The world economy is sputtering under the weight of ageing demographics, deleveraging and peak globalisation. The World Bank revised downwards its 2016 global economic growth forecast recently, to 2.4 per cent from 2.9 per cent, citing sluggish growth in advanced economies, low commodity prices, weak global trade and diminishing capital flows as the major factors. Even here in Asia, we are now growing at the slowest pace in at least the last 16 years.
Governments everywhere are struggling in the search for new sources of growth, investing billions to spur innovation and productivity gains. But one potential area of growth remains overlooked: harnessing the economic potential of the 865 million women who are still excluded from the global labour market. Closing the gender gap is, to us, a critical solution to the problem of stagnating global growth.
Every single country around the world, from Saudi Arabia to Canada, has more men than women working in its labour market. Only 50 per cent of the world's women are gainfully employed, compared with 75 per cent of the men, and women still earn, on average, 24 per cent less than men globally.
Women are also heavily under-represented in senior roles. According to MSCI, only 18.1 per cent of directorships in MSCI World Index companies are held by women; for MSCI Emerging Markets, this figure falls to 8.4 per cent. This workforce gender gap - be it labour participation, pay equality or the corporate glass ceiling - is also not necessarily a trait of emerging markets when compared with developed markets. For example, women are paid more equally to men in Malaysia and Vietnam than in Japan and even the United States.
SO WHAT'S AT STAKE?
According to McKinsey Global Institute estimates, if women participated in the labour market and were paid at the same rate as men on best-in-region levels, the resulting swell in incomes would add US$12 trillion (S$16.6 trillion) or around 11 per cent to the global economy within a decade. While much has been discussed about Japan's policy focus on "Womenomics", the country's experience with an underutilised female talent pool is hardly unique.
In fact, nearly all markets have much to gain if they were to boost the number of working women. For example, the International Monetary Fund (IMF) estimates that labour participation parity between the sexes could lift gross domestic product totals by 5 per cent in the US, 9 per cent in Japan, 12 per cent in the United Arab Emirates and as much as 34 per cent in Egypt.
For shareholders and owners of companies, the report Gender Diversity Matters by UBS pointed out that gender-diverse companies - those with women in at least 20 per cent of senior leadership positions - were more profitable than their less gender-diverse peers. The same study also revealed that companies with a higher number of female leaders tended to outperform the MSCI World Index. From 2011 to 2015, a UBS gender-focused portfolio of companies beat the MSCI World Index by 2 percentage points a year.
Other academic studies corroborate this view. A recent one by the Peterson Institute for International Economics found that for profitable firms, a move from zero female board representation to a 30 per cent female representation is associated with a 15 per cent increase in net revenue. This study was based on 21,980 firms headquartered in 91 countries.
Studies have linked this uptick in profitability to the way women assess and consider risks differently from men. Women tend to be more risk averse. When faced with the same probability distribution, men are more willing to take outsized bets than women. Ms Christine Lagarde, managing director of the IMF, stated aptly: "If Lehman Brothers had been a bit more Lehman sisters, the 2008 financial crisis may have been less severe."
Such an uplift to structural growth from a more engaged female labour pool would dwarf any single industry's contribution to the global economy. Yet progress, while dramatic from a historical perspective, remains gradual at best and not fast enough to unlock the full breadth of the economic bounty.
URGENT SOLUTIONS NEEDED FOR LONGSTANDING ISSUE: MATERNITY
Admittedly, the gender gap is a complex issue, and reasons for its persistence vary around the world. But one universal reason women either abstain from the workforce entirely or find only part-time work - which results in lower pay, poorer job security and fewer promotions - is the issue of maternity and domestic burden.
Women, by and large, bear a greater share of household duties - especially when starting and raising a family - which impacts their career choices. In the Organisation for Economic Cooperation and Development, 80 per cent of part-time workers are women.
Lasting solutions to address these realities directly involve costs, trade-offs and a fundamental shift in cultural attitudes. Families may need to accept different domestic arrangements and boys must be taught from a young age to have an equal share of the domestic burden.
Companies also need to proactively support the life goals of their female employees through flexible work arrangements, adequate maternity and paternity (to avoid skewed job prospects in favour of men) leave, and dedicated actions to ensure a pipeline of female talent, especially at middle management where attrition due to maternity is often at its worst.
Above all, governments are key in setting the tone and in enacting lasting changes through a policy mix that encompasses education, family planning and labour market measures. Having high-quality, accessible and subsidised childcare is essential to keep married women fully engaged in the job market. But these changes do come with costs: It's no coincidence that countries with the most pro-family policies, such as the Nordics, also tend to have higher taxes.
The weak state of the current global economy adds urgency to addressing the issue of the gender gap. Empowering women will result in incredible economic opportunities, benefiting not just women themselves but also the local communities and our global society as a whole.
- Tan Min Lan is the Apac regional head and Carl Berrisford is an analyst, both of the chief investment office of UBS Wealth Management.