The world is hiring more women and here’s why that’s a good thing for economies
A larger female workforce closes the gender gap and benefits the economy well. Here’s how.
Dubai: As a woman, are you considering downshifting your career or leaving the workforce entirely this year?
One in three women are planning to do so, a 2021 analysis by global research consultant McKinsey and other research firms worldwide showed, compared to last year’s figure of one in four women worldwide. But things have been changing for the better, and still is.
More employers worldwide are now offering perks to retain and attract employees, such as hike in pay and offering flexible options like remote work or a four-day workweek in some firms.
Moreover, multiple economists have flagged how currently the labour market is favourable to women, dictating the terms of their employment.
So hold off on any decision to quit the workforce just yet. Here are a few more reasons why you shouldn’t.
How hiring more women is better for the economy
The increase of women in the paid workforce was arguably the most significant change in the economy in the past century. But how has hiring more women benefited the world economy?
Globally, approximately 50 per cent of working age women are part of the labour force, in comparison to 75 per cent of men. However, since 1991, statistics show that women have been filling managerial positions faster than men, particularly in high-income countries.
A bigger workforce helps the economy by increasing gross domestic product (GDP) of the economy. More workers start the cycle over with there being even more money spent in the economy, increasing demand further, and the cycle repeats.
As gender gap narrows, economies grow faster
Through its ‘Global Gender Gap Report’, the World Economic Forum, an international non-governmental organisation based in Switzerland, has consistently highlighted the strong correlation between a country’s gender gap and its economic performance.
Adding more women to the labour force should bring larger economic gains than an equal increase in male workers, the report indicated. This is because the global economy is characterised by high unemployment rates for both men and women, but the percentage is higher among women.
Such themes are also echoed in McKinsey’s ‘Delivering through diversity’ report. The McKinsey research showed companies in the top quartile for gender diversity on their executive teams were 21 per cent more likely to experience above-average profitability than companies in the fourth quartile.
How do companies benefit from hiring women?
Studies have also shown that the financial performance of firms improves with more gender-equal corporate boards.
Previous research has shown that women in the workplace and gender diversity is key for organisations' bottom lines: Fortune 500 companies with the highest representation of women on boards financially outperform companies with the lowest representation of women on boards.
Although working women represent 40 per cent of the global work force and many go on to set up their own enterprises, the International Labour Organisation, a United Nations agency whose mandate is to set international labour standards, estimates that almost half of their productive potential (48 per cent) is unutilised, compared to 22 per cent of men.
According to a study conducted by McKinsey, at least one third of the companies worldwide that invested in these programs in emerging and developing countries improved their benefits and 38 per cent expect earnings.
A similar study by MIT noted that bringing more women on board improves a firm’s profitability and can increase revenue by more than 41 per cent.
Why would having more women working raise median income?
Why would having more women working raise median income? There are a few potential reasons, according to research by the Harvard Business Review, a bi-monthly publication by Harvard University.
It is calculated by adding together the salaries of everyone working in an occupation and then dividing the total by the number of people. The median salary, rather than the mean salary, more accurately represents actual earnings in an occupation.
Women’s participation in the labour force could be increasing the country’s overall productivity, the analysis showed – indicative of women surpassing men in obtaining college degrees in the past several decades.
As a result, women could have also raised the overall skill level and introduced a different set of complementary skills.
In the world’s top economy, the US, the female labour force participation rate has been stagnating since 2000, peaking in 1999 at 60 per cent but has since declined to about 57 per cent.
However, this trend is in stark contrast to other high-income economies where women’s labour force participation has continued to grow.
In its survey of 2,000 working professionals aged 25 to 55 in the UAE, the online professional network giant revealed 51.95 per cent of new hires were women in media and communications, in education 56.42 per cent and in health care 45 per cent were women.
Women have also been advancing in traditionally male-dominated career paths whereby there has been a 2.5 percent year-on-year growth of female hires in software and IT and corporate services.
While only 33.35 per cent of new hires in manufacturing are female, that share has grown 2.63 per cent compared to pre-pandemic levels. In corporate services, which includes consulting, the share is 40.45 per cent and has grown 1.07 per cent compared to pre-crisis.
So, how does closing the gender pay gap lead to economic growth?
Increasing women’s participation in the work force and closing the pay gap between women and men will have a positive impact on economic growth. Here’s how.
The effects on any economy’s GDP (or gross domestic product, which is a monetary measure of its value) are much lower when closing the gender pay gap, but closing pay gaps has other positive impacts.
An increase in women’s salaries is likely to lower poverty rates among women and reduce the gender gap in old age pensions, studies show. A reduction in the pay gap can also increase women’s confidence and allow them to gain more responsibility at work and progress into leadership positions.
While closing the wage gap has rather small effect on the GDP, higher wages encourage more women to enter the labour market, leading to an increase in the productive capacity of the economy and therefore increased employment.
An increase in women’s salaries contributes to reducing the activity rate gap, which refers to the percentage of people who are either working or looking for work, possibly accounting for part of the positive employment effects associated with improving the labour market activity of women.
Closing the activity rate gap, would also lead to a large increase in employment. On the other hand, higher labour costs drive firms to reduce their demand for labour, leading to fewer jobs on offer.