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The Output Cost of Gender Discrimination: A Model-Based Macroeconomic Estimate

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  • Cavalcanti, Tiago
  • Tavares, José

Abstract

Gender-based discrimination is a pervasive and costly phenomenon. To a greater or lesser extent, all economies present a gender wage gap, associated with lower female labour force participation rates and higher fertility. This paper presents a growth model where saving, fertility and labour market participation are endogenously determined, and there is wage discrimination. The model is calibrated to mimic the performance of the U.S. economy, including the gender wage gap and relative female labour force participation. We then compute the output cost of an increase in discrimination, to find that a 50 percent increase in the gender wage gap leads to a decrease in income per capita of a quarter of the original output. We then compile independent estimates of the female to male earnings ratio for a wide cross-section of countries to construct a new economy, in line with the benchmark U.S. economy, except for the degree of discrimination. We compare the level of output per capita predicted by this model economy with the actual output per capita for each country. Higher discrimination leads to lower output per capita for two reasons: a direct decrease in female labour market participation and an indirect effect through an increase in fertility. We find that for several countries a large fraction of the actual difference in output per capita between the U.S. and the different economies is due to gender inequality. For countries such as Ireland and Saudi Arabia, wage discrimination actually explains all of the output difference with the U.S. Moreover, we find that the increase in fertility due to discrimination is responsible for almost half of the decrease in output per capita, and equivalent to the direct decrease in output due to lower female participation. Our basic model suggests the costs of gender discrimination are indeed quite substantial and should be a central concern in any macroeconomic policy aimed at increasing output per capita in the long-run.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6477.

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Date of creation: Sep 2007
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Handle: RePEc:cpr:ceprdp:6477

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Keywords: Economic Development; Female Labour Force Participation; Fertility; Gender Inequality;

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References

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Cited by:
  1. Thomas Bassetti & Donata Favaro, 2011. "A Growth Model with Gender Inequality in Employment, Human Capital, and Socio-Political Participation," CHILD Working Papers wp14_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  2. Stephan Klasen & Francesca Lamanna, 2008. "The Impact of Gender Inequality in Education and Employment on Economic Growth in Developing Countries: Updates and Extensions," Ibero America Institute for Econ. Research (IAI) Discussion Papers 175, Ibero-America Institute for Economic Research.
  3. Seguino, Stephanie, 2011. "Help or Hindrance? Religion's Impact on Gender Inequality in Attitudes and Outcomes," World Development, Elsevier, vol. 39(8), pages 1308-1321, August.
  4. Julio, Paulo & Tavares, José, 2010. "The Good, the Bad, and the Different: Can Gender Quotas Raise the Quality of Politicians?," CEPR Discussion Papers 7917, C.E.P.R. Discussion Papers.
  5. Stephanie Seguino, 2008. "Gender, Distribution, and Balance of Payments (revised 10/08)," Working Papers wp133_revised, Political Economy Research Institute, University of Massachusetts at Amherst.

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