Closing the gender gap could add 2.1 trillion to US economy

21 April 2016

Gender inequality is a global issue, and, in economic terms, results in an estimated loss of up to $12.1 trillion in economic activity by 2025. Enacting best-in-class ways to reduce inequality in employment and kinds of employment women partake in could, in the US, boost the economy by up $2.1 trillion by 2025. To achieve the potential, an additional 6.4 million jobs, of higher productivity, need to be created – with an estimated investment cost of $475 billion.

In a new report from McKinsey & Company*, the consulting firm explores the effect that gender disparity, within the US, has on long term economic development. The report is underpinned by a supply-model to estimate the economic impact of closing the US labour market gender gap based on reaching a best-in-class operation, in which each state matches the state with the fastest rate of improvement toward gender parity in work over the past decade, by 2025.

The labour force participation of women in the US is relatively high. Women account for around 46% of the total labour force, a similar proportion to that of the UK and Germany. Women, however, contribute only 40% of the country’s GDP, roughly in line with the global average of 37% and lower than their share of the population.

The less than proportionate contribution, however, generates a potential to boost to the US economy. The report finds that if the full-potential of women is reached across major labour indicators – including hours, participation and representation within all sectors –  then around 4.3 trillion would be added to annual GDP in 2025, resulting in a figure 19% higher than the business-as-usual case. The authors highlight however that full parity is unlikely to be achieved, and may also be normatively – and personally – undesirable, instead a more achievable best-in-class scenario is devised, in which every US state matches the rate of progress toward gender parity of the fastest-improving state on the same three aspects as the full-potential scenario.

The best-in-class scenario would, according to the models used, generate an additional $2.1 trillion to US GDP incrementally over the years to 2025. Total US GDP would increase from $17.2 trillion in the 2014 base year to $24.2 trillion in 2025 – with women generating $10.5 trillion and men $13.6 trillion.

Quality job growth
The consultants also consider the number of jobs that would be added by attaining a best-in-class scenario across the board. The scenario would see the projected decline in participation arrested, and a growth rate of 1% over the 0.6% business-as-usual, would create an additional 6.4 million jobs over the ten million that the US Bureau of Statistics currently projects will be created by 2025. In addition, as part of the best-in-class model, women would increasingly take part in work with higher productivity, which requires that approximately 60% of these additional jobs stem from professional and business services, information technology, and manufacturing.

According to the model, the largest area of growth for female employment is within business services, adding an addition 2.9 million positions – at an increased rate of 8.8%. Manufacturing would need to see an additional 0.9 million positions for women, while finance activities would add an additional 0.7 million.

According to McKinsey & Company, the realisation of the additional jobs, related to the best-in-class scenario, would require considerable additional investment. “That investment would be needed to create jobs and boost productivity, to increase the supply of skills, and to facilitate better matching of skills to available jobs. In the best-in-class scenario, we estimate that $475 billion of incremental capital-stock investment will be required in 2025 at an aggregate macroeconomic level, which is about 9% higher than the capital stock required in the business-as-usual scenario”, write the authors.

State growth
The report further explores the effect of attaining a best-in-class scenario for the different states across the US. 55% of the additional GDP potentially available could come from the ten largest US states by GDP and population: California, Texas, New York, Florida, North Carolina, Massachusetts, Pennsylvania, Virginia, Georgia, and New Jersey. In many states an additional 5% - 10% in GDP increase could be realised by increasing participation and productivity rates of women. A number of states could see an additional 10% - 15% increase in GDP relative to the business-as-usual case, including Massachusetts, Arizona and Alaska. Two states could see a more than 15% increase, New Mexico and Hawaii.

* The report is titled ‘The Power of Parity: Advancing Women's Equality in the United States’.