Gender and Its Relevance to Macroeconomic Policy: A Survey

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Gender and Its Relevance to Macroeconomic Policy
A Survey

• Janet G. Stotsky
• International Monetary Fund

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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

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Issues

• Differences in aggregate consumption, investment,
  and risk taking behavior and in preferences for
  public sector role
• Relationship between womens economic status and
  economic growth
• Labor market, trade, and financial market
  developments
• IMF and World Bank programs

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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

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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

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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

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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

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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

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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

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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

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Public Choice

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

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Summing UpGender Differences in Macroeconomic
Behavior

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

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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

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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

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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)

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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

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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

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Labor Markets and Export-Oriented Manufacturing

• Globalization is changing the worlds 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

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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

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Capital Markets and Financial Liberalization

• Financial liberalization is also changing the
  worlds 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

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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

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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

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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

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Labor Market Fluctuations

• Labor market fluctuations affect men and women
  differently
• In the U.S., mens wages exhibit greater
  procyclicality
• Developing country evidence is scarce on this
  issue
• Public sector employment cuts may
  disproportionately affect women
• But womens private sector employment may be more
  resilient in a downturn

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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

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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

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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

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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

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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

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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

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Sum Up continued

• In countries based on subsistence agriculture,
  womens 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

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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

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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

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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

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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