Is the Last Mile the Longest? Economic Gains from Gender Equality in Nordic Countries

4. Not there yet: Potential for further gains in the Nordic countries

So where do the Nordics go from here? Despite the long-term narrowing of gender employment gaps in the Nordic countries and the progress made in promoting women’s economic opportunities, persistent gender gaps remain. These gaps are usually small, at least in comparison to other OECD countries. For example, in the Nordics as in all other OECD countries, women are still less likely to be in paid work than men (see Section 2 and section 3.1). They are also likely to work shorter hours than men (see Section 3.2) and to work in different occupations or sectors of the economy, and all too often still struggle to progress in their careers (OECD, 2017[21]). There are still further gains to be made from narrowing gender gaps in the labour market.

This section looks forward, and aims to measure how much the Nordic countries could gain from closing remaining gender gaps in employment outcomes. It concentrates first on the potential economic gains from closing the Nordics’ remaining (and comparatively small) gender gaps in headcount labour participation (Section 4.1). This exercise includes the potential benefits to the Nordic countries of meeting the G20’s “25% by 2025” target – a benchmark target for international progress on gender equality in labour participation established by the G20 in 2014 (OECD et al., 2014[20]) – but also goes further to explore the possible gains from fully closing the gender participation gap (see Section 4.1). It then shifts focus to the potential (and much larger) benefits of closing gender gaps in working hours as well (Section 4.2). This latter goal is admittedly ambitious; as discussed in Section 3.3, even in the Nordic countries, women’s average working hours have barely changed in the past few decades. The Nordic countries seem best placed to be setting ambitious targets and achieving gender equality.

The results shown in this section are based on estimates drawn from a combination of the OECD’s in-house labour force projection models and a modified version of the OECD’s long-term growth models (as presented in OECD (2014[92]), OECD Economic Outlook No. 95; see Annex B and Johansson et al. (2013[89]) for details). They take the OECD’s standard baseline projections for both the size of the labour force and economic output and adjust estimates based on a given set of assumptions about changes in gender gaps in labour participation and, later, also working hours. The projection period used runs until 2040 – a moderate period that stretches far enough into the future to allow for major changes in gender gaps to be feasible, at least.

As with the growth accounting results shown in the previous section, these estimates have limits that should be pointed out here at the outset. For example, it should be noted that these estimates are mechanical estimates only, and assume that any changes in labour participation rates or working hours do not interact with or have any indirect effects on any other inputs (like physical or human capital). They also take no account of the possible effects of changes in paid work on unpaid work within the home, and assume that worker productivity is identical across all workers regardless of characteristics. Given that young women are as well-educated (if not more) as young men, their increased contributions to the labour market may go well beyond the pure counting of hours worked. Lastly, it is also worth pointing out that, for technical reasons, the measures and units used here differ slightly from those used in Section 3 – while those earlier results concentrated on employment rates and a 15-64 year-old age group, the estimates here are based on labour force participation rates (i.e. the employed plus unemployed population) and a 15-74 year-old age group. This is to help ensure compatibility with the inputs used for the OECD’s standard long-term growth models (see Annex B, Johansson et al. (2013[89]) and OECD (2014[92])) and because the participation of over-65 workers is likely only to increase in importance in future decades.

4.1. Closing remaining gender participation gaps will produce only relatively small economic benefits for the Nordic countries

Both men and women in the Nordic countries have comparatively high and almost equal labour force participation rates. For the most part, closing the remaining (comparatively small) gender gaps in labour participation will have only a small effect on labour input and economic growth in the Nordic countries – or at least, only a small effect in comparison to the potential effects in some other OECD countries, where gender gaps are often wider. To explore the possible gains from closing gender gaps in the Nordic countries, this sub-section draws up three hypothetical future scenarios, each based on a different possible future direction for the gender gap in labour force participation:

• The baseline scenario, where labour force participation rates of men and women (15-74) are estimated using the OECD’s standard dynamic age-cohort model, which projects participation rates (by gender and five-year age groups) based on current (2007-16) rates of labour market entry and exit. This scenario services as our reference or business-as-usual scenario.

• Scenario A: gender participation gaps reduced by 25% by 2025 and by 50% in 2040. In this scenario, male participation rates are held at the baseline and female participation rates are projected so that the gender participation gap observed in 2012 within each five-year age group falls by 25% by 2025, and 50% by 2040. This scenario incorporates the G20 “25% by 2025” target.

• Scenario B: gender participation gaps reduced by 50% by 2025 and 100% by 2040. In this scenario, male participation rates are held at the baseline and female rates are projected so that the gender participation gap observed in 2012 within each five-year age group falls by 50% by 2025, and 100% (i.e. is fully closed) by 2040.

Figure 4.1 shows how the relative size of the labour force is expected to evolve in the Nordic and selected other OECD countries under each of these scenarios. It shows the labour-force-participation-to-total-population rate across the period between 2012 (the beginning of a projection period) and 2040 (the end year), under each scenario. The labour-force-participation-to-total-population rate is used here instead of the conventional labour force participation rate (among, say, just 15-64 year-olds) because to a large extent what matters for national economic performance is not just the share of the working-age population that are active in the labour market, but more the share of the overall population.

Figure 4.1. Closing remaining gender participation gaps will have only a limited impact on labour force size in the Nordics

Actual (2000-16) and projected (2017-40) labour-force-participation-to-total-population rate under different gender gap scenarios, 15-74 year-olds, 2000-40, Nordic and selected other OECD member countries, %

Note: See Annex B for a description of the method and data used. For France, break in series between 2014 and 2015.

Source: OECD estimates based on OECD population data and the OECD Employment Database (http://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm).

In many countries, the share of the population active in the labour market is expected to fall over the next few decades. Under the baseline estimates shown in Figure 4.1 – which serve here as our reference or business-as-usual scenario – the labour-force-participation-to-total-population rate is projected to decline at least slightly in all of the Nordic and selected other OECD countries bar Iceland, and in most, it is set to decline by at least four or five percentage points (Figure 4.1). Among the Nordic countries, the largest projected decreases are in Finland and Norway, where the labour-force-participation-to-total-population rate is projected to decline by about six percentage points between 2012 and 2040, and in Denmark (almost ten percentage points).

Ageing populations and a decline in the working-age share of the population explain at least a part of these projected decreases – fewer people of working-age mean that even if labour participation rates remain constant, a smaller share of the overall population will be active in the labour market. Denmark and Finland are currently set to be hit hardest by population ageing, as the effects of historically comparatively low fertility rates feed their way through (OECD Family Database). However, in some cases recent trends in labour participation also play a role, especially recent trends among young people. In Finland, Norway and especially Denmark, labour force participation rates for young people (15‑24 year-olds) and adults in their late-20s (25-29 year-olds) have fallen in recent years, partly because they are staying longer in education but also because of increases in the number not in employment, education or training (NEET) (OECD Education Database). While it is impossible to predict exactly how these young people will behave in later life, the labour force projection model used here expects at least a certain number will stay outside the labour force over the longer term, leading to decreases in overall participation rates as these cohorts age.

Closing gender participation gaps and boosting female participation can help offset these expected labour force declines (Figure 4.1). Almost all of the countries shown in Figure 4.1 see the expected decline decrease when gender gaps are closed – especially under Scenario B, where the gap is assumed to be closed fully by 2040 – but the size of the effect varies.

Looking in more detail at the Nordic countries, the estimates shown in Figure 4.1 suggest the Danish labour force would benefit most from closing remaining gender participation gaps. There, halving the gender participation gap (scenario A) would reduce the projected decline in the labour-force-participation-to-total-population rate by 1.3 percentage points, while closing it fully (scenario B) would reduce the decline by about 2.4 percentage points. This is partly because the current actual gender participation gap is slightly larger in Denmark than in the other Nordic countries (see Table 1.1), but also because closing the gender gap helps avoid a comparatively steep projected decline in female participation in Denmark. The effects are smaller in the remaining four Nordic countries; in all four, even fully closing the gender gap (scenario B) would provide a bump to the labour-force-participation-to-total-population rate of only around 1-1.5 percentage points. Put differently, in these countries, relative to the baseline, even completely abolishing the gender participation gap by 2040 would increase the number of workers per 100 persons by only about one or one-and-a-half.

4.1.1. A modest effect on future growth

Unsurprisingly, such small gains in projected labour input are expected to have only a fairly limited impact on projected future GDP per capita and GDP per capita growth. Figure 4.2 shows estimates of the effects of closing the gender participation gaps on the average annual rate of growth in GDP per capita over the period 2013-40. For the Nordic countries, closing the gender participation gap by half by 2040 (scenario A) is estimated to increase projected annual GDP per capita growth rates by only around 0.00‑0.07 percentage points, while even fully closing the gap by 2040 (scenario B) is estimated to provide a boost of roughly only 0.05-0.10 percentage points. The largest potential gains are in Denmark, where fully closing the gender gap (scenario B) could boost average annual growth by about 0.13 percentage points. This is equivalent to a 5.5 percentage point boost in cumulative GDP per capita growth over the 2013-40 period as a whole, and would be worth about USD 1 700 2005 PPP in additional GDP per capita by 2040. However, even this potential gain pales in comparison to those on offer in countries with larger participation gaps like Italy and Japan (0.19 percentage points and 0.18 percentage points under scenario B; see Figure 4.2), and especially in some of the younger OECD countries with very low female participation rates such as Mexico and Turkey (0.52 and 0.42 percentage points under scenario B; see Table A A.7 in Annex A).

Figure 4.2. Further gains in growth from closing gender participation gaps in Nordic countries are relatively modest

Estimated difference relative to the baseline in the projected average annual rate of growth in GDP per capita over the period 2013-2040, different gender gap scenarios (closing gender gaps in labour force participation only), percentage points, Nordic and selected other OECD member countries

Note: LFP stands for labour force participation. See Annex B for a description of the method and data used.

Source: OECD estimates based on OECD (2014), OECD Economic Outlook No. 95 Volume 2014 Issue 1, OECD Publishing, Paris (http://dx.doi.org/10.1787/eco_outlook-v2014-1-en), OECD Economic Outlook: Statistics and Projections Databases (http://stats.oecd.org/index.aspx?dataSetCode=EO), OECD population data and the OECD Employment Database (http://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm).

4.2. Closing remaining gender working hours gaps could extend economic gains in the Nordic countries

Trying to close headcount participation gaps is one thing, achieving greater gender equality in working hours is quite another. As discussed earlier in Section 3.2, gender gaps in workings hours are comparatively small but have proven sticky. While men’s working hours have fallen slightly in recent decades, women’s have barely changed. This is one area where the Nordics could extract further sizeable economic gains; boosting labour input by closing gender working hours gaps and increasing women’s working hours would carry considerable economic benefits for the Nordic countries.

To illustrate the potential gains from closing gender gaps in working hours in addition to gender gaps in labour participation, this section draws on the following hypothetical scenarios:

• The baseline scenario, with labour force participation rates for men and women (15-74) estimated using the OECD’s standard dynamic age-cohort model, which projects participation rates (by gender and five-year age groups) based on current (2007-16) rates of labour market entry and exit. In addition, average usual weekly working hours for each gender and five year age group are held constant at their 2016 values.

• Scenario C: gender participation gaps and gender working hours gaps reduced by 25% by 2025 and by 50% by 2040, with women increasing working hours. This scenario assumes that gender gaps in both labour force participation rates and usual weekly working hours decline for each five year age group by 25% by 2025 and 50% by 2040, with the gender working hours gap closed entirely through increases in female working hours (male hours follow the baseline).

• Scenario D: gender participation gaps and gender working hours gaps reduced by 25% by 2025 and by 50% by 2040, with men decreasing working hours. This scenario is the same as scenario C, but gender working hours gap closed entirely through decreases in male hours, rather than increases in female hours. Female hours follow the baseline.

• Scenario E: gender participation gaps and gender working hours gaps reduced by 50% by 2025 and by 100% by 2040, with women increasing working hours. This is a “full convergence” scenario. It assumes that gender gaps in both labour force participation rates and usual weekly working hours decline for each five year age group by 50% by 2025 and 100% (i.e. are fully closed) by 2040, with the gender working hours gap closed entirely through increases in female working hours (male hours follow the baseline).

In the Nordic countries as elsewhere, closing gender working hours gaps by increasing women’s hours would lead to large increases in overall average working hours. Figure 4.3 shows the estimated impact of closing working hours gaps on projected overall average usual weekly working hours over the years to 2040. Across all the included countries, halving gender working hours gaps through increases in women’s hours (scenario C) would boost overall average weekly working hours by at least three-quarters of an hour by 2040 – an increase of between 2 and 5% on the baseline in most of the covered countries – while closing the gap completely (scenario E) would lead to an increases of at least one hour and three-quarters by 2040 – equivalent to a boost of at least 5%. Closing the gender gap through decreases in men’s hours (scenario D), in contrast, would of course have broadly the opposite effect. In all the countries included in Figure 4.3, closing the gap even by just half through a decrease in men’s average hours would see the overall average drop by around an hour per week or more by 2040.

Figure 4.3. Closing gender working hours gaps by increasing women’s hours could lead to large increases in overall hours worked

Actual (2000-16) and projected (2017-40) average usual weekly working hours under different gender gap scenarios, 15-74 year-olds, 2000-40, Nordic and selected other OECD member countries, %

Note: See Annex B for a description of the method and data used.

Source: OECD estimates based on OECD population data and the OECD Employment Database (http://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm).

Of the five Nordic countries, potential gains from closing the gender working hours gap are largest in Iceland (Figure 4.3). Because of the comparatively large existing hours gap in Iceland (see Section 3.2), closing the gap fully through increases in women’s hours (scenario E) could lead to an increase in overall average hours of as much as almost four hours per week by 2040. However, the remaining four Nordic countries could also see large gains. In all four, fully closing the gap would boost average weekly hours by between one-and-three-quarters and two-and-a-quarter hours – in all cases equivalent to a boost in overall hours of around 5-7%.

Of course, whether or not it is feasible or even desirable to fully close gender hours gaps through only increases in women’s hours is open to discussion. In Iceland, for example, doing so would require both employed men and employed women to work an average of just less than 43 hours per week. This would severely limit time available for unpaid work inside the home, and put huge pressure on families’ abilities to reconcile work and care responsibilities. On the other hand, in all Nordic countries, except Norway the share of women involuntarily working part-time is above the OECD average (OECD, 2017[41]), so there may be some scope for increases in hours. In any case, hypothetically, the potential gains in terms of raw labour input from closing gender hours gaps are large.

The potential boost to Nordic growth and GDP per capita from closing gender working hours gaps as well as gender participation gaps could be substantial. Figure 4.4 shows estimates of the impact of closing both gender participation and gender working hours gaps on projected average annual growth in GDP per capita over the period 2013-40. Across the five Nordic countries, the boost to labour input delivered by halving gender gaps in both participation and hours (scenario C) could add roughly around 0.10 percentage points to projected annual GDP per capita growth over the years 2013-40, while going further and closing both gaps fully (scenario E) could add as much as around 0.25-0.40 percentage points. This is the equivalent of boosting projected annual GDP per capita growth by roughly 15-30%, depending on the country. The largest potential gains are again in Denmark (0.42 percentage points in scenario E), thanks in large part to the greater gains derived from closing the participation gap (see Section 4.1). However, potential gains also very large in Iceland (0.39 percentage points in scenario E, due more to gains from closing the working hours gap) and Norway (0.35 percentage points in scenario E, driven by a combination of gains from closing both gaps). In terms of overall growth over the 2013-2040 period as a whole, these potential gains are equivalent to boosting cumulative GDP per capita growth by somewhere between 12 (Finland and Sweden) and 19 percentage points (Denmark). In dollar terms, they would translate by 2040 into increases in GDP per capita (relative to the baseline) of around USD 3 900 (2005 PPP) in Finland, USD 4 300 in Sweden, USD 5 600 in Iceland, USD 6 100 in Denmark and USD 8 200 in Norway.

Figure 4.4. The gains in growth from closing gender working hours gaps as well as gender participation gaps could be substantial

Estimated difference relative to the baseline in the projected average annual rate of growth in GDP per capita over the period 2013-2040, different gender gap scenarios (closing gender gaps in labour force participation and working hours), percentage points, Nordic and selected other OECD member countries

Note: LFP stands for labour force participation. See Annex B for a description of the method and data used.

Source: OECD estimates based on OECD (2014), OECD Economic Outlook No. 95 Volume 2014 Issue 1, OECD Publishing, Paris (http://dx.doi.org/10.1787/eco_outlook-v2014-1-en), OECD Economic Outlook: Statistics and Projections Databases (http://stats.oecd.org/index.aspx?dataSetCode=EO), OECD population data and the OECD Employment Database (http://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm).