Countries that kept women engaged in labour force during the pandemic will rebound faster

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By David Rosenberg and Krishen Rangasamy

The benefits of female labour participation have been well documented over the years, particularly related to the positive impacts on growth, economic productivity, rates of return on capital and currency performance.

Countries that made the greatest strides to ensure that women remained attached to the labour market during the pandemic will be the ones best equipped to post a durable post-crisis economic recovery.

The world’s labour participation rate (labour force divided by total working-age population), has been on a decline over the last few decades. That, of course, is not surprising amid an aging population. But some economies have been more successful than others in managing those demographic changes by integrating more women into the workforce. High-income countries — defined by the World Bank as economies in which 2019 Gross National Income per capita was $12,536 or more — have been particularly successful on that score, registering an increase in female labour force participation and a corresponding decline in the gender gap. That contrasts sharply with middle income or low-income countries, which have struggled to integrate women in the workforce, hampered either by cultural norms or inadequate government policies.

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Why Is Female Labour Participation Key?

Aside from its moral imperative, the quest for gender equality in the workplace is also consistent with generating positive economic outcomes. Any decent production function would show higher output when the labour supply increases. So, growth-boosting properties of a higher female labour force participation rate should come as no surprise. But ample empirical evidence has shown not just higher GDP resulting from rising female participation, but also an improvement in productivity, which boosts potential GDP growth, an economy’s speed limit.

This observable gain in productivity brought by women, some have posited, stems from diversity of skills and ideas, which tends to encourage risk-taking and innovation. Research has also shown that raising female labour force participation helps reduce income inequality and poverty. With female participation generating so many favourable outcomes, it’s no wonder countries have been trying to diversify their workforces.

How to Increase Female Labour Participation

While it’s true that economic cycles (i.e., a recession could delay the entrance of women in the labour market) and individual traits (education, preferences) can act as a drag on female labour participation, social and structural factors are often the most significant impediments. And here, government has the power to help by using fiscal policy measures. But the effectiveness of those measures depends on a country’s economic structure and stage of development. In advanced economies, for example, where highly skilled workers are in demand, it makes sense for government to focus policies on prioritizing post-secondary and tertiary education for women. In developing countries, employment opportunities for women may be tied to other factors, such as infrastructure, and policy has to be tailored accordingly.

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Scandinavian countries lead the way among advanced economies on female labour force participation, thanks to world-class education standards and family-friendly policies. Sweden, for example, provides paid parental leaves that are not only generous but designed to encourage parents to equally share the effort of raising children. The Swedish government has also established a Gender Equality Agency whose objective is to contribute to effective implementation of the government’s gender equality policy. In Iceland, in addition to progressive child-care policies, the government passed a law three years ago that requires companies to demonstrate they are paying equal wages for work of equal value. Norway not only offers its citizens parental support and subsidized child-care but also requires publicly listed companies to have at least 40 per cent of their boards represented by women.

In emerging markets, Vietnam is often regarded as an example to follow with regards to female labour participation. The government enacted reforms back in 1986 to modernize the economy and make education more accessible to women. Results have been impressive, with post-secondary graduation rates for women almost equal to that of men. Generous family-friendly policies from the government, such as child-care and maternity leave, have helped translate this parity in educational attainment into gender equality in the workplace.

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Government policies and reforms can also be useful in bending cultural norms that impede female labour participation. Take Saudi Arabia, whose female labour participation rate jumped from 23 per cent in 2019 to roughly 31 per cent a year later. While that’s still depressingly low, the improvement is nonetheless notable, highlighting how even small reforms in women’s rights can yield positive results quickly.

In India, where female labour participation is among the lowest in the world, the government has found some success in boosting participation in rural areas by improving physical infrastructure (access to transportation, clean water), and financial structures. Microcredit, for example, has proven to be a success in spurring women entrepreneurs.

How the COVID-19 Pandemic Affected Female Labour Participation

Progress on female labour participation has, however, been interrupted by the pandemic. Lockdowns disproportionately hit the services sector, resulting in significant job losses, particularly for women. Recall that just before the pandemic women accounted for roughly 40 per cent of total employment worldwide, but more than 45 per cent of services sector employment, and a particularly strong presence in industries like health, education and hospitality. This skew in female employment is even more pronounced in higher income countries where women occupy more than half of service-sector jobs. The pandemic has also increased the burden on women with regards to caring responsibilities — for children, sick family members, kids’ distance learning — forcing many to drop out of the labour force.

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Those economies that managed to keep female workers engaged during the pandemic will be better positioned to experience a sustained rebound in growth. Switzerland, Denmark, the Netherlands, Australia, Japan, Luxembourg and Poland are among the handful of countries that managed to increase their female participation rates from pre-pandemic levels.

Others, such as Iceland, Sweden, Finland and Canada, while seeing declines from pre-pandemic levels, have nonetheless managed to keep female participation at a high level. The situation is less encouraging in places like Turkey, Italy and Greece, which saw declines from already-low levels of female participation. The female participation rate in the U.S. has dropped about one and a half percentage points from pre-pandemic levels, which isn’t good news for future growth in the world’s largest economy.

A similar picture emerges when looking at the female employment rate — the ratio of the employed to the working age population. That measure, which sheds light on the extent of utilization of a country’s female human capital, suggests Australia and Japan fared rather well during the pandemic, while the U.S. lagged behind many of its peers.

Some laggard nations have correctly identified the problem of inadequate female labour participation and are trying to address it. In the U.S., for example, President Joe Biden has established a Gender Policy Council to advance gender equality, passed a stimulus package that included child tax credits for parents and funding for child care, and proposed additional measures to assist women in his “infrastructure” package. It’s unclear, however, if those measures will be enough to materially boost U.S. female participation, which had been stagnating even before the pandemic.

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The Bottom Line

The pandemic has hindered progress in female labour participation but likely only temporarily. Governments around the world are well advised to continue to expand access to the labour market for women. How successful those efforts turn out to be will determine whether or not the world economy can stem the trend decline in potential GDP growth.

Australia, Canada, the Netherlands and Scandinavian countries have done an admirable job in keeping women engaged in the labour market, even as they await re-entry to the workforce. In Asia, we see Japan and Vietnam as success stories in this respect. As for the U.S., there is more work to do on this score — there are plenty of other countries that have managed to cushion the blow of the pandemic to a higher degree and are better positioned for a more secure post-pandemic economic growth trajectory.

Join me on Webcast with Dave on June 29, when I will be hosting Tobias Levkovich, chief U.S. equity strategist at Citi Research. Learn more on my website.