The Economics of Exclusion
I have had quite a few requests for the slides in the talk I gave at the UN yesterday, prior to the handover of the Power Shift Call to Action. The text and the slides are below (you can click on the images to make them larger). The speech, called “The Economics of Exclusion,” was intended to offer a different, more systems-oriented, way of looking at women’s “inequality.” The panel following showcased practical interventions to include women.
Companies, governments, and charities around the world are instituting programs designed to achieve “inclusive growth.” But if we are going to achieve the goal of an “inclusive” economy, we must first confront the conditions of exclusion—so we will know what actions are really needed, what costs are incurred by failure to act, who needs to collaborate in the effort, and what benefits we might actually gain by solving for inclusion.
Women are the example, because that is the theme today, because it is my area of expertise, and because, objectively, women are the largest excluded group on the planet.
Mostly what we do now when we want to observe women’s economic situation is to track a series of measures that act like inequality thermostats. For instance, in the graph below is an array of indicators for education and employment in the seven most populous Eastern European countries. Everything is expressed as a female to male ratio. The black bar across the middle here indicates the point of equality with men. So, if we look at enrolment in tertiary education, we can see that, in all these countries, the women are considerably more likely to be pursuing higher education than men, something that has been true for a long time. It is therefore not surprising that women vastly outnumber men in professional and technical jobs, even though they are present in the overall labor force in much fewer numbers. Yet, despite women’s greater qualification and presence in higher skilled jobs, employers report that they pay females much less than males for similar work. And, again despite the higher qualifications, women are much less likely to be present in management and ministerial levels—that is, we don’t find them often among the leadership.
The way we normally approach women’s economic situation is by trying to read an array of “thermostats of Inequality.” I am suggesting we need something more fully-fleshed.
This pattern shows us that a causal relationship the world has banked on for fifty years in fact does not hold: by providing women with equal education, we cannot presume they will be given equal opportunities in employment. (Unfortunately, this has been the lesson throughout the developed world, not just in Eastern Europe.) To truly explain what is going on behind the narrative these data suggest, we would have to posit, test, and measure an entirely different set of causal linkages.
The folk wisdom, of course, is that these women are off having babies, so they have “chosen” not to be fairly paid or promoted. However, that argument does not hold up because this particular set of countries has had declining fertility rates for many decades. Several reached the danger point for population replacement 25 years ago. Because some of these nations also suffer from outward migration, they face a future of overall labor shortages, not just a targeted skills gap. The pattern you see here is costing these countries a lot: a large social investment in education is being wasted, the benefit of diverse leadership is not being realized, and the birth rate will not sustain the future.
This graph is adapted from OECD’s Closing the Gender Gap report from 2011.
Sadly, the situation in Eastern Europe is only the most dramatic illustration of a phenomenon that is playing out all over Europe. Indeed, the consequences of unequal employment opportunities, spread over a generation’s entire lifetime, is setting the stage for a scary scenario for old age pensions. Because they have worked fewer years, been too often part-time, and have been paid less, the women now coming into retirement in Europe will experience a gender pension gap that will be as high as 50% in some countries. These women will have to rely on government services to make up the difference. Thus, the unwillingness to include women fairly in the past is going to come back to haunt these societies in the future.
People inevitably age, but populations do not. The world’s population is aging today in part because we live longer; an equally important propellant, however, is the decline in the fertility rate. In Europe, the average is now 1.5, quite a bit less than the rate required for replacement, which is 2.1
The top graph shows the current age structure for Germany and the projection. The bottom one simply highlights the size of the care burden (large) and the size of the pool of probable care-givers (small).
One of the lowest fertility rates is found in Germany. The graph above shows Germany’s age structure today: old on top, young at the bottom, males on the left, females at the right. The black lines added to the graph delineate where the population will be in ten years. As you can see, most of the people will be over 60. A good number of them will be quite old, coming to the point where physical and mental capabilities usually are compromised. If past is prologue, the care of all these people will fall to the comparatively small cohort of women in the 25 to 45 age bracket. (I’m not saying this is fair. I’m just saying care is a burden usually carried by the women.) This small cohort of females will be responsible for the provisioning of 1 to 6 adults—self, partner, and up to four parents—but almost no children.
As a market configuration, this situation is unprecedented. The advertising world is accustomed to presuming that, as long as the sun sets in the west, moms will keep buying toys, teens will still be a viable point of market entry, and old folks will go on luxury cruises. But this is a situation where the women will buy for elderly parents, some with very limited means, and the youth market will become a memory.
Here I am just circling the men (yellow on the left) to show that they are a small group to be carrying the whole load. (The arrows are meant to emphasize the dim future for baby clothes manufacturers and Happy Meals.)
What you see here is a world-shaking shift in what markets will need to carry. But consider this: how will this cohort of women continue working with so many to care for at home? My bet is that we will see a massive female exodus from the workforce, causing a labor vacuum and a brain drain—and leaving an equally small cohort of men aged 25-45 laboring to pay for the whole sorry mess.
What were we thinking when we allowed the workplace to take such an arrogant attitude toward mothers that they stopped having children? How blind were we when we insisted that having children is nothing more than a private choice, a sweet indulgence for women who really didn’t want to work?
