, Sweden’s high female labor participation can be mostly attributed to a generous and flexible parental leave policy. We need to review tax codes to identify and remove provisions that discriminate against second earners. Many countries effectively impose a higher tax on the secondary earner in a family—usually women. In Canada, a decrease in the secondary earner’s tax contributed significantly to the increase in Canadian women’s labor force participation rate between 1995 and 2001.
The challenges for emerging market economies are markedly different. In emerging economies we look to policies that introduce and enforce antidiscrimination laws, expand access to credit, bring informal participants into the formal economy, and of course develop strong educational systems. Fostering entrepreneurship is key, and has been a priority for the State Department, especially given the importance SMEs can and do play for driving both growth and employment. This is not an exhaustive "to do" list, nor are these new solutions, but they are important solutions and necessary if we are to begin to bridge the growth gap.
In Middle East and North African transition countries, women have played an important role in bringing about momentous changes, notwithstanding their limited economic role. Supporting stable and democratic transitions in the Arab spring countries is an important political as well as economic priority for the U.S. The successful transition of these countries will require developing a vibrant and broad-based economy that generates good jobs. Just as women helped initiate the Arab spring, so too must they play a key role in ensuring a successful and sustainable transition, but only if they are integrated into the economy and their full potential is realized. Booz & Company analysis suggests that the payoff from empowering women in MENA countries is the highest of any region, and therefore represents a clear opportunity for U.S. and multilateral engagement and a model for bridging the gap.
Innovative institutional and policy incentives
The discourse of late has focused on either how far we have come, the potential we have yet to tap, or the challenges we still face. But what about solutions and innovative approaches that have been pursued by the U.S. Government, by international organizations, and others?
President Obama made it clear across our foreign policy that we are most effective when we lead by example. The White House announced several commitments to increase economic opportunity for women and girls last year - now nearly all implemented - at the Equal Futures Partnership, a multilateral initiative to break down barriers to women’s economic and political 17
participation. He appointed the first-ever Ambassador at Large for Global Women’s Issues to ensure that advancing gender equality would be fully integrated into the foreign policy of the United States.
The State Department, in particular, has embraced, under Secretaries Clinton and Kerry, a leadership role in promoting the interests of women and girls around the world, where much of our attention on economic issues has gone to support entrepreneurship and women in SMEs, through training, mentoring, providing credit, supporting access to markets and technology, as well as tackling discriminatory laws and regulations, especially when it comes to property rights and inheritance.
But we have also had great success using existing multilateral platforms to further mainstream gender as an economic issue. For example, we worked closely with the Asia Pacific Economic Cooperation forum (APEC) to elevate the importance of women’s economic participation as an economic growth strategy and in 2010, this became a core component of the APEC Leaders’ Growth Strategy. In 2011, the U.S. hosted the first APEC Women and the Economy Policy Dialogue, resulting in all 21 Leaders adopting the San Francisco Declaration, committing to taking concrete actions to address barriers and proactive steps to advance women’s economic participation. The APEC example is important, as it highlights how we can continue to integrate and mainstream the issue of women as drivers of growth through new multilateral channels. It illustrates how economies can begin incorporating women’s economic participation into national and regional growth strategies, and provides an example that can be replicated in other regions of the world.
There are also good ideas for mainstreaming gender that have been around a while but could benefit from ramping up. For example, the United Nations has championed gender budgeting for many years now - a mechanism that tries to institutionalize gender issues in government planning, programming and budgeting, by identifying measures to address gender gaps in government policies and reflecting them in the allocation of domestic plans and budgets. While many countries have embarked on gender budgeting policies, from Nigeria to Indonesia to the EU, work on this discipline is still considered somewhat outside mainstream economic research. Placing it squarely within the mainstream would help to show that gender budgeting might actually be just good budgeting. We need to look at ways to further institutionalize and implement these types of policies, and the IMF is well placed to do just that.
Incentivizing through tax policy can and does prove a powerful driver of behavior in both advanced and emerging economies. For example in Nepal, which ranks high on measures of gender inequality, is paving the way on including women in the economy through their tax system. OECD’s 2012 Social Institutions and Gender Index (SIGI) report singled out Nepal for introducing a tax exemption to incentivize families to share property with their wives, daughters and sisters. These types of changes can, in time, improve gender equality in Nepal with consequential benefits from increased involvement of women in the labor force. The world of taxation is also core to the Fund’s work in countries around the world.
And finally – we should keep a close eye on the evolving story about great potential that has yet to be realized in Japan. Prime Minister Abe intends to launch his "third arrow" with policies aimed at restructuring the economy, improving productivity and increasing labor-force participation by women, including a promise to create 250,000 day care openings over the next few years, encouraging businesses to set a target of at least one female executive per company, and extending childcare leave from 1.5 years to 3 years. I am extremely encouraged that Japan’s leadership has decided to take this bold step forward.
Much good work has been done to further objectives of women, with the United States taking the lead on mainstreaming this into our own work at home and around the world. We all have a lot of work still to do. I hope I was able to raise awareness of the cutting edge work under way in the field of gender in the macro economy, make the case for broadening this work, and shed some light on what still needs to be done. I would like to essentially lay down this challenge to economic policymakers around the globe, and to those institutions that influence them most.
Christine Lagarde said just this month, the IMF does have expertise and can help, and where it doesn’t, it can reach out to other institutions. She suggested the IMF could "seek out gender-smart fiscal policies by examining how taxes and government spending affect gender equality and opportunities for women." She challenged governments to "dare to achieve a more balanced world." We also support institutions like the IMF as they "dare" to continue and expand their good work and make as relevant as possible the issue of inclusive growth, where gender is fully included, in the good work it does.
Let me close by circling back to where I began: growth. At the most recent G8 meeting, Prime Minister David Cameron captured the summit’s theme by stating that today’s greatest challenge is to "restore strong and sustainable growth to the world economy." This year’s G20 places the challenge of addressing the growth environment in the global economy at the top of its agenda. At the same time, the IMF just revised down, again, its global growth forecast for 2013.
Robert Gordon, in a widely cited argument from last year, raised questions about whether economic growth is even a realistic goal for future generations - noting that global economic growth basically didn’t really exist before 1750, and questioning whether perhaps we are looking at future devoid of growth at all. Gordon’s argument was that the history of growth is both recent and, perhaps limited. Relatively recent industrial revolutions gave the world electricity, the internal combustion engine, running water, indoor plumbing, communications, entertainment, chemicals and petroleum. These in turn fostered more limited "one-off" growth drivers, including: The emancipating of females from the drudgery of carrying tons of water per year and allowing them to join the labor force.
Gordon’s predictions of a future of stagnant global growth may or may not be proven correct. But, the inclusion of women as a central driver of economic activity and growth, in both developed and developing economies around the globe, can certainly make sure that we will all have to wait a lot longer to find out. Ignoring half of the world’s workforce, half of the world’s economic power is to only achieve half of our potential. I hope when that topic of women and growth comes up between the IMF Mission Chief and Minister of Finance, enabling women as a driver of economic growth will soon be as meat and potatoes an economic issue as taxes and monetary policy.