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Economists’ models miss the gains from more women in the workforce

The writer is a professor of practice at Georgetown University and former deputy research director of the IMF

In a speech last month, US Treasury Secretary Janet Yellen lamented the loss of economic potential around the world due to low female labor force participation. Meanwhile, trade secretary Gina Raimondo has drawn attention to the urgent need for childcare policies to get women back to work after the pandemic. And recent research has produced striking estimates of the economic growth dividend of a higher FLFP.

Those estimates, impressive as they are, nevertheless significantly underestimate the economic benefits of a higher FLFP. Economists approach the question of how gender inclusion affects economic well-being through a so-called headcount exercise: adding a woman to the workforce provides the same benefits as adding a man. An employee is an employee and the employee’s gender is irrelevant. What counts for economic growth is the total workforce.

However, there is a body of microeconomic evidence suggesting that female and male workers are not perfect substitutes in manufacturing. For example, the financial performance (profits, stock market valuations) of large companies and banks has been shown to improve when women are added to previously male-dominated management teams and supervisory boards.

Some studies attribute this effect on performance to different attitudes towards risk and collaboration, as only two possible channels. As a former senior Federal Reserve official noted, the models researchers use to understand macroeconomics are gender-blind, as if macroeconomic policies affect women as much as men. These seem increasingly disconnected from reality.

A recent study I’ve led supports a new approach to the problem by asking the data to tell us whether economic benefits of increasing labor force participation depend on the gender composition of the additional workers. Macroeconomic data strongly rejects the notion enshrined in most models that women and men are perfectly interchangeable in manufacturing, pointing to economic benefits of increasing FLFP that could be up to one-fifth greater than workforce exercise estimates that estimate gender composition. of the workforce.

Women complement men in the production process, so there is value in gender diversity as such (as there is more general diversity in teams of workers). Hiring women can increase the productivity of women already working in a company by reducing discrimination within the company. Gender inclusion also appears to have beneficial effects on the value of companies whose strategies rely on innovation, including high-tech manufacturing and knowledge-intensive services.

Our interpretation of economic growth data is also influenced by the complementarity of women and men in manufacturing: indeed, some of the measured gains in economic well-being over the past half-century probably reflect the narrowing of the gender participation gap that has not been properly explained in our economic models.

In a world where women are underrepresented in the workforce and men and women are imperfect substitutes in manufacturing, the benefits of gender inclusion are likely to be much greater than our standard models estimate. My research also shows that, because of the complementarity in production between women and men, boosting FLFP is likely to increase men’s real income. Gender inclusion in the workforce is thus a positive sum: both women and men should see an increase in their economic well-being as a result.

The uneven playing field in the workplace is more expensive than the standard models allow, and the urgency to level up is therefore greater. Gender blindness in macroeconomics is a bad assumption that leads economists and policymakers to underestimate the benefits of gender inclusiveness.

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