08 Mar 2019
Magdelena Polan, Senior Economist and Hetal Mehta, Senior European Economist
Across the world, more women participate in the formal labour market than ever before. But as the quality of women's employment varies widely, what can be done to reduce international differences?
Raising women's labour market participation is one of the major social changes of recent decades. Yet, despite being acknowledged as a major transformative force, a closer look at the data yields some surprises.
Firstly, there are still large differences in participation within seemingly similar regions, driven by differences in labour market regulation, benefits, or social norms. For example, Italy has the lowest participation rate in Europe, below those in Spain or Portugal, or crisis-stricken Greece.
Second, stereotypical views on where women work need revising. For example, the participation rate in Japan, a country often cited as failing to capitalise on women’s potential, has quietly exceeded that of the US, one of the vanguards of pro-women movements. This is not only because of policy effort in Japan; the share of working women in the US has been actually declining since about 2000 (this is also the case for American men, a development we highlighted earlier).
Third, as highlighted by the US case, the trend is not uniformly up. There are cyclical factors at play – recent recessions might have pushed people out of the labour market permanently – but also legacy factors and a form of ‘cultural convergence’. For example, more women worked in the former communist countries than in the west. As these economies underwent economic transition, and societies adopted more of western cultural norms – or aspirations – women’s participation in the labour market declined.
For developing economies in particular, higher female participation in the formal labour market provides financial independence and additional household income, which in turn spreads the risks of economic downturns. More women working also reduces poverty, inequality, generates more inclusive growth and increases economic diversity – at both the lowest and highest levels of decision making.
In any country, higher overall or female participation could depress nominal wages. But the improved talent pool, diversity of skills of the more gender-and-age-balanced labour force increases labour productivity and reduces inflationary pressures, resulting in higher incomes overall.
This is particularly important for developed countries facing dwindling working age populations and fiscal pressures. There, the policy choice may sit between allowing more immigration (which may be unpopular, as recently seen in Europe), or creating conditions to encourage more women — especially those who are well educated — and older people to work.
For financial investors, higher female participation rates are a shortcut indicator of quality of education and human capital in the country, and overall labour market conditions such as flexibility. And having more working women correlates with more spending on education and a further improvement in human capital.
Many countries are striving to bring more women into the formal labour market. But the quality of their jobs matters too. A recent IMF study found that jobs held by women are more vulnerable to automation. With over-presentation in low-skilled and repetitive tasks, women are more likely to find their jobs become obsolete in the face of digitalization, artificial intelligence and machine learning.
This suggests that education and breaking of social and institutional norms that keeps women from holding high-skilled jobs will be key to preserving their employment and its positive economic impact, including in economically developed countries.
Other measures can also succeed in preserving and enhancing women’s job prospects. Countries that invest more in public infrastructure (women use it more), support access to finance, support childcare initiatives and other benefits will be better equipped to face automation and population ageing. This should not only improve economic outcomes, but also reduce the political risks arising from these two fundamental demographic and technological shifts.