MACROECONOMIC DAMAGE FROM GENDER DISCRIMINATION

13 Apr 2021

Adverse economic shocks like the Covid-19 pandemic would be less detrimental to economic activity if there were no gender discrimination by firms against women, according to research by Daniel Stempel and colleagues.

What’s more, the study finds, monetary policy reactions by central banks that aim to mitigate negative macroeconomic effects not only increase discriminatory wage gaps, but they are also less effective: stabilisation efforts by central banks are disturbed by gender discrimination.

These results have considerable policy implications: gender discrimination not only leads to inefficient outcomes for women but also has negative implications for the entire economy. This implies that institutional measures that aim at combating gender discrimination (such as pay transparency laws) may also be efficient stabilisation tools.

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Studies show that women are discriminated against in the labour market. Based on this evidence, the new study analyses the effects of gender discrimination by firms against women on macroeconomic outcomes. The research suggests that adverse economic shocks like the COVID-19 pandemic would be less detrimental to economic activity if there were no gender discrimination.

In particular, the authors find that even a low initial extent of gender discrimination implies a larger negative impact of such an event on Gross Domestic Product (GDP). Furthermore, they find that monetary policy reactions by central banks that aim at mitigating these negative macroeconomic effects do not only increase discriminatory wage gaps, they also are less effective: stabilisation efforts by central banks are disturbed by gender discrimination.

These results have considerable policy implications since they provide a positive rationale for combating gender discrimination apart from normative reasons to do so. Simultaneously, the results contribute to the discussion around central banks’ impact on income inequality by providing new findings with respect to the effects discriminatory wage gaps. This summary briefly expands on the motivation and the main results, using the United States as an example. But the results are generalisable and equally apply to other countries.

The gender wage gap is oftentimes referred to as a first indication of potential discrimination against women. In order to isolate the part of the wage gap that can be ascribed to gender discrimination, empirical studies estimate adjusted gender wage gaps, thereby controlling for productivity measures such as work experience, hours worked, education, industry, occupation, or union status. These adjusted gaps are smaller but significant and persistent over time. Importantly, this study motivates the inclusion of discriminatory firm behaviour into the analysis by the relatively constant and persistent adjusted gender wage gap.

The authors simulate an adverse macroeconomic shock like the COVID-19 pandemic. The Bureau of Economic Analysis reports that US GDP decreased by a quarterly rate of about 7.2% in the second quarter of 2020 due to the pandemic. The research suggests that the economic downturn would be significantly lower in an economy without gender discrimination: instead of a GDP decline of 7.2%, GDP would only decrease by about 6.7%. Thus, gender discrimination worsens the macroeconomic downturn by 0.5 percentage points or 7% in this example.

Naturally, the distortions caused by the pandemic also lead to a reaction by the Federal Reserve. In particular, in March 2020, the Fed decreased the target range for the federal funds rate by 0.5 percentage points to mitigate the impact of the pandemic on the US economy.

The results suggest that these types of expansionary monetary policy measures have gender-specific distributional effects: a decrease of the monetary policy rate by 0.5 percentage points leads to an increase of the adjusted (or discriminatory) wage gap of 1.2 percentage points. Note that, after March 2020, the Fed conducted several other policy measures that are likely to have similar distributional effects.

Overall, these results have considerable policy implications: gender discrimination does not only lead to inefficient outcomes for women but has negative implications for the entire economy. This implies that institutional measures that aim at combating gender discrimination (such as pay transparency laws, for instance) may also be efficient stabilisation tools.

The study further shows that further empirical research on the gender-specific distributional effects of monetary policy measures is necessary.

Daniel Stempel

Heinrich Heine University Düsseldorf | Daniel.Stempel@hhu.de