Gender gaps in the labor market and aggregate productivity

Abstract

The gaps between male and female outcomes and opportunities are present in several different dimensions and many countries, especially in developing ones. These gaps are likely to result in lower aggregate productivity because of an inefficient use of women potential. In this paper we examine the quantitative effects of gender gaps in entrepreneurship and labor force participation on aggregate income. To do the analysis, we first present a simple theoretical framework illustrating the negative impact of gender gaps on resource allocation and aggregate labor productivity. We then calibrate and simulate the model to study the quantitative effects of gender inequality. We show that gender gaps in entrepreneurship have important effects on aggregate productivity and labor force gender gaps on income per capita. Specifically, our model predicts that if all women are excluded from entrepreneurship, average output per worker drops by more than 10% and wages fall by even more, while if all women are excluded from the labor force, income per capita falls by almost 40%. Our cross-country analysis shows that gender gaps and income losses are quite similar across income groups but differ importantly across geographical regions, with a total income loss of 27% in Middle East and North Africa, a 23% loss in South Asia, and a loss of around 15% in the rest of the world.

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