Hi, and welcome to the podcast that guides you through the complex world of politics, economics and markets. My name is Stephanie Kelly. And this week, I am so excited to be joined by Abby Watt, a research economist here at the abrdn Research Institute, who's going to talk about the latest in our gender equality research series, a woman's place, which you've heard about on this podcast before. And our latest work is around creating a Gender Equality Index for investors. So welcome to the podcast, Abby. Hi, Steph, thank you so much for having me. It's great to be here. It's great to have you. And I guess, Abby, you and I are based in Scotland, although you might not tell from either our accents that we are based in Scotland. But how are you enjoying Scottish summer? And are you making the most of this reopening?
00:50
It's interesting that you've chosen to focus on the weather improving, I would say the reopening has been important in the sense that we can now go inside again, given the reliability of the Scottish summer. No, I think it's been great kind of getting to see family and friends again, I think that's the most important thing.
01:07
Yeah, totally. And I think if the scenes by the beach in Edinburgh this week, were anything to go by, maybe you're right, the sun, and then the rain, and then the sun again. And yeah, Scottish people are much harder, I think when it comes to sitting out having a pint in the sunshine, or in the rain. So maybe let's get started by talking about why we've gone for building a Gender Equality Index as the next stage in our research. So just to remind people who have listened to the podcast before or indeed, who haven't listened to the podcast before. Abby and I, along with our colleague, Nancy have been working on a research series for the past year and a half now called ‘A Woman's Place’. And the idea with this research series is to delve into why gender equality is not just a nice to have, it's actually a really important issue when it comes to thinking about questions investors care about, which is long term potential growth and market returns. So in the past, we've modelled for a lot of the relationships between the kinds of policies that drive greater female participation in the workforce. And this next step is around building an index. So Abi, maybe the first natural question, which I know is a question we actually got from a fund manager last week, is, what is the benefit of having a Gender Equality Index, and not just using simple labour force participation rates?
02:26
Yeah, so I mean, as you’ve outlined there, in the original research, we were definitely kind of focused on how you boost female participation. And when we were building the kind of Gender Equality Index, we were trying to draw upon what we found in that research. So what we found to be really key was certain elements of policy and certain elements also of the culture that prevails in an economy. And so one of the benefits of having a Gender Equality Index, rather than just a narrow measure, like the gap in participation between the sexes, is that you can also incorporate some of those other factors that influence the economic outcomes and also the gender equality stance overall within an economy, because we did find that the interplay between policy and culture was particularly important in terms of the actual outcomes of labour force participation of the sexes and economies.
03:16
Yeah, I think that the cultural elements really interesting, right? Because we kind of said in the research, we couldn't model it. But we know it's important, because you see, these countries that maybe we'll get on to talk about that are huge outliers when it comes to their culture, which weighs on female participation in the workforce, no matter how generous your policies look like on paper. So maybe let's dig into some of those countries in a minute. But that's maybe a good place to start then, which is around what did we choose for the index? You kind of indicated a little bit so we've got three pillars, right? So we've got macro pillars, policy pillars, and culture pillars. Do you want to give a sense of what each of those pillars not the full list, but a sense of what we've got in there?
03:58
Yeah, so in the macro pillar, we have kind of traditional measures, I guess, of equality in the labour market. So we have things like differences in participation rates of men and women, and the overall participation rate of women. But we're also interested in the kind of way that women work. So we've included things like gaps in part-time employment, and gaps in self-employment as well. So those are the more kind of macro factors we're looking at. And then we also included a number of policy measures. So this is things like mandated leave bands and parental leave within economies, the tax systems in economies, and things like employment protections, because these are all variables that in that initial research, we found were quite important for the participation of women. And then the final pillar, as you outline there is empowerment. This was kind of a really important one for us to include in the index, given what we found in that initial research. And within that, we're measuring things like the kind of empowerment of women so there's an empowerment index from V-Dem that we're using. Things like work equality, we don't have a direct measure of the gender pay gap, because the data is just so patchy across the countries and across the time series that we wanted to include in the index. And so we're using this worker quality measure from the World Bank. And that's actually quite interesting because it looks at the kind of equal opportunities for the sexes in different workplaces, for example. So this was kind of news to me, I wasn't even aware of this. But there are still restrictions on certain industries that women can work in, in certain economies. And then also it measures whether there's any legislation to ensure that you have equal pay for men and women for the same work. And there's a number of economies in the index, which don't necessarily have any formal legislation for that as well.
05:42
Yeah, I think that was one of the most surprising things when we were trying to build out this index is discovering that there are developed countries that we all are very familiar with major markets that either don't have, you know, that protection enshrined in law, or you can't work, you know, for example, at a particular time of day, or in certain sectors. And it was such a surprise, and maybe that speaks to the privilege that we feel, you know, living in the UK, and having relative freedoms like that. But it really was quite striking. And maybe Abi another way in which our index shows the gaps that persist is what we don't have, right, we don't have the gender pay gap in our index. And it is not because it doesn't matter. It's because we can't get the data. Right?
06:27
Yeah, I mean, there's like a couple of other measures that we wanted to kind of expand and include. And I think another one would be childcare uptake. That was one that we had wanted to include, because we think it's an important part of the story for the participation of women. And yeah, the data just is so patchy. And it's just not available for the cross-section that we wanted to use.
06:48
And I think this is another area where bear in mind, we were just trying to do kind of 29 OECD countries, basically all developed countries. And the fact that we are struggling to get data on those countries, tells you a lot, I think about why this isn't a global index, either. We weren't able to make this global, because of the data availability, even on large countries that have huge data supply, still have issues. And then on top of that, I think as well, you know, a couple of investors I've spoken to have asked to buy, why it's not global. And the other reason is, in some ways, the questions you would ask, if you were including emerging markets would be a little bit different, the indicators you would include, would be a little bit different, because things like access to credit can be very important in really less developed countries, for women to be able to start businesses and to have financial independence, those are less of an issue in developed markets. So we don't think it's necessary to include them in this version of the index. But over time, we hope that in general data will improve, we can expand this index, both in terms of the data we've got, but also in terms of the country coverage. But maybe the next question to really address is how investors can use this index. So Abi, I don't know if you have any thoughts initially around just the benefit of even understanding where we're at with gender equality?
08:08
Yeah, I mean, I would say we presented this work in a couple of different client forums now. And there's definitely been interest just in the sense of people kind of educating themselves on kind of what the issues are, what the possible solutions are, what can be done kind of at the company level to try and address gender inequality. And I think in terms of other reasons why it's important for investors, I think you kind of touched upon the impact that, you know, gender equality can have on long term economic outcomes, and the direct impact that it has through the potential growth channels. And I think that that's really key for kind of strategic asset allocators. So to people who are looking at kind of long term investment returns when they're designing a portfolio, it's particularly important to understand the potential growth environment that's going to prevail in the economies that you're investing in. And I think that gender equality is kind of pretty central to the kind of long term potential growth outlook for a number of economies.
09:10
Yeah, absolutely. And I think as we kind of said, right at the outset, I think the advantage of using this index rather than just labour force participation rates, which are seen as a kind of a normal thing to consider when you're looking at strategic asset allocation, the advantage of using this index should hopefully be that you have indicators that are more broad, but feed into labour force participation rates, so you're capturing the level, you're also capturing the future. In a way a lot of our research has been around the role of policy and culture and creating a pipeline kind of, you can think of it as sort of lowering the barriers, clearing the path for women to remain in the workforce, longer term and for them not to self-select out of certain jobs, because of gender norms. Because I guess one of the things we often talk about is it's not just the number of women who are in the workplace, that is an issue. It's also are they being sorted into doing kind of lesser roles because they're expected to take on more caring responsibilities?
10:06
Yeah, exactly. I think it's also that kind of equal level playing field angle. And that's so important for the pipeline. And you know, what, what drives that, and it's come through in our research in terms of the importance of paternity leave for female participation. I don't think we can underestimate how important that finding is in terms of making it equal between the sexes when you're looking at the career progression of individuals.
10:35
Yeah, yeah, absolutely. And then one final potential application for investors. And it is, you know, at this point, just a theoretical one, but as with any of the macro ESG indices we produce, they can be used to tilt portfolios. So when you're in an active decision, or indeed in a passive setting, but for investors who are looking to actively allocate towards economies that are more gender equal than this index gives a sense of which those countries are, and could potentially provide that kind of portfolio tilt, at least in theory. So now that we know it's useful for investors, and as you said, I think that education piece is huge. In some ways. I think the S and ESG is just a number of years behind the E. So, you know, five years ago, investors were really getting to grips with what is climate change? What are the challenges? What are the opportunities? I think that's where we are with gender equality. Now, it's just about understanding the linkages and understanding the opportunities. I think, hopefully, this index helps to do it. But maybe one of the interesting applications is that understanding what's going on. So Abi when you look at the index, maybe it's worth just talking through who comes out on top.
11:40
Yeah, so I think perhaps no surprises here. But the Nordics come out on top. We've got 29 countries in the index, all OECD economies, and we're looking at their gender equality scores over time from 2014. Today, and in the current rankings, the Nordic economies come out on top. So we have Sweden ranked first, then Denmark, Norway and Finland. And then I guess, at the other end of the spectrum, it's more of maybe a mixed bag in terms of where they're based. So at the bottom, we have Korea, the US, Italy, and Japan. And I think what was interesting stuff, and you highlighted this when you were comparing it to some of the other indices that you've built in this space. You said it was quite interesting to look at the dispersion at the sub indices within those economies and across economies?
12:35
Yeah, I think what we find in other indices that we've built has tended to be that there's sort of a similarity that kind of countries do well, in one area do well in others. And I think at the very top of our index, that is true, but at the bottom of our index, there's such dispersion. So you know, some countries like the US is really strong on macro, but really weak on policy and relatively weak on the culture side, or empowerment, as we call it in the index. And you know, you flip that with Japan, which is really strong on policy, but really, really weak on culture. So maybe let's talk about some of those. Because I think that's where the interesting stuff really is. And I think when you look particularly Abi at the US how do you kind of explain away the fact that we're telling investors policy matters for macro outcomes for labour force participation. but then how can you have a country that has really strong macro scores, but really weak policy scores?
13:31
Yeah, so this was something that stood out to us when we were looking at the rankings within the US in the sub pillars. And it's actually really interesting. So what we've done is we've broken down the contributions to the macro score in the US from each of the actual indicators, and the US actually, although scoring 4th in macro, it doesn't score incredibly, highly on the actual economic outcomes. So it doesn't score incredibly, highly on the kind of participation gap or on the kind of overall participation rate of women relative to the others who are at the top of the macro scoring. And what is actually boosting the US macro score is its education attainment of women. So it actually ranks first for educational attainment out of our sample of countries. And I think this is just a really clear example of I guess, from an economic standpoint, a wasted opportunity in a way - if you if you have a really highly educated portion of your workforce, but you don't have I guess them participating fully in the labour market. It's kind of economically a waste of that talent in a way. But that was one of the things that came out of looking at the kind of deep dive into the macro scoring for the US. And also Steph, maybe it's worth highlighting at this point. They they're kind of drivers of the participation gap in the US. I thought that was quite an interesting finding.
14:56
Yeah, definitely. So I think one of the dangers of just looking at participation rates or just looking at the gap between male and female participation rates is that it's always subject to the economic environment that you're in. And it can be quite cyclical. And so I think what's really interesting when you look at the US performance, and specifically, when we look at the participation gap, the periods where we've seen the biggest improvement in the participation gaps, or the biggest improvement in the gap, or the size of the difference between male participation and female participation, when that has narrowed the most has been, unfortunately, because male participation was falling. So it was during the financial crisis. And I think it was 2009 in our index, that what we found was that, yes, the gap was closing, but it was closing because female participation was just falling less than male participation, which is not the idea. When we talk about the economic benefits of having more women in the workplace, it is not meant to be at the cost of male participation. Ideally, you're just fully utilising your labour supply. So I think that's interesting. And if you compare that to a country like Sweden, which is, you know, right, in the top rankings of our index, we see that the participation gap, for example, in 2010 in Sweden is the strongest year in our kind of series, that shows a gap narrowing, that gap is narrowing, because both female and male participation is rising that year. And female participation just is rising more. So that's to us quite a positive signal about the economy. And it just goes to show why labour force participation rates alone or even looking at the gap, which in some ways takes care of some of the challenges you might have are in the cycle, it's still showing you the cycle, because it's so dependent on what's happening at that stage.
16:44
Yeah, I think it's probably worth mentioning as well. One of the other indicators that we've included is the unemployment gap between men and women as well, because when we were building this, we were well aware of the kind of impact of crises on male and female employment. And I think the COVID crisis is a perfect example of one in which you've seen a disproportionate impact on women in terms of the labour market outcomes. And then you could say the same in 2009 but the reverse. So you could say that men were disproportionately impacted by the financial crisis and the slowdown that occurred then. So that's just one way in which we're trying to account for some of those cyclical macro issues in the index as well.
17:22
Yeah, yeah, absolutely. And, look, this is why we use an index, right? This is the benefit of an index is that we get away from individual indicators, and hopefully give a more holistic view of what's going on. So maybe finally, let's talk about Japan. We always end up talking about Japan, when we talk about gender equality, because it really stands out because it has such generous policies. I think I'm right in saying they have paternity leave to the tune of something like 52 weeks for men. But we obviously don't see that necessarily trickle through in spite of improvements in female participation in recent years. There's still a gap. And there's still a huge cultural challenge, I think.
17:59
Yeah, exactly. We highlighted this in our first deep dive where we looked at parental leave. And one of the interesting things was the generosity of the paternity leave policy in Japan. And the key thing there was the uptake of that leave is very low among fathers. I think it’s around 6% of men actually take the leave. And I think that comes back to the importance of measuring and looking at the influence of culture. So obviously, we're using the empowerment sub-index within this Gender Equality Index. And interestingly, in the case of Japan, it's ranked 29th overall, currently, but if you were to remove the empowerment sub-index from that, it would move up to ninth. So it just shows you that what is really holding Japan back in the index, and in terms of its overall gender equality ranking, is that that culture and that empowerment element of the index?
18:49
Yeah, absolutely. And I think, hopefully, again, just reinforces the benefit of having those three pillars and considering macro policy and empowerment in order to really understand the gender equality environment if you are indeed trying to understand this from an investor's perspective. So I think that is all the time we have for today. But huge thanks to Abi for joining. As always to our listeners. If you have any comments on the discussion today, or questions or ideas for future episodes, you can email us at macrobytes@abrdn.com. In the meantime, Paul Diggle will be back in two weeks, so please join us then.
19:35
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