Introduction
While the relevance of race or other identity-based barriers to economic productivity varies by context, gender is a universal issue. By simply ensuring that women can fully utilize their skills and talents, policymakers in countries with varying levels of economic development can generate significant economic benefits.
The Importance of Human Capital
Economists and policymakers have long recognized the accumulation of human capital, particularly through investments in education, as a growth and development engine. However, they have paid less attention to the efficient allocation of existing human capital.
Mis colegas y yo, en un nuevo estudio realizado con el Banco Mundial, desarrollamos una metodología para distinguir entre las dos posibles fuentes de las diferencias observadas en la asignación del talento y aplicamos esta metodología utilizando datos de la fuerza laboral públicamente disponibles de varios países.
Gender Misallocation and Economic Impact
Our findings confirm the conclusions of a previous influential US study, which attributed between 20% and 40% of the growth in US market-based productivity per capita between 1960 and 2010 to improved talent allocation. This growth was achieved by reducing labor discrimination against women and African American men, as well as decreasing the barriers these groups faced in developing their human capital.
The potential for generating such benefits is likely even greater in less prosperous countries, where misallocation of talent might be more widespread. Although the relevance of race or other identity-based barriers varies by context, gender is a universal issue. Given that women constitute roughly half of any country’s population, ensuring they can fully leverage their skills and talents could generate significant economic benefits.
Gender Disparities in Labor Markets
Labor market outcomes vary significantly by gender. In most countries, women have lower labor force participation rates and incomes, are overrepresented in informal or unpaid work, and spend more hours on domestic chores. If these differences reflected inherent comparative advantages or genuine preferences, they would be efficient. However, if they reflect distortions, policymakers are underutilizing resources.
Distinguishing Between Demand-Side and Supply-Side Barriers
Our methodology allows us to differentiate between two types of distortions: demand-side barriers originating from employers (such as hiring discrimination or wage inequality) and supply-side barriers reflecting women’s own limitations (including domestic responsibilities, lack of childcare, safety concerns, or restrictive social norms).
In most countries, demand-side distortions are more relevant than supply-side ones. Addressing only the former generates nearly as large economic benefits as tackling both.
Policy Implications
These findings have significant implications for policymakers, helping them decide where to invest resources to reduce misallocation. Demand-side distortions—like labor market discrimination—are more amenable to political intervention than supply-side distortions, which may reflect deeply ingrained social norms. Thus, focusing on the former could enable countries to reap most of the well-being benefits from reducing gender-based talent misallocation.
Conclusion
Skeptics might argue that the economic benefits of reducing talent misallocation are modest compared to productivity improvements. While productivity enhancements might be costly and increasingly uncertain in today’s volatile global environment, reducing human capital misallocation is relatively economical and more achievable.
As sustaining growth in low- and middle-income countries becomes more challenging and uncertain, policymakers should explore all available growth avenues. Ensuring that the skills and talents of roughly half the population are fully utilized is not only a social justice issue but also a pragmatic economic strategy.
Key Questions and Answers
- What is human capital, and why is it important for economic growth? Human capital refers to the skills, knowledge, and experience embodied in individuals that contribute to economic productivity. Investing in human capital through education and training is crucial for fostering economic growth and development.
- What is talent misallocation, and how does it affect economies? Talent misallocation occurs when individuals are not working in jobs that best match their skills and preferences. This inefficient allocation of human capital can lead to significant economic losses, as demonstrated by studies showing that improving talent allocation can boost productivity and income.
- Why is gender equality important for economic growth? Gender equality ensures that approximately half of any country’s population can fully contribute to the economy. By removing barriers to women’s participation in the labor force and addressing gender-based talent misallocation, countries can unlock substantial economic benefits.
- What types of barriers exist for women in the labor market, and how can they be addressed? Demand-side barriers originate from employers, such as discrimination in hiring or wage gaps. Supply-side barriers reflect women’s own limitations, like domestic responsibilities or restrictive social norms. Policymakers should prioritize addressing demand-side distortions, as they are more amenable to political intervention.
