India could add 60% to 2025 GDP by bridging gender gap at work: McKinsey
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New Delhi: India can increase its 2025 gross domestic product (GDP), estimated at $4.83 trillion, by between 16% and 60% simply by enabling women to participate in the economy on par with men, according to a new study by the McKinsey Global Institute (MGI).
The upper end of that range—if everything works out the way it should, or a so-called full-potential scenario—could add $2.9 trillion to India’s 2025 GDP. The lower end—the so-called best-in-region scenario in which all countries only match the rate of improvement of the best country in the region—could add $700 billion.
That holds true for the world as well, according to The Power of Parity: How equality for women could drive $12 trillion in global growth, released on 24 September.
Equal participation by women would add as much as $28 trillion, or 26%, to the world’s 2025 GDP in a best-case scenario—roughly equivalent to the size of the combined US and Chinese economies today—or 11% in a best-in-region scenario.
Conducted in 95 countries, home to 93% of the world’s women, the study places a definitive value to increased women’s participation in the workplace.
“With the 20th anniversary of the Beijing Declaration looming ahead, it seemed to be a good time to do some stock-taking,” says Anu Madgavkar, senior fellow, MGI, the business and economics research arm of McKinsey and Co., and one of the authors of the report.
The September 1995 Beijing Declaration was an attempt to advance women’s rights, such as the right to live free from violence, to go to school, to participate in decision-making and to equal pay for equal work.
The issue of workforce participation by women has been gaining traction in recent times. Just this past week, International Monetary Fund managing director Christine Lagarde said GDP in India would expand by 27% if its women participated in the workplace at the same rate as men.
Earlier this month, UN Women and Asian Development Bank announced collaboration for a study to track Asia and the Pacific’s progress in meeting gender equality goals.
Economic and social policies should reinforce each other to “generate decent jobs for women and men, provide for training and economic opportunities in emerging growth sectors and ensure that unpaid care work is recognized and supported,” said Rebecca Reichmann Tavares, representative, UN Women’s Office for India, Bhutan, Maldives and Sri Lanka.
India has one of the world’s largest gender gaps when it comes to labour force participation, with women accounting for only 23-24% of the total labour force and generating a mere 17% of the share of GDP, finds the MGI study. This is far below the global average where female workers generate 37% of the world’s GDP.
But India also has the biggest relative scope to add GDP at 16% in a best-in-region scenario. The full potential boost would be as much as 60%. Boosting female labour force participation in India would contribute 90% of gains in the full-potential scenario.
In 46 of the 95 countries studied by MGI, the best-in-region outcome could increase annual GDP in 2025 by more than 10% over the business-as-usual case.
But full participation in the workplace cannot take place without gender parity in society. “Economic development enables countries to close gender gaps, but progress on four indicators in particular—education level, financial and digital inclusion, legal protection and the reduction of unpaid care work—could help accelerate progress,” says the report.
Using 15 indicators of gender equality, the MGI report says it is “the most comprehensive attempt to date to estimate the size of economic potential from achieving gender parity and map gender inequality”.
Using a gender parity score, the authors find that 40 of the 95 countries where MGI conducted its research have high or extremely high levels of gender inequality on at least half the indicators that include equality in work, essential services and enablers of economic opportunity, legal protection and political voice and physical security and autonomy.
Gender parity is lowest in South Asia (excluding India) and highest in North America and Oceania.
The gender gap
The workplace gender gap manifests itself in three ways.
First, women do not participate in the same numbers as men and simply increasing labour force participation would account for 54% of potential incremental GDP.
Second, women work fewer hours than men and closing this gap would generate 23% of GDP opportunity. And finally, women are disproportionately represented in lower productivity sectors such as agriculture. Shifting women into higher productive sectors such as business services at par with the employment patterns of men would contribute another 23% of the total opportunity.
Exacerbating the gender gap in paid work is the fact that 75% of global unpaid work—child care, caring for the elderly, cooking and cleaning—is done by women. The unpaid care work of women could be valued at $10 trillion of output per year—an amount that is roughly equivalent to 13% of global GDP.
“A lot of work done by women is invisible, unquantified, unrecognized and unrecognizable,” says economist Ritu Dewan, president of the Indian Association of Women’s Studies. Household chores, for instance, are not recognized as ‘work’ and nor are income-saving activities such as collecting firewood or water. Add that to GDP calculations, she says, and the gains will be impressive.
“Women tend to drop out of the workplace because of a lack of flexibility,” says Sairee Chahal, founder of Sheroes.in, a career platform for women. “As they advance in their careers, they find that they have to balance increasing workplace responsibility with increasing family responsibility like ageing parents or teenage children. They end up with two jobs and find that they cannot cope.”
Economist Ajit Ranade agrees. “When a woman’s career starts to peak, she is suddenly confronted with multiple conflicting situations, marriage, children and so on,” he says.
There is also, Chahal says, an inordinate focus on bringing women into the paid workforce but not enough on involving men more in family responsibilities. Companies such as Flipkart, Vodafone, Accenture and Godrej recently announced enhanced maternity leave policies, and minister for women and child development Maneka Gandhi recently said women should get eight months maternity leave.
Companies have begun focusing on gender diversity—increasing paternity leave, for instance. Last month, Intel India increased paternity leave from five days to 10. Companies such as Accenture have women employee mentorship programmes, a women’s network and training and leadership development for its women employees, said a company spokesperson.
“These are baby steps,” says Chahal. “But they are a beginning.”
The MGI study also looks at interventions to bridge the gender gap by both governments and the private sector. “Women need to be equal partners in society for them to be equal participants in work. The economic benefits that come from equality in work can then create momentum toward a further narrowing of gender gaps, provided countries use the dividend of higher growth to boost investment in inclusive social spending and urbanization,” it says.
Interventions from governments include the enactment of laws that would remove barriers to women entering the workforce, mandating protection of women at the workplace and legislating quotas for women in political office and on company boards.
“Governments need to increase the size of the cake, making the right to work a fundamental right for all citizens, men as well as women,” says Dewan.
Increasing access to education and addressing dropout rates by girls at the higher school levels is another way to increase women’s workforce participation, says Ranade. “In some services sectors, regulatory issues like women not being allowed to work night-shifts also need to be addressed,” he says.
But the private sector also plays a role by lowering barriers to women moving into positions of responsibility, providing for family leave and leadership training and sponsorship of women.
Companies stand to gain since “boosting gender diversity within their own operations could enhance companies’ staffing and talent; research suggests that increasing the presence and responsibility of women is correlated with improved company performance, and that there is a connection between the representation of women in leadership positions and corporate returns”, states the report. For instance, focusing on women could help firms enhance their understanding of their customer base and target women consumers better.
The report concedes that “economic development alone is not sufficient for women to achieve their full potential”. For instance, while violence against women does tend to decrease as per capita GDP increases, it remains a global priority issue where women are not immune from violence even in the richest economies.
The relationship between gender equality at work and overall economic development is even more nuanced. For instance, women in the poorest regions of the world tend to engage in paid work out of necessity. But, as incomes rise, households start to trade off the economic value of this paid work against unpaid household work. Therefore, states the report, there is need to identify strategies over and above the role played by economic development that “accelerate progress toward gender equality in work and in society”.
These strategies could include bridging the gender gap in education that not only reap enormous social benefits such as lowering the prevalence of child marriage and improving reproductive and maternal health, but also enable greater participation in the paid workforce.
Similarly, increasing access of women to the Internet, mobile phones and financial services has moderate correlations to gender equality indicators at work. For instance, greater access by women to the Internet which is an essential tool to job searches, networking, conducting businesses and receiving microcredit would boost labour force participation among women.
Any strategy to bridge gender gaps will need to recognize significant variations in inequality within countries. In India, for instance, the issue of sex ratio is largely concentrated in the north, while child marriage is an issue that plagues the east. Labour force participation shows larger gaps for urban women at 22%, against 38% for rural women.
But without tackling gender equality in society, economic benefits cannot be realized. “The first challenge is to understand the gender equality landscape in sufficient detail to be able to prioritize action. The next is to use that knowledge to engineer change,” says the report.