23 gennaio 2020

Improving the allocation of talent by enabling Italian women to work

di Virginia Minni

● Economia e innovazione

 

In almost every country in the world, men are more likely to participate in labor markets than women. However, these gender differences have been narrowing substantially, and in most countries the share of women who are part of the labor force is higher today than half a century ago . This article discusses some stylized facts on female labor force participation (FLFP) and analyses Italy’s stance among other European countries. It makes the point that, while women’s economic empowerment can certainly be defended on equity grounds, there is also a strong efficiency argument in favor of higher FLFP whereby equal labor force participation between genders can improve the allocation of talent in the economy by allowing females to pursue their comparative advantage. The article concludes by highlighting one key factor that drives changes in women’s participation in the labor market and the role that policy can play.

The last 40 years saw a radical increase in the number of women participating in labor markets. Figure 1 plots long-run female participation rates, piecing together OECD data and available historical estimates for a selection of early-industrialized countries. As we can see, there are positive trends across all of these countries. However, this chart also shows that Italy stands out with an exceptionally low FLFP, which has remained stable around 40% since the 1980s.

 
Figure 1: Female labor force participation rates, 2016 vs 1980

grafico1 

Source: Our World in Data (data from the World Bank, Population).
Notes: The female labor force participation rate corresponds to the proportion of the female population ages 15 and older that is economically active.

 

Perhaps more useful than considering FLFP in isolation is to look at how female participation compares to male participation in the labor market as there may be systematic differences in labor force participation across societies due to cultural or economic factors. Figure 2 shows the female-to-male ratio in labor force participation rates (in percent), using data from the International Labor Organization (ILO).

 

Figure 2: Ratio of female to male labor force participation rates (%), 2017

 grafico2

Source: Our World in Data (data from the World Bank, ILO).
Notes: The female-to-male ratio of labor force participation rates is calculated by dividing the labor force participation rate among women, by the corresponding rate for men. The labor force participation rate is defined as the proportion of the population ages 15+ that is economically active.

 

A few things stand out from looking at the map. First, the numbers for most countries are well below 100%, i.e. the participation of women tends to be lower than that of men. Second, Italy has a substantially lower ratio (60%) compared to its European counterparts. The female to male ratio is around 80% in France, Germany and Spain. An Italian woman is therefore 20% less likely to work compared to a French, German or Spanish woman. Looking at these two figures, we conclude that Italy’s FLFP in the 2010s has barely changed since the 1980s (Figure 1) and that this is not because Italy was already exemplar among other advanced countries but rather Italy is setting a bad example (Figure 2).

This is bad news for the Italian economy. Campaigns against discrimination, as the struggles for women’s rights in the early 20th century are usually framed as battles for justice. These issues are thought as entirely separate from economic concerns and sometimes as even running counter to them. Equal pay legislation and rules against discrimination have often been opposed by business on the grounds they would raise costs. But there is actually a powerful economic argument for gender parity. If we believe in a world where talent is not determined by gender - if we think that females are born with the same distribution of talent as men (science so far has not told us otherwise) - then any discrimination faced by women entering the labor market is economically costly for society. The most productive society will be the perfectly fair one.

 

What are the consequences of the altered allocation of talent for aggregate income and productivity? Or how much can an economy gain by facilitating women’s access to jobs? An impactful academic study provides the answer. Hsieh et al. (2019) look at changes in the occupational distribution between white men, women, and black men in the US economy from 1960 to 2010 and quantify the effect of these changes on aggregate economic performance. For example, in the US, 94 percent of doctors and lawyers in 1960 were white men. By 2010, the fraction was just over 60 percent. The study finds that higher labor market participation of underrepresented groups (women and black men in this case) has resulted in a notable improvement in the allocation of talent that can explain as much as 20% of growth in aggregate market output per person. That is a big effect and tells us that a substantial pool of innately talented women and black men in 1960 were not pursuing their comparative advantage. As labor supply choices become more aligned with productivity maximization, and through indirect effects on higher education, weaker gender norms can increase aggregate market and total output.

 

So equality between males and females is good per se and also good for the economy. What can governments do to help women participate more in the labor market? Many women shift their time from the labor market to home production upon marriage. Research in Denmark finds that the birth of the first child leads to a 20% earnings gap and 10% participation rates gap between women and men, which persist throughout the rest of their careers (Kleven et al., 2019) . As Denmark is one of the leading countries on gender equality in the world, we should think of 20% as a lower bound estimate of the “child penalty” in high-income countries, and definitely in Italy given its record-low FLFP. This suggests that making it easier for mothers to combine family and work responsibilities can have powerful effects. As an example, Carta and Rizzica (2018) evaluate the effects of an Italian reform that introduced early access to subsidized childcare for 2-year-old children. It shows that the policy led to an increase in the rate of maternal labor market participation of about 6 percentage points and an increase in the probability of holding a job of about 5 percentage points. Importantly, looking at children's cognitive development, they estimate that early access to kindergarten did not affect children's test scores in the medium run, i.e. at age 7, irrespective of their family background.

While more research is needed on understanding the optimal maternity and family leave policies, a consensus is building that extended maternity leave policies can negatively influence women’s earnings, employment and career advancement, with no positive impact on measures of child wellbeing ( Rossin-Slater, 2018) . Subsidizing childcare so that women can avoid long absences from the labor market and be both mothers and breadwinners seems to be the way forward. Moreover, policies subsidizing childcare can have a persistent effect, over and above the immediate result of higher female labor force participation. While gender roles have deep historical roots, ranging from traditional agricultural practices (Alesina et al. 2013) to language (Jakiela and Ozier, 2018), a growing body of research suggests that these norms are typically transmitted by older generations in the family (Kleven et al. 2019). Hence, by growing up seeing one’s mother working, children are exposed to alternative norms and, through the same intergenerational learning processes, this can lead to a gradual change in societal norms.

Taking it together, as public childcare in Italy is more expensive relative to other countries1, policies addressing this can be a first step in the right direction. Since efficiency is maximized when the most talented do the jobs where the return to their talent is largest, encouraging equal access to all sectors of occupation across genders will provide large net output improvements to the suffering Italian economy (on top of the inherent good of gender equality). Let’s hope Italy can catch up with the other European countries and make full use of its talent pool.  

   

1 The public subsidy for childcare accounts for about 80% of the total cost in Italy while in Spain and France it is between 90% and 100% (Minguez, 2012).

 

Image: CC-BY-4.0: © Tiia Monto – Source: https://commons.wikimedia.org/wiki/File:People_on_Old_Town_Square_3.jpg

 

Bibliography

 

Alesina, A., Giuliano, P. and Nunn, N. (2013), "On the origins of gender roles: Women and the plough",  The Quarterly Journal of Economics128 (2), pp.469-530.

 

Carta, F. and Rizzica, L. (2018), "Early kindergarten, maternal labor supply and children's outcomes: evidence from Italy",  Journal of Public Economics158 , pp.79-102.

 

Jakiela P. and Ozier O. (2018),  Gendered language,  The World Bank - Policy Research Working Paper

 

Kleven, H., Landais, C. and Søgaard, J.E. (2019), "Children and gender inequality: Evidence from Denmark",  American Economic Journal: Applied Economics11 (4), pp.181-209.

 

Hsieh, C.T., Hurst, E., Jones, C.I. and Klenow, P.J. (2019), "The allocation of talent and us economic growth",  Econometrica87 (5), pp.1439-1474.

 

Minguez, A.M. ed. (2012), Family well-being: European perspectives, Dordrecht: Springer  

 

Rossin-Slater, M. (2018), "Maternity and Family Leave Policy", in Averett S.L., Argys L.M. and Hoffman S.D. eds., The Oxford handbook of women and the economy, New York: Oxford University Press


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