Gender and Its Relevance to Macroeconomic Policy: A Survey

Janet G. Stotsky

International Monetary Fund

Purpose of Study

• Assess the relevance of gender differences for macroeconomic policy

• Gender differences have long been incorporated into models in development, public finance, and labor economics

• Gender differences in a macro context have been examined more recently

Issues

• Differences in aggregate consumption, investment, and risk taking behavior and in preferences for public sector role

• Relationship between women’s economic status and economic growth

• Labor market, trade, and financial market developments

• IMF and World Bank programs

Gender Differences in Behavior and Macroeconomic Outcomes

• Gender differences in behavior may influence key macroeconomic outcomes

• The analytical underpinnings in microeconomic theory

• Household production where time is an important input

• Human capital is an important product of the household

• Multiple decision makers within the household, thus household members may respond differently to the economic environment and economic policies may affect household members differently

Consumption Behavior

• Private consumption is the largest component of aggregate demand; thus understanding consumption is key

• Permanent income, life cycle model

• Consumption behavior via savings and investment is linked to external stability

Consumption behavior evidence

• Two strands of evidence:

• Women have a stronger preference for spending on goods and services that contribute to human capital accumulation of their children and are household necessities

• Evidence on this comes from many countries in the developing world

Consumption behavior evidence continued

• Price and income elasticities differ though differences tend to narrow as income rises

• Price elasticities of demand for education (both enrollment and years of schooling) are higher in absolute terms for females than males

• Income elasticities also are higher for females than males

• Two stage decision: decision to educate and then how much to spend, given the decision is made to educate

Implications of Consumption Behavior Differences

• Raising the share of spending over which women have control benefits children and raises human capital

• It also tends to stabilize spending by increasing the proportion spent on necessities

• Price and income elasticity evidence suggests that relative price increases and income declines are more harmful to female access to education and health care

Savings and Investment Behavior

• Theories of saving include smoothing consumption, bequest and investment motives, precautionary purposes

• Savings behavior may reflect a greater degree of uncertainty and a lack of access to formal markets

• Women may have greater incentive to save because of their role as home builders, greater life expectancy, and stronger bequest motives

• Differential access to financial markets may also influence

• Empirical work suggests that as women have greater earnings capacity relative to men, savings increases but evidence is scant

Risk Preferences

• A number of studies have also examined risk preferences, mainly using developed countries owing to absence of data elsewhere

• Women tend to be more risk averse• Risk pooling may also differ and evidence from

developing countries• Micro credit evidence suggests women have

superior repayment record and use loans more productively

Public Choice

• A number of studies have examined the impact of giving women the right to vote

• Women’s suffrage has led to a greater growth of government and tendency toward greater “liberalism”

• Women tend to support greater redistributive spending and public forms of insurance

• The economic implications of a larger government role are ambiguous

Summing UpGender Differences in Macroeconomic

Behavior

• Improving women’s control of household resources may lead to higher levels of human capital spending, more stable consumption behavior, greater investment, and lower risk taking

• Increasing women’s political influence may lead to a greater role for redistributive fiscal policies and public insurance

• Upshot: more growth and lower risk, though some ambiguities remain

Gender Inequalities and Growth: A Simultaneous Relationship

• Neoclassical growth theory relates economic growth to capital accumulation

• Endogenous growth models allow for a larger set of variables and do not require production to have diminishing returns in inputs

• Human capital is an important contributor to higher growth

Gender Considerations in Growth Models

• Endogenous growth models can incorporate gender considerations through time as an input, education, and human capital accumulation

• Evidence suggests that reducing gender inequality leads to higher growth and higher growth leads to reduced gender inequality

Gender Inequalities in Education, Health, and Social Capital on Growth

• A number of researchers have examined this relationship (Dollar and Gatti, 1999; Knowles et al, 2002; Klasen, 2002)

• Generally the finding is that female education leads to higher growth

• Inequality leads to an inability to take advantage of beneficial conditions and lower agricultural productivity (Blackden and Bhanu, 1999)

• Education, health capital, and governance improve growth and gender equality leads to more education for females (Baldacci et al, 2004)

Effect of Economic Growth on Gender Inequalities

• Forsythe et al (2000) use panel data to investigate how growth affects gender inequalities

• They find a simultaneous relationship, though measurement varies with the specification

• A number of UN indexes try to measure gender inequality and relate to level of income

Gender Inequalities in Labor and Financial Markets

• Unpaid economy is significant

• The omission of it in economic models hinders a full assessment of economic changes

• The substitution of paid and unpaid labor

• The opportunity cost of time

• Economic adjustment has implications for time burdens in the household

Labor Markets and Export-Oriented Manufacturing

• Globalization is changing the world’s economy• Trade liberalization is an important change and

has led to the growth of export oriented manufacturing

• A number of studies have examined the influence of trade liberalization on the labor market roles of women

• The conclusions are that it has has led to greater job growth but ambiguous effects on relative wages

Aid Inflows and Macroeconomic Changes

• Aid inflows can have differential effects by gender

• Aid inflows can put upward pressure on exchange rates

• This might be helpful to women trapped in subsistence economy but harmful to those who can benefit from export oriented trade

Capital Markets and Financial Liberalization

• Financial liberalization is also changing the world’s economy

• Financial liberalization is beneficial but can lead to greater instability

• Women cannot always benefit if their access to financial markets is limited

• Instability may have disproportionately harmful effects on women

• Foreign direct investment may lead to more use of subcontractors, including home based with some benefits to women

Summing Up Gender Inequalities in Labor and

Financial Markets

• Removal of impediments to labor force participation is important

• Exchange rate changes interact with labor market structures

• Financial liberalization has ambiguous effects by increasing access but also increasing instability

Gender, Economic Instability, and Adjustment

• Macroeconomic fluctuations are pervasive and may lead to fiscal and financial distress

• Fiscal austerity is often a by-product of distress, especially to improve external sustainability by reducing domestic demand

• Fiscal retrenchment can take different forms, on both revenue and spending side, with differential effects by gender

Fiscal Austerity and Gender

• Higher fees for government services, especially for health and education, may disproportionately affect females

• Tax changes are not gender neutral

• Reduction in services may also have differential effects both directly and indirectly through time burdens

Labor Market Fluctuations

• Labor market fluctuations affect men and women differently

• In the U.S., men’s wages exhibit greater procyclicality

• Developing country evidence is scarce on this issue

• Public sector employment cuts may disproportionately affect women

• But women’s private sector employment may be more resilient in a downturn

Structural Adjustment

• IMF and World Bank structural adjustment has been criticized for being disproportionately harmful to women

• The reasons include the fiscal austerity and labor market effects

• Important to distinguish short and longer term effects of adjustment programs

Structural Adjustment and Exchange Rate Changes

• Structural adjustment is often accompanied by exchange rate depreciation which affects the relative profitability of export industries

• Where women are mainly limited to subsistence activities, depreciation may be harmful in that they cannot benefit from improved environments for export

• If accompanied by fiscal austerity, this can be a double blow

Structural Adjustment and Gender

• World Bank (2001) examined how gender equality evolved in countries undergoing structural adjustment in the 1980s and early 1990s. Focusing on Sub-Saharan Africa, it found programs did not have outcomes that differed significantly by gender

• Another study (Forsythe et al, 2000) found something similar for IMF programs

Structural Adjustment and Education

• Several studies have examined the effect of structural adjustment on education

• Rose (1995) found a negative impact of World Bank programs on female education

• Buchmann (1996) found the same for IMF programs

Poverty Reduction and Growth Facility

• The PRGF was introduced in 1999• It is intended to increase the emphasis in

low-income countries on pro-poor and pro-growth policies, fiscal flexibility, and better governance

• A 2002 IMF review found that the composition of spending had evolved in pro-poor and pro-growth ways under early PRGF programs

Sum Up

• Empowering women in the economy can enhance growth and provide stability

• There may be less risk taking and greater role for government

• Economic growth and gender inequality have a simultaneous relationship and the evidence suggests that growth leads to lower inequality and vice versa

Sum Up continued

• In countries based on subsistence agriculture, women’s inequality may limit their ability to take full advantage of better macroeconomic and microeconomic conditions

• Exchange rate depreciation is harmful to women limited to a subsistence economy

Sum Up continued

• Where women have opportunities for export oriented industry, these conclusions may be different

• Trade liberalization seems to have improved labor conditions for women, but there is more evidence for employment than wages

Sum Up continued

• Structural adjustment programs should be mindful of the need to provide social safety nets, and to choose an appropriate pace of fiscal adjustment

Further Study

• Research at the macroeconomic level of gender differences in behavior and their implications

• Measuring and quantifying the simultaneous relation between growth and gender inequality

• Examining more systematically the gender-disaggregated effects of structural adjustment programs and fiscal policies

Implications for International Financial Institutions

• Guidance to fiscal, monetary, and structural reform

• Removal of arbitrary discrimination against women in legislation where we provide technical assistance, such as tax and financial sector