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Putting gender on the agenda

Improving workplace diversity holds a host of potentially lucrative macroeconomic benefits deserving of wider attention. Here, Newton responsible investment analyst Lottie Meggitt explores the potential impact of shifting attitudes in a changing world.

gender diversity

Gender equality has proved a high profile media topic in the past year, with the #MeToo and #TimesUp campaigns garnering global support and attention. Recent UK pay-gap figures have also revealed the stark pay inequalities that still exist between the sexes in most industries and companies. It also remains true that, despite similar levels of men and women leaving university and entering the workplace1, at the executive level, women often seem absent.

While conversations about the importance of improving diversity and inclusion are springing up everywhere, most centre on the possible social impact of supporting gender equality in the workplace. However, research shows that along with having a positive social impact, increasing the number of women in the workplace (and supporting them once they’re there), carries a host of potential macroeconomic benefits. This suggests working to achieve gender parity should be on the agenda of all investors, not just those with a social impact focus.

Mind the gap

Research by a number of sources including McKinsey and the World Economic Forum shows that global educational attainment is essentially very equal. For example, Saudi Arabia, where women have only recently been allowed to drive and enter sports stadiums, has a marginally higher proportion of women than men enrolling in primary education than Iceland – a notably progressive country in gender parity terms.2

However, despite accounting for 50% of the global working-age population, women only generate 37% of global GDP3, suggesting they are a seriously under-utilised economic resource given their comparable levels of education.

Much of this discrepancy can be explained by two key factors. Firstly the lack of women in leadership positions, both professional and political, and secondly the huge amounts of unpaid care work being done by women compared to men. As the chart indicates, the majority of countries still fall into the ‘extremely high’ level of inequality category on these two measures. Given the traditional care-giving role of women in society, this is perhaps hardly surprising.

Gender Equality Scores

Figure 1. Gender Equality scores

Source: McKinsey Global Institute, The Power of Parity: How advancing women’s equality can add $12 trillion to global growth, September 2016.

One controversial theory put forward by Harvard economist Claudia Goldin, is that the gender pay gap isn’t driven by discrimination in the workplace but by female demand for ‘temporal flexibility’. In less academic terms, this suggests women look for employment with flexible working arrangements and generous parental leave policies in place as they are the primary caregivers to children or other dependants.

Under this assertion, not only are women more likely to drop out of the workforce early to meet caring commitments but they also tend to work in less productive sectors and in less senior roles in order to accommodate flexibility needs. Consequently, they earn less.

Senior positioning

There are three primary benefits of increasing equality in female participation in the workforce – not just in terms of the numbers of women in work but also by improving equality in senior positions and across the sectors.

1. Bridging the gender gap is a GDP opportunity, globally

Gender equality and GDP do appear to be positively correlated. Research from McKinsey looked at potential changes in GDP in 95 countries if women participated in the economy identically to men – presuming no gap in participation rates, no gap in hours worked, and no gap in representation within each sector. In this ‘full-potential scenario’ (see chart below), McKinsey estimates it could add US$28 trillion to GDP in 2025 versus a business-as-usual scenario.

Obviously, this number is unrealistic, as the prospect of having women participate equally with men in the economy is rendered unachievable by a host of cultural, social and economic reasons.

However, the study also considered a ‘best-in-region’ scenario, where each country would perform at the level of the best-performing country in their geographic region on these terms. In this more achievable scenario, data still suggests such an improvement would add US$12 trillion dollars to the overall world economy, an increase of 11%.

The study also considered the potential role for women in slowing down workforce shrinkage in developed countries suffering from ageing populations – for example, increasing women in the workforce in Japan is expected to slow the reduction of Japan’s workforce from 65 million in 2014 to 63 million in 2025.

While there are nuances, this study may not take fully into account for example, the displacement of men as more women enter the workforce, the research suggests there is still huge potential in harnessing the female labour force.

Potential changes in GDP

Figure 2: Potential changes in GDP

The graph above indicates the percentage increase in GDP if woman participated in the economy identically to men and the value in US$ trillion it would add to the economy.

2. Progressive and flexible working practices (for both genders) can save money and retain talent.

There are significant savings to be had by retaining female employees after their maternity leave ends and it seems logical to extend this point to both genders. According to a study by KPMG and Vodafone, recruiting and training new employees in companies to replace women who do not stay in their workforce after having a baby costs global businesses US$47bn every year.4

In contrast, it would cost business an additional US$28bn a year to offer the 16 weeks of fully paid maternity leave common in developed markets.5

Furthermore, there are 96 million skilled women worldwide aged 30-54 on career breaks6, with 55 million having middle-manager experience or above. If such women had manager level employment – assuming other employees are not displaced – they could generate some £151bn per year of economic activity.

3. Women are an untapped resource in a global economy with a growing skills gap

Technology is just one sector with a marked skills gap and a huge gender gap which  is reflected in the labour market. Unless the entire working-age population has the chance to acquire new  technology-based skills this could have a serious economic cost. Take the UK as an example, with about 72% of large companies reporting they are suffering a technology skills gap7 and where tech related jobs are linked to one in five of all vacancies.

There are a variety of reasons for this gap; women (as well as men) appear to be put off by the stereotypes associated with the sector and there is a general lack of awareness of the opportunities available in the sector.

Luckily, there’s an obvious solution for companies – those who do the most work to combat those stereotypes and who work to improve the pipeline of graduates available to them will have access to the widest possible talent pool, and should in theory attract the best talent.

As research increasingly indicates, getting more women to participate in the economy holds huge economic potential and also genuine investment potential. Furthermore, diversity is increasingly seen as one of the most tangible factors by which we can judge the wider corporate culture of a company. Given the correlation cited above, we believe, this can be an important criteria to measure for many investments both today and in the future.

  1. 1 Source: World Economic Forum, Global Gender Gap Report 2017 http://reports.weforum.org/global-gender-gap-report-2017/dataexplorer/#economy=ISL
  2. 2 Ibid.
  3. 3 McKinsey Global Institute, The Power of Parity: How advancing women’s equality can add $12 trillion to global growth, September 2016.
  4. 4 Vodafone/KPMG. Women’s empowerment 2017. 01 June 2017.
  5. 5 RSA Action and Research Centre: The Flex Factor – Realising the value of flexible working. July 2013.
  6. 6 Vodafone.Vodafone launches world’s largest recruitment programme for women on career breaks. 03 March 2017.
  7. 7 UK Government/Ecorys UK. Digital skills for the UK economy. As of end January 2016.

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