There is widespread consensus among economists that high levels of income inequality are detrimental to economic growth. Yet, when it comes to the effects of the gender wage gap, empirical results are ambiguous. From an equity point of view there is no doubt that the pay gap is both unjust and unjustified, but even though laws requiring equal treatment of men and women have been passed all around the industrialised world, “the gender wage gap (…) is a persistent feature of virtually every nation’s labour market” (Francine & Lawrence, 2001). What does this imply for a country’s economic profile? What are the potential benefits of closing the gap with respect to growth?
The gender pay gap can be understood as “different levels of remuneration of women and men that is not explained by differences in their productivity” (Wolszczak-Derlacz, 2013). In 2017, while men earned an average of US$21,000, women’s wages ticked in at an unimpressive US$12,000 (Briony, 2017). An even greater cause of concern is the much superior growth rate of male earnings which is causing a widening of the gap, notwithstanding numerous attempts at encouraging convergence.
Breaking it down, the pay gap can be attributed to horizontal segregation (the larger share of women in poorly payed jobs or flexible /atypical work arrangements), vertical segregation (the disproportionately low representation of women in top-level positions), to differences in the number of working hours and in human capital endowment. Thus, even though part of the gap is indeed due to discrimination, it also reflects the higher share of women in part-time positions and low-income industries. Whether these are consciously made choices based on females’ preferences, or rather a result of a labour market dominated by and adapted to men is a complex question which necessitates in-depth deliberations that would lead us too far from this essay’s question.
So what correlations can be drawn between the gender pay gap and economic growth? While there are several studies documenting the growth enhancing effects of less gender inequality with regards to access to education, research on the consequences of gender gaps in employment and pay are far from conclusive (Klasen & Lamanna, 2009). This is largely due to the considerable number of direct and indirect links that exist between these gaps and economic growth. Certainly, some inequality can be efficient as it provides incentives to work hard and take risks in order to reap benefits in terms of wages. However, if a significant share of the population is unable to invest, save and participate in the economy, growth is severely compromised. As Robert Reich argues, “the middle class (…) drives the economy. A strong middle class means economic stability.” (2013).
Even though the issue is multi-faceted, the debate seems to move in favour of less inequality. Both the World Bank and the World Economic Forum are clear in their message: gender equity matters for “whether and how economies and societies thrive” (Global Gender Gap Report 2017). WEF also goes into detail about potential economic gains that could derive from closing the gap: “economic gender parity could add an additional US$250 billion to the GDP of the UK, US$1,750 billion to that of the US (…) and US$320 billion to the GDP of France.” (2017).
If it is true that the gender pay gap hampers growth, this has clear policy implications. Reducing the gap is not only desirable from an equity point of view, but would benefit the economy as a whole. The literature in this sense provides solid reasons for why governments should, on the one hand, pay more attention to the effects of their policies on gender inequality, and on the other hand, adopt ad hoc strategies aimed at closing the income gap.
Fride Lia Stensland
