How closing the gender labour market activity and pay gap leads to economic growth
I ncreasing women’s participation in the work force and closing the pay gap between women and men will have a positive impact on economic growth in the EU. Despite recent improvements, there are still persistent gender gaps in labour market activity and pay, which result in lower employment rates for women, potentially limiting EU growth.
Activity - GDP
Closing the activity rate gap, which refers to the percentage of people who are either working or looking for work, would generate a GDP per capita increase of 3.2 to 5.5% in 2050. This is up to €280 billion increase in GDP by 2030 and €1,490 billion increase in GDP by 2050.
Activity - Employment
Closing the activity rate gap, would also lead to a large increase in employment. The study forecasts an increase of 3.5 to 6 million jobs in 2050 as a result of additional women entering the labour force.
Pay gap - GDP
GDP effects are much lower when closing the gender pay gap, with a 0-0.2% increase in GDP per capita over the 2030-2050 period.
Closing pay gaps has other positive impacts. An increase in women’s salaries is likely to lower poverty rates among women and reduce the gender gap in old age pensions (EIGE, 2016). A reduction in the pay gap can also increase women’s confidence and allow them to gain more responsibility at work and progress into leadership positions (Booth 2003).
Pay gap - Activity
Closing the wage gap has rather small effect on the GDP. On the one hand, higher wages encourage more women to enter the labour market, leading to an increase in the productive capacity of the economy and therefore increased employment.
An increase in women’s salaries contributes to reducing the activity rate gap, possibly accounting for part of the positive employment effects associated with improving the labour market activity of women. On the other hand, higher labour costs drive firms to reduce their demand for labour, leading to fewer jobs on offer.