It may be the most significant social factor hindering long-term prosperity in many countries | Researcher: José Tavares
The Output Cost of Gender Discrimination: A Model-Based Macroeconomics Estimate
Gender discrimination is wasteful and inefficient. Alone, gender bias in the labor market can decrease long-term output per capita by up to 60 percent. When females receive lower pay than males for equivalent work, two consequences ensue. On the one hand, fewer females opt for working outside the home, decreasing an economy´s market income. On the other hand, given the lower opportunity cost of time, females opt for a larger number of offspring. Lower market income and a larger population pool results in decreases in long-run output ranging from around 10 percent for Ireland and Greece to more than 50 percent for Egypt and India. These results derive from a study led by Nova SBE Professor José Tavares and co-author Tiago Cavalcanti from Cambridge University.
Inequality hampers prosperity
In economic terms, gender discrimination is highly inefficient: its main effect is to associate market access to gender, so that equally productive females receive lower wages than males. In the United States, and between 1880 and 2000, female labor force participation of married women increased from 2% to 73%. This is in tandem with the rise of the service sector, the introduction of time-saving household technologies, and the availability of contraception. In spite of progress, substantial gender discrimination persists and, even after taking into account different characteristics of female and male workers, a “gender wage-gap” persists. In addition, gender bias in the labor 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.
The output cost of gender discrimination
Gender bias hinders female participation in the labor 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 labor 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 paper attempts to fill that gap by providing a first rigorous estimate of the output cost of gender discrimination.
Cavalcanti and Tavares model an aggregate economy where families save and accumulate capital, but also choose the number of children and the extent of female labor-market participation. They calibrate the benchmark economy to replicate the long-run behavior of the US economy, and then introduce actual, country specific levels of gender discrimination to assess by how much the long-run output of this model US economy decreases due to discrimination. In other words, the authors compute how much of the difference between the economies of, say, Egypt and the US is due to differences in gender discrimination alone. The negative impact of gender bias on output is surprisingly large.
Fighting discrimination – much more than meets the eye
This is a first model-based assessment of the aggregate cost of discrimination and there are important aspects that are thus far ignored. Most notably among them is the role of education. By taking into consideration 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, the study ignores productive home activities performed by women that are not traded in the market. Overall, the researchers’ estimates suggest that eliminating gender inequality, however difficult it may be, would have a significant positive impact in country output. This impact is difficult to match by the effect of any other economic or social policy choices. Lowering 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 labor market discrimination are not only socially desirable. They are a key element of any serious macroeconomic policy aimed at long-run prosperity.
International Media Coverage
This study has been profiled in TIME magazine – you can read the full piece here.
This Research Highlight is based on the paper: Cavalcanti, T. and Tavares, J. (2016), The Output Cost of Gender Discrimination: A Model-based Macroeconomics Estimate. The Economic Journal, 126: 109–134.