Publication - To Boost Growth: Employ More Women - Posted on September 14, 2016 by iMFdirect - By Christine Lagarde
At his swearing-in ceremony last year, Prime Minister Justin Trudeau was asked why he had appointed a gender-balanced cabinet, a first for Canada (and for most countries around the world). He replied “Because it’s 2015.”
He was right, of course, and his response demonstrated his government’s clear commitment to gender equality. But there is another important reason for promoting greater female participation in the workforce: women in jobs are good for growth. IMF studies have shown significant macroeconomic gains when women are able to participate more fully in the labor market.
Since the global financial crisis, countries around the world have been trying to grow their economies more quickly. Canada is no exception. Low oil prices and weak demand from major trading partners have hampered its exports, and an aging population is shrinking its labor force. The policy prescription is no secret. Canada must improve its labor productivity, which is about 20 percent below the level in the United States, and is growing at less than 1 percent a year.
Women are part of the solution. Tapping into Canada’s highly educated pool of women would help offset the shrinking labor force, boost growth potential in the medium term, and raise living standards for all Canadians. Moreover, a forthcoming study by the IMF suggests that a 1 percentage point increase in the labor force participation of women with an advanced degree would raise Canada’s overall labor productivity growth by 0.2 to 0.4 percentage point a year. So, if the current gap of 7 percentage points between male and female labor force participation were eliminated, the level of real GDP could be about 4½ percent higher today.
To be sure, Canada has already made impressive strides in boosting female labor participation over the past several decades. In 1980, only 60 percent of Canadian women aged 25–54 years old were in the labor market, below the United States and significantly lower than in the Nordic countries, which led the pack. Four decades later, Canada’s female labor participation rate is over 80 percent, comparing favorably with most advanced economies—including the United States, where the rate has actually fallen since the mid-1990s to about 74 percent (see Chart 1).
Canada’s rapid progress in female labor participation was no accident; it reflects deliberate and targeted policy measures. Two Canadian reform initiatives have been particularly effective in boosting female labor participation.
Tax reforms. A federal tax reform in the late 1980s replaced a number of deductions (including on income earned by secondary earners) with tax credits, broadened the tax base, and lowered the marginal tax rate structure. That encouraged more secondary earners (who are usually women—but that is a story for another day!) to participate in the labor force, partly because their tax burden would no longer be tied to the higher marginal tax rate of primary earners. And in the 1990s, the federal government introduced tax cuts and benefits for families with children, further improving work incentives for secondary earners.
Family-support policies. Federal and provincial governments launched initiatives to support parenting and early childhood development starting in the late 1990s. They lengthened maternity and parental leaves from a maximum of 37 weeks to 52 weeks in 2001 and established a national system of early learning and child care, supported by increased government spending on early childhood development.
page source https://blog-imfdirect.imf.org/
