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For the first time ever, there is at least one woman on every S&P 500 company’s Board of Directors.1 Female CEOs in the U.S. are represented across Corporate America, including in the automotive, healthcare, info tech, energy and financial industries. Globally, countries with at least 50% female labor participation rates account for 62% of world GDP, underscoring ways in which women continue to have a significant impact on the economy.
But there is still work to be done.
Some of these very issues, such as labor and pay gaps, have been exacerbated during the COVID-19 pandemic.
COVID-19 may have amplified economic inequalities across many dimensions. Globally, women make up 39% of the workforce, but they accounted for 54% of total job losses at the pandemic’s peak.3 In the U.S. specifically, women lost 5.4 million net jobs in 2020.4 Part of this asymmetrical impact can be explained by an occupational concentration in service industries—which were most sensitive to the virus—including restaurants, hospitality and personal care.
As employment rates have yet to fully recover, American women have faced a lack of child care support through traditional systems. In fact, two out of three working parents have changed their child care arrangement because of COVID-19, and the majority have yet to find a permanent solution.5
Meanwhile, existing child care facilities are still recovering from the financial impacts of the lock-down, making it difficult for them to operate while adhering to reduced capacity guidelines. The combination of limited in-classroom learning and stretched daycare capacity may ultimately keep working moms out of the labor force even longer.
As Exhibit 1 illustrates, in the U.S. from March to September 2020, women with children left the workforce at a faster pace (+1.8pp [percentage point]) than men with children—potentially signifying the greater child care responsibilities taken on by women.
EXHIBIT 1: WOMEN HAVE DISPROPORTIONATELY LEFT THE WORKFORCE
Source: Federal Reserve Bank of Dallas, Pandemic Disproportionately Affects Women, Minority Labor Force Participation, November 2020.
Pay disparities reflect another obstacle to gender parity. According to the latest earnings data collected by the U.S. Census Bureau, women earned 82 cents for every dollar received by men.6 Though some of this pay gap can be explained by differences in industries, level of education and years of experience, the remaining gap (estimated at 90% of the total) is unexplainable, perhaps driven by unconscious biases that may be possible to overcome.
Over multi-year periods, this pay gap may create a savings problem for women, especially as they tend to outlive men. For example, if a woman worked for 45-years with steady wage growth and retired 2020, she could have potentially amassed $6.3 million in savings by the age of 70.7 She would still see 15% less in retirement savings (about $1.1 million) than the savings of a man under the same conditions. To close this gap, this same woman would have had to stay in the workforce for an additional eight years.
A focus on reducing female labor and pay inequalities can result in a sizeable increase in U.S. growth potential, as shown in Exhibit 2. Currently, there is an 11.3% employment-population ratio gap between women and men.8 Closing this employment gap would mean adding 15 million women to the workforce, and in turn, boosting labor income by 5.5%.
By also closing the existing wage gap, women’s labor income would gain another 6.6%, for a total earnings improvement of 12.1%. Assuming labor’s share of GDP remains at 60% and earnings correspond to a worker’s marginal product, this estimate would imply that labor equality may expand U.S. GDP by 7.3%, or $1.5 trillion annually.
EXHIBIT 2: CLOSING THE LABOR AND WAGE GAP CAN ADD 7.3% TO US GDP
Source: U.S. Bureau of Labor Statistics and GSAM SAS Market Strategy. As of January 31, 2021. For illustrative purposes only. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. These examples are for illustrative purposes only and are not actual results. If any assumptions used do not prove to be true, results may vary substantially.
Closing even a portion of the gap can still pay dividends. A continued focus on labor force inclusivity, pay disparity and diversity, can enhance economic outcomes for everyone. We believe that every measure counts, because as Christine Lagarde, President of the European Central Bank says, “empowering women is not only the right thing to do—it makes economic sense.”
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1 2020 Spencer Stuart Board Index. Based on proxy statements filed by S&P 500 companies between May 2019 and May 2020.
2 World Economic Forum, 2020 Global Gender Gap Report, December 2020.
3 McKinsey & Co., COVID-19 and gender equality: Countering the regressive effects, July 15, 2020.
4 US Bureau of Labor Statistics, December 2020.
5 US Chamber of Commerce Foundation, The Importance of Childcare to US Families and Businesses, December 2020.
6 US Census Bureau, 2019.
7 Scenario considers 1) a starting median male salary of $53k based on 2019 US earnings; 2) a constant female pay gap of 18% applied to the annual male salary to derive the female-equivalent salary; 3) median realized wage growth of 2.5% and 2.1% for women and men, respectively, informed by the US experience over the past 20 years (2000-2020); and 4) a constant 15% annual contribution to a 401K retirement account, using a 60/40 S&P 500 Index/Bloomberg Barclays US Aggregate Bond Index asset allocation strategy.
8 US Bureau of Labor Statistics, January 2021.
This article was originally published by The Strategic Advisory Solutions team at Goldman Sachs Asset Management.
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Updated for tax year 2020
Updated for tax year 2019