Significant gender employment gap remains in the G-7 countries, leading to sizable loss of output. On average, women's labor market participation rate is about 17 percentage points lower than that of men's, and the wage gap between women and men amounts to about 14% (IMF, 2017a). These labor market divides have important economic implications. For instance, if the female labor participation rate were raised to the country-specific male rate, the output could increase by 5% in the United States (Aguirre et al., 2012). As the G-7 economies are aging, higher female employment could also boost potential growth and total factor productivity (Elborgh-Woytek et al., 2013; Steinberg and Nakane, 2012; Barsh and Yee, 2012).
To increase female labor force participation, the G-7 countries have implemented a range of structural fiscal policies. Taxation is often used to eliminate disincentives for the secondary earners (mostly female) to work. For instance, most G-7 countries now implement individual taxation rather than family income-based taxation. Some countries such as Japan continue to have disincentives for dual earner households, including secondary earner tax deduction and waiving of social security premiums, disincentivizing women from working over a certain income threshold (IMF, 2017b).
The cyclical component of gender unemployment also deserves attention because of “hysteresis.” A process of “hysteresis” could link the short-term cycle to the long-term trend so that a temporary change in unemployment may become permanent (DeLong and Summers, 2012). As such, in a depressed economy, low rates of investment imply a deterioration of physical capital, human capital declines as workers without employment lose their skills, and the long-term unemployed people face a declining likelihood of being rehired. All these factors influence the potential output. Thus, if hysteresis effects are stronger during slumps, then fiscal policy is likely to have more persistent effects on gender employment.
Fiscal spending shocks could influence gender employment equality through several channels. First, the spending shocks may create larger labor demand for female-friendly occupations. Bredemeier et al. (2017) shows that “pink-collar job” booms are the drivers of the female-biased employment effects of fiscal policy. Second, the shocks may stimulate larger demand for part-time employment (which female workers generally occupy), often hired to meet temporary labor demand. Third, the shocks may stimulate female labor supply more in response to the loss in household income, particularly during recessions (household income effect). The positive impacts of fiscal spending shocks on gender equality during recessions would be basically consistent with the long-standing theory of wages (Douglas, 1934). Finally, fiscal spending shocks, if associated with the implementation of properly designed gender-oriented measures, could directly influence gender equality.
This paper examines whether countercyclical fiscal policy during recessions improves or worsens the gender employment gap. We give an answer to this question by exploring the state-dependent impact of fiscal spending shocks on gender employment in the G-7 countries.
Using the local projection method (Jordà, 2005), we find that an expansionary fiscal spending shock would generally improve the gender employment gap during recessions (increasing female employment more than that of males). The impacts during booms, however, are largely statistically insignificant and generally smaller. Our findings are driven by disproportionate employment changes in female-friendly industries, occupations, and part-time jobs in response to fiscal spending shocks. The analysis suggests that fiscal stimulus, particularly during recessions, could achieve the twin objectives of supporting aggregate demand and improving gender gaps.
To the best of our knowledge, this is the first paper to examine how fiscal policy shocks affect the gender employment gap over the business cycle. Recent empirical studies show that the impact of fiscal policy shocks on growth or employment differs between booms and recessions (Auerbach and Gorodnichenko, 2012, 2013; Baum et al., 2012; Blanchard and Leigh, 2013; Dell’Erba et al., 2014). The literature, however, has yet to explore the state-dependent impact of fiscal policy shocks on gender employment.
Our paper is also related to the recent literature that examines the effect of fiscal policy shocks on the gender employment gap. Bredemeier et al., (2017) find that fiscal expansion stimulates predominantly female employment in the U.S. We contribute to the literature by covering all G-7 countries and estimating the state-dependent impact of fiscal policy shocks on the gender employment gap.
The rest of the paper is organized as follows: Section 2 presents key stylized facts on the gender employment gap, the business cycles, and fiscal spending shocks. Section 3 describes the data and discusses the empirical strategy. Section 4 presents the main findings. Section 5 discusses possible channels for fiscal policy to influence gender employment gap, and Section 5 concludes and draws policy implications.
This section looks at the recent developments associated with the gender gap in labor markets of the G7 countries and its correlation with the business cycle and government spending. As a measure of gender employment equality, we use the female share of total employment.
We highlight four stylized facts:
IMF (2017a) summarizes recent trends in gender equality in the G-7 countries, noting that while equality has improved overall, exceptions and gaps remain. Specifically, it notes that there remain significant gaps in pay, and the main burden of unpaid work is on women. For the last few decades, the gaps have generally declined (i.e., female employment grew faster than male employment), leading to a steady increase in the female share of total employment. On average, for the G-7 countries as a whole, the number of female workers is about 18% lower than that of male workers. Looking at the historical developments of the female share of total employment and government spending in the G-7 countries, we find that both the female share of total employment and government spending tend to increase during recessions, while they decline during economic booms. In all the G-7 countries except Japan, they are positively correlated. This fact, however, does not suggest by itself any causality between government spending and the female share of total employment. For instance, one could argue that what is behind the correlation between these two variables is the stylized fact 3, which is mostly driven by greater male-friendly industry exposure to the business cycle. Any empirical analysis to identify the impact of fiscal policies on the cyclical gender employment gap should, therefore, control industry cycles for robustness checks. For the U.S, industry effects alone cannot account for the female employment share over the business cycle (Bredemeier et al., 2017). In the next section, we econometrically examine the causality between fiscal spending shocks and the female share of employment.
To estimate a state-dependent impact of the government spending shock on the gender employment gap, we use the local projection method proposed by Jordà (2005). This method easily handles nonlinearity and is robust to omitted variables and misspecification. As discussed in the studies by Auerbach and Gorodnichenko (2013) and Jordà (2005), the local projection technique can easily adapt non-linearly and thus estimate state-dependent models and compute impulse response functions. Moreover, the method does not constrain the shape of the impulse response function; so, it is less sensitive to misspecification of the standard VAR models. The method conduces a more parsimonious specification because it does not require that all variables enter all equations. Following Ramey and Zubairy (2018), the data are separated into two states: booms and recessions by the dummy variable. We could separate data into the states by using the smooth transition function as in Auerbach and Gorodnichenko (2012). The results obtained by using the smooth transition function are broadly unchanged. In addition to output gaps, various variables, such as the growth rate and the unemployment rate, are used as a measure of economic slack. Our main results remain unchanged for a different measure of economic slack.
All coefficients of the model other than deterministic trends vary according to the state of the economy. This means that the forecast of
In our baseline specification, We use this parsimonious model as our benchmark model. Although the local projection method has proven to be robust to misspecification and omitted variables, we conduct extensive robustness checks (see section 4).
Quarterly data from the 1980s to 2017 for the G-7 countries (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) are used in our analysis. Data on GDP, government spending, and tax revenue are taken from the Organisation for Economic Cooperation and Development (OECD) Economic Outlook and Eurostat, and total employment, and those of the female share of total employment are taken from the International Labour Organization (ILO) database of labor statistics and national statistics offices. We use a GDP deflator to convert nominal tax revenue to real values. The sample period varies across countries and spans the longest timeframe for which data are available. All series are seasonally adjusted by using the Census Bureau's X12 filter and logged. The detailed description of the data is presented in Appendix.
We now present the main results of our analysis. Figure 5 shows the responses of the female share of total employment over time to an expansionary fiscal spending shock obtained from estimation of (1). Table 1 summarizes the impact at the peak and 8 quarters after the shock.
Effects of government spending shock on gender employment (Changes in the female share of total employment, in percentage points)
0.26 | * | (6) | 0.14 | * | 0.27 | * | (3) | −0.08 | ||
0.21 | (4) | −0.01 | 0.36 | * | (3) | 0.03 | ||||
0.18 | * | (5) | −0.01 | 0.27 | * | (4) | 0.16 | * | ||
0.09 | * | (8) | 0.09 | * | 0.52 | * | (7) | 0.39 | * | |
0.18 | (8) | 0.18 | 0.09 | * | (8) | 0.09 | * | |||
0.05 | * | (5) | 0.01 | 0.11 | * | (5) | 0.08 | * | ||
0.17 | (5) | 0.05 | 0.31 | * | (4) | 0.14 | * |
The sign “*” indicates significance at 5% level.
The number in parenthesis indicates the peak quarter.
We first consider results from the linear model. This is a simple version of Eq. (1) without the indicator function. Thus, the specification of the linear model is
We now turn to see state-dependent impacts of fiscal spending shocks on gender equality in labor markets. Results are shown in Figure 5 (third and fourth column) and Table 1. During recessions, government spending shocks have positive impacts on gender equality. In all seven countries, the impacts at peak are statistically significant and are in favor of female employment. During booms, however, the impact on gender employment is less obvious. The impacts on the female share of total employment during booms are not statistically significant in France and the U.S. In other G7 countries, the impacts are positive and statistically significant but are smaller than the impacts under recessions. Furthermore, the impacts are not sustained over time in most cases, with the female share declining over 2 years.
We also find that the impact of the shock is long lasting in most countries. For instance, in Germany, Italy, Japan, the U.K., and the U.S., the impacts are long lasting with an increasingly positive impact through the projected period (8 quarters). In Canada and France, however, the positive impact is deemed short lived and fades out 2 years after the spending shock.
The results are robust in several directions The results of robustness checks are presented in Appendix. As the impacts of fiscal policy shocks may be affected by the behavior of the monetary authorities, following Monacelli et al. (2010) and Brückner and Pappa (2012), we also incorporate the short-term interest rate to take into account the reaction of monetary policy to fiscal spending shock. The structure of the economy may affect the movement of the female share of total employment during the business cycles. For example, if female-friendly sectors are countercyclical, female employment could thrive during recessions without a spending shock. Thus, the impact of fiscal spending shocks on the gender employment gap could be biased without taking into account structure variables. To assess the robustness of our findings, we re-estimate Eq. (1) to control for structural variables such as the share of sectoral GDP (agriculture, industries, services) and the share of female-friendly sectors (e.g., public services, health care, and education) in the total employment. We find that our results are robust to the structural variables.
To ensure that the improvement in the share of female employment is not due to the mechanical effect of men losing jobs more than women, we estimated the state-dependent impacts of the fiscal spending shock on female and male employment separately. Results are summarized in Table 2. In Appendix, the impulse responses of employment, unemployment, and labor force by gender during recessions are presented.
Impacts of spending shocks on female and male unemployment, labor force, and employment during recessions. (Percent changes, peak after the shock)
Male | Female | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Unemployment rate | Labor force | Employment | Unemployment rate | Labor force | Employment | |||||||
Canada | −0.2* | (2) | 0.0 | (7) | 0.7 | (7) | −0.4* | (1) | 0.3* | (3) | 1.7* | (6) |
France | −1.0* | (7) | 0.1 | (3) | 1.5* | (5) | −0.8* | (5) | 0.3* | (2) | 1.9* | (3) |
Germany | −0.5* | (3) | 0.0 | (0) | −0.1 | (6) | −0.3 | (3) | −0.2* | (8) | 0.2 | (0) |
Italy | −0.1* | (1) | −0.2* | (3) | 0.1 | (5) | −0.4* | (4) | 0.3* | (8) | 0.5* | (5) |
Japan | −0.1* | (4) | 0.1* | (7) | 0.7* | (5) | −0.1* | (2) | 0.1* | (8) | 0.8* | (7) |
UK | 0.5* | (6) | 0.1* | (7) | 0.0 | (0) | 0.3* | (6) | 0.1 | (5) | 0.5* | (7) |
US | −1.4* | (5) | 0.2* | (6) | 1.6* | (8) | −1.1* | (5) | 0.3* | (7) | 1.9* | (8) |
The number in parenthesis indicates the peak quarter.
During recessions, the positive fiscal spending shock tends to increase employment for both women and men, but the impact on male employment is less pronounced and generally less than that on female employment.
We also estimate the impact of the spending shocks on the labor force and unemployment by gender during recessions. The positive impacts on female labor force are statistically significant in five countries (compared with three for male labor force). Though female employment increases more than male's, the impacts on unemployment rate are broadly the same between male and female because of the base effect (female labor force increases more).
We have not considered possible asymmetry of fiscal spending shocks, while the impacts of fiscal contractions and expansions may not be symmetrical. To test asymmetric effects of fiscal policy shocks on the female share of total employment, we use the following specification:
Figure 6 shows the results. We find that the effects of positive and negative spending shocks on gender equality are broadly symmetric while there are variances across countries. In all G7 countries, a positive shock tends to increase the female share of total employment, while a negative shock would reduce the female share. In some countries (e.g., the U.K, Canada), the impacts of negative spending shocks are relatively large.
This section explores possible channels for fiscal spending shocks to influence gender employment equality. Fiscal spending shocks could influence gender employment equality through several channels.
First, fiscal spending shocks may stimulate female labor supply more in response to the loss in household income during recessions Douglas (1934), in his old book on “The Theory of Wages”, pointed that “
Second, fiscal spending shocks, if associated with gender-oriented measures, could directly influence gender equality. The benefits of specific policy instruments for female employment have been examined in the literature (see, for example, Jaumotte (2003) and Kinoshita and Guo (2015)).
Third, fiscal spending shocks may create larger labor demand for female-friendly occupations. Bredemeier et al. (2017) shows that “pink-collar job” booms are the drivers of the female-biased employment effects of fiscal policy. Bredemeier et al. (2017) argue that fiscal policy shocks cause employment in services, clerical, and retail sales occupations—the so-called “pink-collar” occupations—to grow disproportionately. It is also well known that labor supply elasticities differ between males and females. Most studies find that labor supply elasticities are usually large for married women and smaller and sometimes negative for men (see for example, Blundell and MaCurdy, 1999).
Fourth, fiscal spending shocks may stimulate larger demand for part-time employment during recessions. Fiscal spending shocks may facilitate part-time work, which female workers generally occupy. Part-time workers are often hired to meet temporary labor demand and tend to increase when full-time workers are reduced (employment buffers). The impact through this channel, however, may vary by country.
To verify these potential channels (third and fourth points above), we estimate additional impulse responses of the gender employment gap for the U.S. using the empirical approach in the study by Bredemeier et al. (2017). Bredemeier et al. (2017) find that fiscal expansions stimulate predominantly female employment and argue that, based on this empirical approach, the finding can be understood as a consequence of differences in the industry-occupation mix of employment by gender.
Based on the understanding on the potential channels above, we investigate the effects of industry, occupation, and employment type (full time vs part time). For this analysis, we replace the actual female employment share by the share predicted by employment in 12 major industries (excluding agriculture), 10 major occupation groups according to the 2002 Census classification, and/or two employment types (full time and part time).
The analytical results underscore the importance of gender dynamics in industries, occupations, and employment types for individual workers’ employment possibilities. The results are shown in Figure 7. Figure 7 shows the impulse responses estimated by using local projection methods where we replaced actual by predicted female employment shares. The differences between solid and dashed lines reflect dynamics in the gender composition of employment unrelated to industries, occupations, and/or employment types.
Figure 7A suggests that, while industry effects have some influence over female-male employment development, the gender-specific effects of fiscal shocks cannot be fully understood by industry effects alone. The actual female employment share falls more strongly than predicted by industry dynamics.
Taking into account occupations in addition to industries, the predicted decline in relative female employment is more pronounced. Figure 7B shows that occupations play an important role for understanding gender-specific employment dynamics. These results are consistent with the findings by Bredemeier et al. (2017).
Adding employment types (Figure 7C), the predicted decline in relative male employment is further pronounced. Hence, our results show that, in particular for the fiscal spending shock, employment types (full time, part time) play an important role for understanding gender-specific employment dynamics.
This paper examines how fiscal policy affects the gender employment gap over the business cycles in G7 countries. By using the local projection method, we find that in all G7 countries, positive fiscal spending shocks contribute to gender equality during recessions, increasing female employment more than that of males. During booms, however, the impact on gender employment is less obvious and generally smaller than during recessions. We also find that, during recessions, the impact of fiscal policy shocks on unemployment rates are broadly the same between male and female. This is because of the base effect (female labor force increases more than female employment). Furthermore, we find that the effects of positive and negative spending shocks on gender equality are broadly symmetric.
The study leads to two main policy implications. First, fiscal stimulus, particularly during recessions, can achieve the twin objectives of supporting aggregate demand and improving gender gaps. In contrast, given the symmetric nature of fiscal spending shocks, a fiscal contraction during recessions is bound to worsen the gender employment gap, thus calling for compensatory measures to protect female employment.
More broadly, these findings also suggest the need for cautious assessment for specific gender-oriented policy instruments. The outcome of policies to improve gender equality depends, at least in the short term, on whether the economy is in a recession or under a boom. Therefore, the assessment on the short-term impact of those measures should take into account the state of the economy.
For future research, a number of open questions could be addressed. First, government spending could be disaggregated to study the differentiated impact of each component (e.g., nonwage consumption, wages, transfers, investment) on the gender employment gap. Second tax shocks could also be considered to find out how their impact differs from that of spending. Third, it would be useful to examine the impacts of fiscal shocks on other gender gaps (e.g., gender wage gaps, managerial positions). Fourth, it would also be important to deepen our understanding of the transmission channels of the fiscal shocks, based on theoretical models. Finally, one could investigate how market institutions determine the outcomes of the fiscal shocks on gender gaps on labor markets. Labor market regulations (e.g., ease of firing and hiring) could affect the impact of the fiscal shocks on gender gaps in labor markets.