The Economic Upside of Gender Equality

Persistent gender disparities in business are an enormous problem, from both ethical and economic perspectives. Achieving gender equality would unleash tremendous economic upside.

While growing in visibility since the publication of Sheryl Sandberg’s Lean In, the issue has not received the full attention it deserves. But this is starting to change. The McKinsey Global Institute has been addressing it head-on and noted in a recent report that achieving gender equality in the workplace could add $4.3 trillion to America’s GDP in 2025. 40% of this GDP uplift, the report notes, comes from higher female participation in the labor force, 30% from narrowing the gap between men and women who work part time, and 30% from changing the mix of sectors in which women work. 

Although ongoing, progress on this issue has been uneven— particularly in the two key areas of representation and compensation. Female representation has grown in fields like medicine and law over the years, but in computer science it dropped off sharply in the mid-1980s, as tech firms began to market personal computers as toys for boys. The 2014 Athena Factor 2.0 report on women in science, technology, and engineering cited “hostile macho cultures” and “scarcity of effective sponsors” as key drivers of the continued gender imbalance. Today, women comprise only 22% of coders.

Shortfalls exist in specific fields, but across them all, underrepresentation increases sharply on higher rungs of the corporate ladder. According to the World Economic Forum, the tech sector experiences one of the biggest drop-offs in female representation from junior to senior positions—but it’s not alone. Across all industries, “there are just 66 women for every 100 men in business-leadership and managerial positions,” a McKinsey report noted. 

These shortfalls drive compensation gaps. According to Harvard economist Claudia Goldin, disparities are minimal early in careers. But the gender wage gap persists because, later on, social expectations lead women to seek out jobs offering “temporal flexibility”—manageable hours associated with lower compensation.

In one study, Goldin found that while Chicago MBA alums of both genders earned comparable salaries after graduation, a decade later, the women earned 43% less. In addition to the expense of temporal flexibility, unconscious bias and inequality in salary negotiations may also be to blame. The latter forces in particular may help to explain the much-discussed slights to successful women such as Jennifer Lawrence and Robin Wright.

Countries and companies are using a variety of strategies to resolve inequities in business. Some, like Norway, have mandated seats be reserved for women on corporate boards. Evidence suggests this is working. Others, like companies in Silicon Valley, are increasingly transparent about disparities and are setting explicit goals to address them.

Policies encouraging both parents to take parental leave also help. A 2010 Swedish study showed that “a mother’s future earnings increase on average 7 percent for every month the father takes leave,” according to the New York Times. In the US, Silicon Valley companies have been particularly proactive in promoting parental leave policies. 

We have a long way to go to achieve parity both in representation and pay. In some of the most unequal professions—like finance and medicine—women make only 60% of what men make. And among S&P 500 companies, women only hold 20% of board seats. We need bold public and corporate policies to resolve these issues.

One factor may incentivize us to get there: gender equality is also good for business. Bloomberg recently released a gender equality index for large companies, signaling a newfound interest among profit-hungry investors.  And with good reason: gender balance drives earnings. Monique Morrow, Chief Technology Officer and Evangelist for Cisco’s New Frontiers Development and Engineering, points to a recent study showing that companies were 15% more profitable when women filled roughly a third or more of key leadership roles.

And the benefits will accrue beyond individual firms.  As the McKinsey report suggests, gender equality will boost the economy as a whole.  Warren Buffet put it succinctly: “We’ve seen what can be accomplished when we use 50% of our human capacity. If you visualize what 100% can do, you’ll join me as an unbridled optimist about America’s future.” 

Achieving gender parity isn’t just ethical. It’s also good for business. 

Women also add innovation capacity to the firms in which they work. A 2010 study of science challenges found that women performed better than men, postulating that female participants, being more socially marginalized in scientific fields, were less burdened by the conventional wisdom that governed their male peers. On the software repository GitHub, researchers found that women’s contributions to open source projects were more likely to be accepted than men’s—but only if the women’s gender was hidden. Barring better representation, the technologies we design may be doomed to myopia.

In the end, both moral and business imperatives will drive gender parity. How will we know when the task is complete? As Morrow has put it, we’ll know we’ve succeeded “when we don’t have to talk about it anymore. When we don’t need special conferences around the topic.”

Vikram Mansharamani is a Lecturer at Yale University in the Program on Ethics, Politics, & Economics and the author of Boombustology: Spotting Financial Bubbles Before They Burst (Wiley, 2011). To learn more about him or to subscribe to his free mailing list, visit his website.  He can also be followed on Twitter @mansharamani or by liking his Facebook page.