# **4. Accounting for distributional effects using a model of capital-skill complementarities**

While gender gaps in educational attainment in MENA have almost closed in the past 20 years (El-Kogali and Krafft, 2019), accounting for heterogeneity in skills is still important for estimating the economic effects of closing the gender gaps for at least three reasons. The first reason is the rapidly increasing educational attainment among women, which could plausibly continue during our simulation period. Figure 6 shows the gender gap in average years of schooling among 15-24 year-old men and women. In 2015, in this age category, years of schooling averaged 9.4 years for men and 9.2 for women, and the average for women was actually higher in many countries in the region including Algeria, the Islamic Republic of Iran, Libya, Qatar, and Tunisia. Moreover, in the region, a higher fraction of women is enrolled in tertiary education compared to men (43% vs. 39%).<sup>19</sup> If the share of college educated women in the region continues to increase, potential gains in employment rates among women would likely generate additional increases output.

The second reason is that in most MENA countries, female employment rates are much higher for skilled women than for unskilled women, using college education as a proxy for skill. Figure 7 shows that in a sample of eight MENA countries with full data availability, gender gaps tend to be larger among unskilled workers compared to the relatively skilled.<sup>20</sup> For example, in Algeria (DZA), the employment rate among college educated women (32%) is roughly half that of men (56%). However, for non-college educated women the employment rate is less than a sixth that of men (10% vs 66%). The same is true in Egypt, where employment rates for skilled women are 60% of men’s whereas for the unskilled it is around a fifth. This implies that if gender employment gaps were closed, more of the women who would start work would be unskilled, with potentially significant effects on the wage distribution and the size of potential gains.

The final reason is that the past 75 years have seen an increase in the skill premium in the US and elsewhere, which standard Cobb-Douglas production functions (as in earlier sections) are unable to explain. If skills are particularly important in production for operating complex capital equipment, then changes in the skill distribution of the economy through changes in female employment and education can have large knock-on effect on the stock of capital per worker, which could amplify output changes.

In this section we estimate the effects of changes in skills shares with higher female employment using the production function in Krusell et al. (2000) and first posited by Stokey (1996), where physical capital and skill are complements. This production function helps us also to examine the potential distributional impacts on changes in wages from changes in female employment rates.

> 19Source: World Bank World Development Indicators for 2020, the latest year available.

> 20The exceptions are Qatar and United Arab Emirates, where employment rates are similar across men and women.

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