It might be very difficult to do but eliminating pay inequality arising from gender discrimination would have a significant positive impact on any country''s national output. According to research by Tiago Cavalcanti and José Tavares, published in the February 2016 issue of the Economic Journal, the overall benefits for the economy would be difficult to match by the effects of any other economic or social policy choices.
Their study suggests that reducing gender discrimination may help rich nations partially address the problem of population aging by shoring up pension systems with higher female market participation. Most importantly, in poor economies, policies fighting gender-based labour market discrimination are not only socially desirable: they are also a key element of any serious macroeconomic policy aimed at long-run prosperity.
The researchers provide a first rigorous estimate of the output cost of gender discrimination. Their analysis models an aggregate economy in which families save and accumulate capital, but also choose the number of children they have and the extent of female labour market participation.
The study calibrates the benchmark economy to replicate the long-run behaviour of the US economy, and then introduces actual, country-specific levels of gender discrimination to assess by how much the long-run output of this model US economy decreases due to gender discrimination.
In other words, the authors compute how much of the difference between the economies of, say, Egypt and the United States is due to differences in gender discrimination alone. The negative impact of gender bias on output is surprisingly large.
The researchers explain how gender discrimination is wasteful and inefficient. When women receive lower pay than men for equivalent work, there are two consequences:
• A lower number of women opt to work outside the home, decreasing an economy''s market income;
• And given the lower opportunity cost of time, women opt for a larger number of offspring.
A lower market income and a larger population pool result in decreases in long-run output ranging from around 10% for Ireland and Greece to more than 50% for Egypt and India.
In economic terms, gender discrimination is highly inefficient: its main effect is to associate market access with gender, so that equally productive women receive lower wages than men. In the United States between 1880 and 2000, female labour force participation of married women increased from 2% to 73%. This took place in tandem with the rise of the service sector, the introduction of time-saving household technologies and the availability of contraception.
But despite progress, substantial gender discrimination persists and, even after taking account of different characteristics of female and male workers, a ''gender wage gap'' persists. In addition, gender bias in the labour market discourages family investment in the education of girls, lowering overall productivity. In many countries, gender discrimination may be the most significant social factor hindering long-term prosperity.
Gender bias hinders female participation in the labour market, with a direct negative effect on output, and is associated with higher fertility rates, lowering output per capita. Indeed, countries that discriminate more on the basis of gender tend to exhibit worse access of women to the labour market, higher fertility and lower per capita income.
Though widely studied at the individual level, the consequences of gender bias in the job market have attracted very sparse attention in aggregate studies. This study attempts to fill that gap by providing a first rigorous estimate of the output cost of gender discrimination.
The researchers note that this is the first model-based assessment of the aggregate cost of discrimination and there are important aspects that are thus far ignored.
Most notable among them is the role of education. By taking consideration of gender discrimination in access to education, with its long-run, cross-generational consequences, estimates of the aggregate cost of discrimination would rise. On the other hand, this study ignores productive home activities performed by women that are not traded in the market.
''The Output Cost of Gender Discrimination: A Model-based Macroeconomics Estimate'' by Tiago Cavalcanti and José Tavares is published in the February 2016 issue of the Economic Journal. Tiago Cavalcanti is at the University of Cambridge. José A. Tavares is at the Nova School of Business and Economics in Lisbon.
Associate Editor of the Economic Journal at University of Cambridge