ET Evoke: Empowering women via employment boosts nation’s GDP & company’s profitability, says IMF HR boss

Kalpana Kochhar is Director, Human Resources, at the International Monetary Fund (IMF) in Washington D.C. A renowned economist, Dr Kochhar spoke to Srijana Mitra Das about how women’s economic empowerment powers macroeconomic growth:

Q. Is there data linking women’s economic empowerment with macroeconomic growth?
The most compelling evidence of the strong link between women’s economic empowerment and economic growth comes from the Nordic countries — Norway, Sweden, Denmark and Iceland. These countries have long been champions of gender equality, both in the workplace and in the home. They are amongst the first countries to have granted women full voting rights and implemented legal reforms prohibiting discrimination on grounds of marriage or parenthood.

These countries were also amongst the first in the world to face the prospect of an ageing population, which has profound implications for economic growth — when the working age population shrinks, so does the labour force and with that, potential growth.


To tackle this challenge, Nordic countries focused on policies that were both family- and work-friendly — these included paid and separate parental leave for both women and men, subsidised childcare and early childhood education, including out of school hours, and individual-based tax and benefit systems to not discourage participation in paid work by the second wage earner.

The consequences are clear — the gains in female labour force participation produced dramatic and measurable results. The OECD estimates that in Denmark and Sweden, increases in women’s labour force participation accounts for 0.25-0.4 percentage points of annual growth in per capita GDP over the last four decades — to put that into dollars, the current GDP per capita in Denmark and Sweden, about $55,000-60,000, would otherwise have been $5,000-6,000 lower.

Q. Is there a quantifiable cost of gender bias for businesses, labour markets and communities?
There is a significant cost to countries and firms from the gaps in economic empowerment between men and women. In our work at the IMF, we estimate that gender gaps in labour force participation result in income losses of 27% in the Middle East and North Africa, 23% in South Asia, 17% in Latin America and the Caribbean, 15% in East Asia and the Pacific, 14% in Europe and Central Asia, and 12% in Sub-Saharan Africa.

How do we arrive at these numbers? We assume that the population of men and women have the same distribution of talent. They have the same probability of being born with high, medium or low capabilities. Then, we assume that the only difference between men and women is that women face a large number of constraints through unequal access to education, healthcare, finance, the labour market, etc. When an economy operates by constraining half its labour force from participating as productively as it can, half the country’s talent is wasted, resulting in a loss in productivity and income.

Other IMF research starts from the premise that not only do women bring additional skills to the workplace, but their skills are different to those of men — there is economic benefit from including more women in the workforce, over and above the benefit from simply having more workers. This is especially true as economies shift from manufacturing to services. Because women tend to be more highly represented in services sector employment, barriers to their participation in employment may slow the diversification of the economy and impact economic growth. There is also strong evidence showing that gender diversity is associated with stronger financial performance in firms — using data from companies in 35 European countries, IMF researchers find that adding one more woman to senior management or to the corporate board is associated with an 8-13 basis point higher return on assets — that’s equal to an increase in profitability of 3-8 per cent.

In service sector firms, including one more woman in senior management is associated with a 20 basis point higher return on assets.

Q. What are the larger economic implications of the gender wage gap that exists between women and men?
This is a critically important issue. The gender wage gap is also a measure of the average wage of a man and a woman in a country — by this measure, there are very large gaps, even in advanced countries.

The gender wage gap reflects: (1) the gaps in educational attainment between men and women, but also implicit and explicit biases in the workplace — these result in slower rates of promotion for women, and very low representation of women in senior positions in the public and private sectors; (2) the overrepresentation of women in low-paying occupations, even in advanced countries; (3) the disproportionate prevalence of women in the informal sector in developing countries, where pay levels are lower, employment is more vulnerable and social safety nets are virtually non-existent; and (4) the fact that women perform the majority of unpaid work worldwide.

Wage gaps during their working years translate into much lower incomes for women in advanced ages. Thus, women tend to be locked into a cycle of low earnings and low income throughout their lives.

Apart from the basic issue of justice, there are significant economic benefits from closing gender wage gaps. Women typically invest a higher proportion of their earnings on their families — higher earnings by women is strongly associated with an improvement in their children’s nutrition, health and school attendance. Closing gender wage gaps has not only an immediate effect on poverty, income inequality and economic development, but long-lasting ones, through the impact on the education, earning capacity and productivity of the next generation.

Q. What explains India’s declining female labour force participation rate — and what are its macroeconomic implications?
IMF work in 2017 found that India has one of the lowest female labour force participation rates. At around 33% at the national level in 2012, India’s female labour force participation rate is well below the global average of around 50% and the East Asian average of around 63%. Furthermore, we have found that female labour force participation had been on a declining trend in India, particularly since 2004-05.

This gender gap needs to be narrowed to fully harness India’s much awaited demographic dividend — without an urgent and concerted effort to bring more women into the labour force, India risks squandering the benefits of a young population that drove the growth of many East Asian ‘tigers’.

Policy efforts should focus on increased labour market flexibility, allowing more women to be employed in the formal sector, reforms to improve infrastructure (particularly electricity, transport and sanitation) and higher social spending, including in education, which leads to higher female labour force participation by boosting female human capital.

Q. Does the Covid-19 situation now offer an opportunity in terms of empowering women in economies seeking to grow?
The Covid-19 pandemic threatens to roll back gains in women’s economic opportunities, undoing decades of progress. Women are more likely than men to work in sectors, such as services industries, retail and tourism, that have been hit hardest by the pandemic. Second, women are more likely than men to be employed in the informal sector in low-income countries — informal employment leaves women with lower pay, no protection of labour laws and no benefits like pensions or health insurance.

Third, women do more unpaid household work and bear the brunt of family care responsibilities resulting from shutdowns, such as school closures. Fourth, pandemics put women at greater risk of losing human capital — in many developing countries, girls are forced to drop out of school and work to supplement household income. In India, since the Covid-19 lockdown, matrimony websites reported a 30% increase in registrations as families seek to secure their daughters’ futures — however, without education, these girls suffer a permanent loss of human capital, sacrificing productivity growth and perpetuating the cycle of poverty among women.

In the short term, the focus needs to be on measures to limit the scarring effects of the pandemic on women — this includes income support to the vulnerable, preserving employment linkages, providing incentives to balance work and family care, improving access to healthcare and more support for small businesses. Over the long term, we need gender responsive fiscal policies such as investing in education and infrastructure, subsidising childcare, offering parental leave to both parents and improving women’s access to finance. One of the biggest game changers would be a concerted effort to expand access to digital devices and content — as experienced in Latin America, greater access to digital technology can enable women to participate in paid work, while balancing their care and domestic work obligations.