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Narrowing gender gap can break growth stagnation

Economic potential of 865 million women still excluded from global labour market needs to be harnessed.

Only 50 per cent of the world's women are gainfully employed, much less than 75 per cent for men, and women still earn on average 24 per cent less than men globally.

The writers are head CIO APAC Investment Office & Carl Berrisford, analyst, CIO - UBS Wealth Management.

GLOBAL growth remains robust, with the International Monetary Fund (IMF) forecasting 3.9 per cent in 2018 from 3.8 per cent in 2017 - a solid platform for Asian growth.

But as the business expansion matures, risks are lining up: tightening of global monetary policy, shift to protectionist trade policies, and China's ability to balance shadow-banking reform with growth. The slower-moving challenge from demographics remains a long term headwind for productivity, but which may be partly offset by the rise of the digital economy.

Governments everywhere are struggling in the search for new sources of growth, investing billions to spur innovation and productivity gains. But one potential area of growth remains overlooked: harnessing the economic potential of the 865 million women who are still excluded from the global labour market.

Closing the gender gap is to us a critical solution towards the problem of stagnating global growth.

Every single country around the world, from Saudi Arabia to Canada, currently has more men than women working in their labour markets. Only 50 per cent of the world's women are gainfully employed, much less than 75 per cent for men, and women still earn on average 24 per cent less than men globally.

Women are also heavily under-represented in senior roles. According to MSCI, only 18.1 per cent of directorships in MSCI World Index companies are held by women; for MSCI Emerging Markets, this figure falls to 8.4 per cent.

This workforce gender gap - be it labour participation, pay equality or the corporate "glass ceiling" - is also not necessarily a trait of emerging versus developed markets. For example, women are paid more equally to men in Malaysia and Vietnam than in Japan and even the United States.

According to McKinsey Global Institute estimates, if women were paid and participated in the labour market at the same rate as men on best-in-region levels, the resulting swell in incomes would add US$12 trillion or around 11 per cent to the global economy within a decade.

While much has been discussed about Japan's policy focus on 'Womenomics', the country's experience with an underutilized female talent pool is hardly unique.

Boost numbers of working women

In fact, nearly all markets have much to gain if they were to boost the numbers of working women; for example, the IMF estimates that labor participation parity between the sexes could lift GDP totals by 5 per cent in the US, 9 per cent in Japan, 12 per cent in the United Arab Emirates and as much as 34 per cent in Egypt.

For shareholders and owners of companies, the report Gender Diversity Matters by UBS pointed out that gender-diverse companies - those with women in at least 20 per cent of senior leadership positions - were more profitable than their less gender-diverse peers.

The same study also showed that from 2011 to 2017, a UBS gender-focused portfolio of companies beat the MSCI World Index by an average of 1.6 per cent a year. While this does not necessarily imply causation, gender diversity is to us a proxy of well-run companies with good corporate governance.

Other academic studies corroborate this view - a recent one by the Peterson Institute for International Economics found that for profitable firms, a move from zero female board representation to a 30 per cent female representation is associated with a 15 per cent increase in net revenue. This study was based on 21,980 firms headquartered in 91 countries.

Studies have linked this material uptick in profitability to the way women assess and consider risks differently from men. Women tend to be more risk averse: when faced with the same probability distribution, men are more willing to take outsized bets than women.

Christine Lagarde, Managing Director of the IMF, aptly stated, "If Lehman Brothers had been a bit more Lehman sisters, the 2008 financial crisis may have been less severe."

Uplift to structural growth

Such an uplift to structural growth from a more engaged female labour pool would dwarf any single industry's contribution to the global economy. Yet progress, while dramatic in a historical perspective, remains gradual at best and not fast enough to unlock the full breadth of the economic bounty.

Admittedly, the gender gap is a complex issue, and reasons for its persistence vary around the world. But one universal reason women either abstain from the workforce entirely or only find part-time work - which results in lower pay, poorer job security and fewer promotions - is the issue of maternity and domestic burden.

Women by and large bear a greater share of household duties - especially when starting and raising a family - which impacts their career choices. In the developed countries Organisation for Economic Co-operation and Development, 80 per cent of part-time workers are women.

Lasting solutions to address these realities directly involve costs, trade-offs and a fundamental shift in cultural attitudes. Families may need to accept different domestic arrangements and boys must be taught from a young age to have an equal share of the domestic burden.

Companies also need to proactively support the life goals of their female employees through flexible work arrangements, adequate maternity and paternity (to avoid skewed job prospects in favour of men) leave, and dedicated actions to ensure a pipeline of female talent, especially at middle management where attrition due to maternity is often at its worst.

Above all, governments are key in setting the tone and in enacting lasting changes through a policy mix that encompasses education, family planning and labour market measures.

Having high-quality, accessible and subsidized childcare is essential to keep married women fully engaged in the job market. But these changes do come with costs: it's no coincidence that countries with the most pro-family policies, such as the Nordics, also tend to have higher taxes.

The weak state of the current global economy adds urgency to addressing the issue of the gender gap. Empowering women will result in incredible economic opportunities, benefitting not just women themselves, but also the local communities and our global society as a whole.

  • The writers are head CIO APAC Investment Office & Carl Berrisford, analyst, CIO - UBS Wealth Management

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