In this latest installment of the "A Woman’s Place" research series, we launch the Gender Equality Index. The modeling in the first edition of this series highlighted the fundamental role that policy and macroeconomic factors can play in boosting female labor force participation. It also underscored how important a culture of female empowerment is in spite of the fact we couldn't formally incorporate high quality proxies for it in our modelling. Using these insights, we have created an index that scores and ranks 29 Organisation for Economic Co-operation and Development (OECD) countries on gender equality in terms of macro fundamentals, policy and empowerment.

The purpose of this index is to provide investors with a tool to understand the relative strengths and weaknesses of countries across different gender equality metrics, to better inform understanding of the "S" in ESG and create opportunities to tilt portfolios towards countries with better gender equality scores. We believe that improving gender equality is fundamental to addressing long term social and economic challenges associated with aging populations and low potential growth rates. This index allows us to identify countries that are well set up to face these challenges and those that are lagging, and track changes to the gender equality environment along key indicators fundamental to long term potential growth and, thus, market outcomes.

Chart 1: Gender Equality Index Scores by Country

The Gender Equality Index scores 29 OECD countries between 0-100 and scores are available back to 2004 (Chart 1). We have chosen to focus on developed markets for three main reasons. The first is data availability – even within developed markets, data availability is a challenge and this is even more so the case for emerging markets. If we had attempted to include emerging economies in this index we would have been left with a much smaller number of comparative indicators. Secondly, our empirical modeling utilized OECD countries and the results from that modelling influenced the data we chose to include. And finally, emerging market countries often have very different challenges regarding gender equality and therefore our index would reflect a clear development bias. We hope to create a more global index in time and subject to investor demand. In the meantime, the macro ESG index we developed as part of our Social Capitalism research project includes a gender equality variable that can be used to facilitate comparisons across DM and EM countries alike, including in a development-adjusted form.

The index is made up of three major pillars:

  1. Macro fundamentals tell us about the current level of gender equality in the workforce across six indicators;
  2. Policy draws on empirical evidence to identify the seven most important policy factors influencing gender equality; and
  3. Empowerment incorporates four indicators that provide insight regarding the culture for female empowerment in the workforce and wider society.

Table 1: Index composition

The most notable exclusion from the index is gender pay gap data. To our knowledge, high-quality, consistent data over our specified time period (2004 – 2020) and the countries included in our index is not available. This is a very clear gap in the data and we hope in the coming years that better data will further improve this index.

Gender Equality Index Results

Chart 2: Breakdown of Gender Equality Index by sub-index

Unsurprisingly, the top performers in the GEI are Scandinavian countries (Chart 2). For Sweden in the top spot, a combination of strong gender policies, like special incentives for men to take paternity leave, a culture of gender equality in work, politics and society, and solid female participation in the workforce make for a powerful combination. Our A Woman’s Place research proposed that strong D&I policies combined with a culture of empowerment and equality should be a potent combination to boost female representation in the macro space. At the top of our index, we see this virtuous cycle in action.

This being said there is still plenty of room for improvement even at the top. In spite of coming in second and third place, Denmark and Norway’s rankings are relatively weak on policy, coming in at 16th and 12th respectively. Denmark scores particularly poorly on paternity leave (34/100) where its policy does not match up to its Scandinavian neighbors that specifically allocate generous leave for men. Denmark does have a 52 week parental leave policy but fathers are only explicitly entitled to 2 weeks. While they can share 32 additional weeks, the OECD measure of parental leave we use assumes women take remaining leave – an assumption that often plays out in reality. Meanwhile, Norway scores poorly for its less generous tax policy on single earners (20/100) and rigid temporary employment protections (21/100), which could both limit opportunities for single mothers. Even Sweden, which tops our index, could improve on some sub indicators such as tax on single earners (15/100) and the unemployment gender gap (38/100).

This contrasts strongly with countries at the bottom of the table. Japan, Italy and the U.S. are the worst performing countries in our index. Notably, each of the three is weak on one pillar in particular. Japan is marked down for weak empowerment scores; Italy has very weak macro scores; and the U.S. has weak policy scores (read on for case studies on Japan and the U.S.).

These results highlight an advantage of this index is not only being able to rank and score countries for overall gender equality but we can also identify where countries’ weaknesses and strengths are. It also clearly shows that all countries still have much room to improve when to comes to gender inequality.

What a difference a decade makes

Chart 3: Last ten years have seen mostly improvements in GEI

When we look at the changes to scores over the past ten years, a few interesting trends emerge (see Chart 3). Firstly, macro stands out as an area where most countries have improved. This is likely reflecting the benefits of post-crisis recovery in labor markets, as well as and related to, improvements in female representation over this period. Also, our previously published empirical modelling flagged that countries with better policies have better labor force participation rates. So with better policies coming in, improvements in labor force participation likely boosted overall macro scores.

Indeed, policy scores have also largely improved over that period, in line with the push for greater parental leave in policy circles over the past decade. This is the case for the biggest improver in our index, Australia, where paid maternity leave was formally introduced in 2011 and paternity leave in 2013. That said, it is worth noting that in level terms, Australia still has less generous parental leave policies than many others in this index, ranking 24th for maternity leave and 14th for paternity leave.

Empowerment is much more of a mixed story over the past ten years. For Finland, empowerment scores have been the main driver of improvements in overall GEI performance in that period thanks to significant improvements in state job and business opportunities for women. However, a number of Eastern European countries have seen their empowerment scores decline since 2010. Slovenia stands out for the largest drop in empowerment. However, these weaker scores only actually came about in 2020, with a sharp fall in state job and business opportunities, which may be reflecting a temporary impact from the Covid pandemic. For Poland and Czechia, declines reflect weaker scores in the empowerment index, which measures women’s civil liberties and decision making power. While Czechia’s scores only fell in 2019 and 2020, Poland’s scores have dropped every year since 2015.

U.S. in focus: Macro strength in spite of weak policy?

One of the striking elements of our index is that fact that the U.S. comes in fourth for the macro pillar of our index while languishing at 29th and 24th for policy and empowerment, respectively. But our empirical modeling in the A Woman’s’ Place summary paper suggested that weaker policies are associated with weaker labor force participation. So what gives?

Firstly, our macro score includes the gender gap in labor force participation and the level of female labor force participation but these are only two of six macro indicators. Visualizing the contributions of all six indicators to the macro score reveals interesting further insights (Chart 4). If we look across the macro components, the contribution from education and self-employment in the U.S. is higher than the top ranking countries in our macro pillar. Education is particularly strong in the U.S. where it ranks 2nd only to Ireland.

Aside from these two indicators, the opposite can be said for actual labor market outcomes. The US scores much lower than top macro performers on female labour force participation levels, the participation gender gap and the unemployment gender gap. This combination of strong female education outcomes but weaker labor force outcomes highlights the significant potential for the US to improve its macro performance if it were able to shift its policy settings towards the highest performers in our index.

Chart 4: Contributions to macro score

It is also possible that the U.S. score is being flattered by construction. For example, the gender gap in labor force participation is a useful way to think about the relative equality in the labour force. However, it is important to bear in mind that reductions in male participation can narrow the participation gap without any positive impact on actual female participation.

If we look at the year where the participation gap has narrowed the most in the U.S. — 2009 — it was a result of much greater falls in male participation than female participation but both genders ended up in a worse position (Chart 5). If we compare this to Sweden, the years where the participation gap narrowed the most saw a strong increase in female participation outright. Encouragingly, we have seen sustained rises in female participation associated with a narrowing in the gap in participation in the U.S. in the past few years. It is worth noting that Covid and the associated lockdowns are likely to substantially alter these figures when 2020 numbers are released given how exposed women are to the services sector.

Chart 5: Changes in male and female participation in the US and Sweden

Japan in focus: Policy leaders but culture laggards

In our first deep dive of the AWP series focusing on paternity leave, we looked at Japan as an example of a country where progressive policies do not directly translate into a more equal society, which we suspected was due to the role of culture, which we couldn’t capture in our original empirical model.

Chart 6: Paternity Leave across OECD Economies

Japan ranks 4th in our policy pillar, driven by far higher paternity leave scores than almost all other countries in the index on paternity leave (just pipped to the post for first place by South Korea). This is no surprise given that Japan has a generous paternity leave policy compared to most other developed nations at 52 weeks of leave, two-thirds of it at full pay (Chart 6) and our original model suggests that this should be contributing to women’s labor force participation. However, it is still the exception in Japan rather than the norm for men to take their entitled leave, if at all. So overall uptake remains very low in spite of rises in recent years (Chart 7).

Chart 7: Uptake of leave by men in Japan

This is inherently linked to the culture of presenteeism in the Japanese labor force and the fact that Japanese women experience far higher levels of guilt for missing duties in the home because of their work than do men — termed the "guilt gap." In fact, women in Japan spend an average of just over 2 hours on housework every day compared to men’s 20 minutes, this excludes the caring for dependents but women also bear a higher burden in this aspect of household management (Chart 8).

Chart 8: Women still more likely to spend time on household management than men in Japan

We would have liked to include parental leave uptake as an indicator in our index but data was not widely available for OECD countries. That said, uptake issues hint at the idea of a culture of inequality, which we can incorporate in the index through the empowerment pillar. Including female empowerment in the index has a profound impact on Japan’s overall ranking: if the index only scored countries on macro and policy, Japan would come in ninth in our index. Including this key culture component relegates it to the bottom spot in our index from ninth (Chart 9).



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Chart 9 – Impact of empowerment on Japan’s index rankings