Ahead of International Women’s Day on March 8th, this week’s episode of Macro Matters focuses on gender equality. Sharing the findings from the newly published research "A Woman’s Place," the episode explores why boosting female participation in the labor force is key to unlocking long-term economic growth and what policies really work. It turns out, men are a crucial piece of the puzzle.
Welcome to another episode of Macro Matters. This week our host Paul Diggle shares a first look into the new research series from the ASI Research Institute, "A Woman’s Place." Swapping out her role as co-host, Stephanie Kelly, our Senior Political Economist, joins as a guest alongside Research Economist, Abigail Watt. As co-authors of this innovative research paper, they discuss the drivers of female labor-force participation and why D&I policy really matters for investors.

Part 1 highlights the impact of the Covid crisis on the labour market and explains the economic arguments for optimizing human capital

Part 2 goes into detail on the role that policies like paternity leave, tax and employment protection can play in boosting labor-force participation among women.

Find out more about A Woman's Place

We'll be publishing further editions of the research throughout the year so stay up to date by visiting our Research Hub where you'll find related articles, upcoming events and links to download the full working research paper.

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Podcast

Macro Matters: A Woman's Place

Paul

Hello and welcome to Macro Matters the economics and politics podcast from Aberdeen Standard Investments. My name is Paul Diggle and along with my co-host Stephanie Kelly, we are discussing the themes and debates shaping the global macro economic and market environment. Today I'm joined by Steph and Abigail Watt who together with their co-authors, Nancy Hardie and Jeremy Lawson have published an important research paper called 'A Woman's Place' - boosting female labour force participation to lift long-term economic growth. So we're going to talk about the findings of the paper, the policy recommendations, that's definitely making the paper and of course, this is an extremely timely piece of research given that it is International Women's Day very soon. And we're around the one year point of the COVID pandemic hitting and that's of course, had deep and meaningful impacts on the labour market, but particularly on female participation in the labour market. So we'll make sure we put links to the paper in the show notes, but let's get into it. So Steph, why don't we maybe set the scene with some broad outline facts about female labour force participation? How is it different from male labour force participation? Are there differences between countries? Are there differences in the type of roles that women occupy in the labour market?

Stephanie

I mean, I think what's really quite striking and was one of the fundamental arguments that we had for the inefficiency of kind of gender equality in the workforce is that if you look at female labour force participation rates, and particularly if you compare them against education rates, what you find is particularly across the OECD, women are more educated than men in all but I think five economies. And you compare that against their actual representation of the workforce, and they're kind of systematically underrepresented versus their male counterparts. I think that's one of the most striking facts that we started out with, when we started to think about doing this research was just looking across major economies, even really developed economies, even economies that are known for equality, still see a kind of persistent gap in participation. However, there's a lot of variation in that there's a gap everywhere, but that gap is much bigger in some places than others. And that's really what drove us to kind of be interested in this topic and want to investigate what could be driving those differences in participation? Because that might help us, you know, gather clues as to what can help solve for longer term inclusion and longer term equality in the workforce.

Paul

Yeah, and as reading your paper, it's those differences between economies that you're able to exploit in a modelling framework to figure out what these drivers are. Now clearly there are important moral and social arguments to raise female labour force participation on why it might be undesirable that there's this persisting gap. Vis-a-vis male labour force participation, but there's also a strong economic arguments, as you hinted at their Steph, right? It's arguably inefficient this allocation of human capital.

Stephanie

Yeah, absolutely. I think it's, it's one of those most striking, particularly if you bear in mind the size of the female potential workforce, I mean, women are kind of around half of the global population. And so when you see that kind of systematic underrepresentation that isn't necessarily accounted for, but what you might say is, is, you know, education and skills base, that doesn't seem to be at least when you do that simple correlation at the beginning, that doesn't seem to be what's driving it. So that suggests to us that there's something gendered, there's some kind of gender norms underlying that are suggesting that there's a reason why women who are as educated and potentially as skilled as their male counterparts aren't participating. And to us that suggests that, of course, everyone is entitled to individual choice. But our question was around whether policy might be exacerbating existing kind of gender norms or reinforcing gender norms such that households really don't have a choice. And there isn't that genuine choice being made by men and women around how they allocate that, it's more around expectations that are then reinforced by policies,

Paul

Now Abi, we're gonna get into how to raise female labour force participation, the policy implications of your paper, but why don't we deal first with how that would actually boost long term potential growth? And what are the channels through which actually higher participation means higher long term growth rates?

Abi

Yeah, exactly. As Steph said, it's not just an argument in terms of economic efficiency. There's the potential here to kind of boost long term growth across economies. And there's kind of two key ways in wage long term growth can be increased by boosting female participation. And there's just the direct effect with a, you know, an overall higher labour input into your production function. So you've just got a higher overall labour supply, if you boost the participation rates of women. And then there's an indirect effect, there's interesting evidence in the literature that suggests that the kind of the complementarity of men and women in the labour force can play a role in in terms of increasing overall productivity of the labour force as well. So there's kind of two key direct and indirect ways in which you can boost growth from this. And and the the empirical evidence is actually quite, quite interesting, quite striking. And if you look at those economies, where the gender participation gap is largest, there's the potential that GDP, on average could increase by around 35%, if that gap in gender participation was to be completely closed, so in the context of pressures from ageing populations, and also the slowing productivity growth that we're seeing in the global economy, this is one key way in which you could boost long term potential growth of economies.

Paul

Of course, and slowing growth has been a policy challenge and headwind for policymakers globally. So that there are these potential, almost free lunches there that better policy can engineer is a thing of very important finding. But obviously, during the COVID crisis, some of these trends have actually been going in the wrong direction, haven't they? So what's been the particular impact of the COVID crisis on pushing female labour force participation actually, downwards rather than upwards? How's that played out?

Abi

So we've seen that women have been kind of disproportionately impacted in terms of the way that they're engaging with the labour market during the COVID crisis. It's not just the case that we've seen participation rates for women decline. We've also seen that unemployment rates for women have risen by more than unemployment rates for men. And also, we've seen shifts in the kind of number of hours that have been worked across the sexes, with men less likely to reduce their hours than women are given the kind of pandemic shock. And there's kind of a couple of key reasons why women might be disproportionately affected by this shock. So the first is just their overexposure to the sectors which are hit by COVID-Related restrictions. Women are much more likely to work in services industries, they're much more likely to work in things like hospitality, which has been hard hit by COVID restrictions. And then a second thing is that the women are much more likely to take on the burden of caring within the household. Survey-based evidence suggests that that's the case. And we've seen that that kind of during the pandemic with the closure of formal education that's put greater pressure on women to kind of increase the flexibility of how they work, but also reduce hours in order to kind of look after dependents within the household.

Paul

Steph this COVID impact is amplifying or revealing sort of existing problems with the way the labour market is structured between the genders, isn't it? It is disproportionately women who have to internalise that work/care trade-off in their labour market decisions than men?

Stephanie

Yeah, exactly. I think there's a tendency, I mean, there's tonnes of headlines covering the extent to which women have been, you know, their interaction with the labour force has been damaged by COVID. But really, for us, I've been struck by the extent to which it's just highlighting those structural issues that exist that women face a different expectation when it comes to care particularly, post-childbearing years. So we see things like mid-career trade-off is a big issue. So women join the labour force at the beginning of their careers, then they have children, and they're more inclined to drop off versus others. But what the COVID crisis has done, is just magnified that, because instead of kids going to school, they're now at home. And so underlying assumptions within a household, who's responsible for homeschooling, who's responsible for or care for elderly parent, for elderly parents or elderly relatives? Those kinds of things have just reinforced what we kind of knew was still there. And I think, although there has been, and we shouldn't underestimate, there's been a lot of progress in terms of improving female labour force participation in recent decades. I think it's very visible in lots of economies, how much progress has been made, but what COVID has done is highlighted that there still is this underlying expectation around female care versus their male counterparts. And it seems likely the policy is just reinforcing this. Again, none of our research is to say women can't stay home or they shouldn't stay home. It's more to say that we think that there's a policy inefficiency going on here and it's reinforcing that. And I think some of the early evidence, even from the COVID crisis in the UK, is suggesting that even the policy decisions that were made were kind of, they're now being criticised and investigated for potentially having been gendered in a sense of being more beneficial to men than for women. I think that's going to be a really interesting element. And it really ties to what Abi said at the beginning, which is, I think, seeing gender policy as a separate issue to general macro economic policy isn't a state. That actually gender considerations matter because it really affects what parts of your labour force you're using, and what parts of your labour force you aren't. And I think that needs to be further ingrained, not treated as this nice to have niche kind of women's issue, but rather, a genuine question for the labour force and for economic policy makers.

Paul

Yeah, absolutely. This is the core of of macro economics and policy. Absolutely. So let's get into the policy implications then. So in in the paper, you exploit the differences between female and male labour force participation in different countries and can explain these differences by a variety of policy decisions and the way the labour force is structured. And in particular, you've got these three big sort of policy recommendations or implications which are about paternity leave the tax wedge between first and second earners, and employment protections. So let's sort of deal with these one at a time paternity leave, Steph is really interesting, because potentially counter intuitively, you find that greater paternity leave provision is associated with higher female labour force participation. Can you sort of explain that finding? Or, or why that should be the case?

Stephanie

Yeah I mean, it was for us, one of the most exciting findings. There's a bit of work done on this in the academic space already. And a lot has been done in the past around the role of maternity leave. But for some reason, it was this question of gender equality always seems to focus on women and policies for women and how women behave and whether women are educated. But we kind of saw this, again, from an economists perspective and labour optimization question about being both sides of the equation, not just being about what women are doing or what affects women, but actually what men are doing and what policies are targeted at men and whether there's a cross pollination there. And paternity leave for us was the big surprise. I suppose it's one of those surprising, but not that surprising when you think about it results, which is that, you know, more paternity leave is associated with higher female labour force participation rates. And crucially, this doesn't seem to come at any cost to men. So we ran a version of our model for female participation. But we also looked at male participation. And we found there was no damage to men from taking paternity or from having paternity leave legislated. So we think that's a really powerful and quite a positive message, which is that increasingly, if you think about the logic of it, if you have two individuals who may or may not get hired for a job, or two individuals who are working, and one is more likely because of their gender, or their sex, sorry, to take time out for caring, for example, because of new children, then that naturally creates a skew towards the other sex, right. And so men are more likely to stay in work and not take breaks. And that I think, reinforces not only conscious biases about who gets promoted, but also unconscious biases about who even gets hired in the first place.

Paul

Abi, one of the interesting findings is that when you looked at the role of maternity leave in explaining levels of female labour force participation, you didn't find it particularly significant. So the expansion in maternity leave provision over the past number of decades, wasn't a significant driver of differences in labour force participation. I suppose that's the mirror image of what Steph was explaining there, which is higher paternity leave doesn't adversely affect men. But could you explain why maternity leave actually isn't significant in the model?

Abi

So yeah, I think when we first ran the models, we were particularly interested in the leave policies. And one of the things that did surprise us was that we found that maternity leave did not have a statistically significant effect on labour force participation rates of women on average. And that is kind of contrary like contradictory to the literature which we've been studying that found in looking at earlier periods. That maternity leave was a significant driver of female participation. So one of the things that we did to kind of dig into that in a little bit more detail and explore why we might be finding that in our model was looking at the literature from the OECD, which looked directly at the influence of maternity leave. So what we did was we looked at their sample, which began in the 1980s. And we estimated across an expanding window up until 2016, to see whether there was any changes in terms of the timing of when maternity leave became insignificant. And one of the things we found was that the impact of maternity leave actually became insignificant in the late 90s and early 2000s. And one of the key reasons for that is because there has been such significant progress in terms of the mandated amount of maternity leave across the economies that we're looking at, in the OECD. And we see this as a kind of a positive result in a way it says we've done so much in terms of the the availability of maternity leave, for women that we've reached the kind of point of not necessarily diminishing marginal returns, but the the kind of, you know, the, the gains that you get from boosting that further are, you know, kind of much smaller than the gains that we've found you can you can get from increasing paternity leave. So we think it's quite a positive finding, in a way.

Paul

Yeah. And I suppose it's very positive, because it says there are so many gains to be made from the next stage, which is the expansion of paternity leave or parental leave in general. But one of the issues you raised in the paper is the question of causality, are higher paternity leave provisions changing labour supply decisions? Or are countries that are legislating for greater parental leave, also, moving in a direction, that social and cultural direction that encourages a higher female labour force participation? So another way. Are these things causing one another? Or are they correlated with one another? Could you sort of talk about how you discuss that in the paper?

Abi

Yeah I think this is always a challenge econometricly to define causality and to find the kind of causal relationships between these variables, it's always challenging. But it is an interesting question. And what we can do is we can measure leave policies, it's something that we can quantify. But when we were doing this research, we were very aware of the fact that one thing we can't quantify is the kind of culture that prevails in these economies. And it's definitely possible that some of the kind of impact that we're finding from paternity leave could be masking some just kind of general cultural preference towards greater gender equality in economies. That's that's definitely the case. And it could also be the case that there's a direct effect between culture and labour force participation rates of women in the sense that at the household level, it could influence the supply decisions that are made by households. And so there's definitely a question as to whether there is a missing un-captured factor around the influence of culture in this analysis, and it is something that we were particularly aware of when we were doing it. So I mean, Steph, maybe if you could just add a little bit more in terms of the analysis that we did when we were thinking around the influence of culture on the kind of uptake of paternity leave?

Stephanie

Yeah, absolutely. It's one of those. It was one of those challenging ones, because we just don't have data on uptake for all the countries that we were modelling for. But what we did was we had a look at kind of extreme cases where we had information on paternity leave take up. But we then also had information on the actual paternity leave legislated. And in particular, what we found was Japan and South Korea is really interesting outliers, because there are actually very high paternity leave provisions in Japan and South Korea, the most generous of any of the economies we looked at in the OECD. But when you look at actual take up, the take up rates are really low, kind of 5% to 6% in Japan. So that is actually rising from kind of 2% a number of years ago, but it's still so low. And it's something we're conscious that you really can't capture that much. So while our model does say that there is a benefit to having legislated leave, when we actually left out Japan and South Korea, because they're such extreme outliers in terms of take up and legislation, we found that actually, the benefit of paternity leave was higher. So that does suggest that there is a cultural drag. So where you do have legislative leave, that's very generous, but actually no one's taking it. It might not be as useful. I think if you take the flip side of that, though, countries like Sweden, which are very progressive, have much higher take up rates in terms of paternity leave, still nowhere near 100%, but higher than average. And they do also have better than average design policy. So I would say I kind of do buy the idea that culture has an important influence, you know, If you care enough to think about paternity leave and legislative leave, then you probably care about the issue of gender equality to a degree and maybe that transfers into the overall society and vice versa. But Japan and South Korea are important, I suppose examples of where that just doesn't apply. And actually building a culture of taking leave is a really important component that we can't measure. But we know matters.

Paul

Yeah this is crucial, encouraging men to actually feel able to take the leave that's been provisioned or legislated for them is crucial. Yeah. Okay. So that's, that's paternity. And that's a really important finding of your work that the level of paternity leave matters greatly for encouraging or higher female labour force participation. The sort of second factor or policy recommendation you talked about in the paper is the tax wedge and this means the difference in average taxation between primary and secondary earners. Abi, can you explain what is this tax wedge? And why might large tax wedges so higher average taxes on second earners, be associated with lower female labour force participation?

Abi

So in the model, we focused in on 2 key tax variables, but the the kind of tax variable that stood out to us in the analysis was the tax on second earners. So what we've done is we've compared 2 household types. So we compare the the tax burden for a household in which there's two earners with two children to the tax burden in a household where there's one earner and two children. So we can use that to kind of get this idea that with women more likely to be second earners, we can understand the influence that that might have on their participation. And what we find is that if you have a higher burden for households in which there are two earners, then the participation rate of women will be lower. And this is particularly important because it is an area where we found that there is quite a large tax difference between these two household types across OECD economies. And this is somewhere where we think there is possibility for policymakers to kind of redress some of these issues in order to boost female participation.

Paul

Yeah, so you found that higher tax wages also encourage or raise male labour force participation. So not only are you depressing, the female participation, we're also encouraging this segregation of the workforce between a primary male earner and then a non participating female in the household. I suppose another interesting point is the extent to which the first point we're talking about parental leave provision is causing this primary secondary earner to be more likely a male versus a female in the first place. So that's also playing into then the effect that tax wedges themselves have.

Stephanie

I think, not only that, but the big difference with tax versus the leave policy is cap, I mean, you can try and avoid tax, but it is illegal to evade tax right? So in a way, as much as the paternity leave finding is really interesting. We have to whenever we talk about it, talk about the importance of take up, and the people actually taking it don't have that choice with tax. And so in some ways, policymakers have a much more direct lever in the tax space than they do in the paternity leave space, because they have control over whether a second earner is paying a certain amount of tax and whether that disincentivizes them from being in the workforce. And so in some ways, tax isn't as exciting, I think is talking about leave policy. But it's actually a very direct way that policymakers could tilt the balance and tilt the scale to make it more equal.

Paul

Yeah, absolutely. So a very concrete policy recommendation coming from the paper there. So then let's talk about the third sort of driver of participation rates and policy recommendation, which is about employment protections. And Steph, your findings here are sort of interesting, complicated, nuanced, because it depends whether we're talking about employment protections for full time workers versus part time and temporary workers and you actually have different effects of employment protection in those two different types of employment. But why don't we start with the full time employment? Higher employment protections are associated with higher levels of female labour force participation, why would that be?

Stephanie

So this was the slightly less complicated to interpret result, I would say from the employment protections segment. So we kind of went into it expecting that generally speaking, more employment protection will be better because A. if there is gender inequality in the workforce in terms of conscious and unconscious bias protections should help to mitigate those. And then the second is an assumption that particularly, you know, for women, that there will probably be a period in which that they are either out of the workforce for childcare, or indeed, you know, they generally are expected to take, you know, when their children are sick, they're expected to go and take care of the child, as opposed to fathers who just don't tend to have the same expectation. So we went in expecting that employment protections for regular contracts, being higher would be good for female participation. And that's what we found, it's really when you get into the temporary contracts that we got a pretty surprising result.

Paul

So what did you find there? How is it the picture different for for part-time/temporary employees?

Stephanie

Interestingly, temporary contract employment protections being lower. So less protections in the kind of temporary space are associated with better female participation, which is quite surprising, I guess, if you follow the chain of logic, which is that women need protecting the labour force because they are kind of unequally treated. But actually, when we teased it out, it does make some sense, which is that if you see employment protections as a sort of a symbol for flexibility in the labour markets, then for women who want entry and re-entry around, you know, caring responsibilities, the less rigid that that kind of employment is, the better because they can take on part time work for a while, or they can take on a temporary contract for a while, and they can leave. So we think it might be reflecting that element, which is just that idea that if you want flexibility, and you want to be able to retain some level of engagement with the labour force, you don't really want to be full time and you want to have these temporary contracts. And maybe you'll take some time after that. All of that suggests that actually a bit of flexibility in the temporary space is a good thing for female participation.

Paul

I suppose this highlights a crucial point that is often made in the labour economics literature, which is that labour market regulations employment protections are a balancing act between protecting employees. Yeah, which is a good thing, but having a sufficiently flexible labour market, that turnover of jobs leaving and finding new jobs is sort of an optimal level, and a lot of countries find themselves on different points of this spectrum. You know, you think the US versus France at very different ends of this spectrum? What about? Okay, sort of the next level question and the sort of philosophical question would be, is it desirable, that lower temporary and part time employment protections allowing a more flexible labour market, which women are more likely to take advantage of moving in and out of the labour market? Is that desirable in the first place? So do we want to lower temporary employment protections? Because they're associated with higher labour market participation for females? Or do we want to address the fact that women are more likely to find themselves in part time and temporary roles in the first place?

Stephanie

Well, I mean, that is the philosophical question. They think that is the challenge we have, I don't want to over egg the benefits of that flexibility. Because I think in a world in which there are differentiated expectations of women and men, flexible work allows women to retain contact with the labour force, which is good for them long term. However, if you genuinely we're talking about an equal workforce, it shouldn't be the case that this is happening, right? It shouldn't be the case that that you see that flexibility for one type and not another, and you see the differentiation across the sexes as well. So I think there's a deeper conversation, which is how do you genuinely reform labour markets, and that's probably through maternity leave policy and through tax policy. But in a world where you're saying we want to try and boost female participation, the way things are today as sort of a short term strategy, then that flexibility does seem to allow for women to at least have part time jobs. The problem you have is, generally speaking, part time roles are not as well paid. And the career progression is not as obvious as it is for the case for full time work. I think that's the problem that you face with this is you're talking about the quantity of women in the workforce, but not the quality of the work that they are doing. And that's when we were actually going to follow up with a another research piece later this year talking about exactly that and looking at the difference between quantity versus quality of work.

Paul

Yeah, this is the fascinating complementarity between the three policy implications. You find that employment provisions and tax wedges can be tweaked to take advantage of the existing structure of the labour market and encourage higher female labour force participation in that existing structure. But actually overhauling the whole structure through much better parental leave policies is the deeper reform in some sense. So Abi and Steph, why don't we end then with if you want policymakers to take one big policy implication from this paper, one big takeaway from it, what would that takeaway be? Abi?

Abi

I think for me, the finding on paternity leaves is so stark and so clear, and also the influence of culture that we haven't managed to capture, I think not just kind of improving the paternity leave allocations that you mandate for, and but also actively, you know, trying to encourage the uptake of that leave from fathers in order to kind of have a more equal opportunity for gender participation.

Stephanie

I think, and this might not just be for policymakers, I think actually, this is where investors and companies come in, is just the absolute lack of data that we had to work with. So we obviously ended up looking specifically at country level, gender stuff. We initially wanted to look at wider measures of diversity inclusion, we wanted to look at, particularly companies and what's happening at the company level, because we know there can be a lot of differentiation in terms of what's legislated in a country versus what companies are actually providing their staff in terms of things like leave policy. So my big ask is just more we need more data, because to be able to do genuine Economic Research, micro and macro to be able to say something tangible about the benefits of gender equality, not from the perspective of an ethical argument, but from an micro and macro economic and importantly, a corporate profitability perspective. We need to know what companies are doing, and whether people are taking the leave that they are allowed. And I think having that information will be crucial. It's something we're going to try and do by surveying companies that we're invested in to try and build that data set a little bit more. But generally speaking, much greater disclosure and governments incentivizing companies to disclose or indeed, requiring them to disclose, as you've seen with the gender pay gap, I think would really help to build a better picture of where the pressure points are and where the opportunities are to boost female participation in order to boost long term growth.

Paul

Steph, and Abi, thank you so much for the fascinating paper. We'll make sure we have links to it in the show notes. Well, that's about all we have time for this week. Thank you very much for listening to Macro Matters. Reminder that we have a mailbox macromatters@Aberdeenstandard.com and we'd love to hear from you. So if you have questions or topics you'd like to see covered feedback for myself and Steph, please drop us an email macromatters@Aberdeenstandard.com. Don't forget to like or subscribe on your podcast platform. But until next time, goodbye and good luck out there.

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