# **1. Introduction**

This paper introduces a new _Gender Employment Gap Index (GEGI)_ , which is a measure of gender employment gaps equal to the long-run GDP per capita gains from increasing women’s employment rates, so they are equal to men’s. This GEGI is designed to have low data requirements so it can be calculated for (almost) every country in the world, and to be simple and transparent so calculations can be replicated and updated using publicly available employment rates by gender. There are two closely related variants of the GEGI. The “basic” GEGI is the gap between male and female employment, as a share of total employment. The basic GEGI takes this form as it is the percentage increase in labor supply from closing gender employment gaps. The full GEGI is similar, but instead of aggregate employment gaps, it uses a weighted average of employment gaps in “better employment” and “other” types of employment (defined below).

Across all countries the basic and full GEGIs both average 19%, which indicates that long run GDP per capita would be almost 20% higher than otherwise if all gender employment gaps were to be closed. The size of these gaps varies substantially across countries, across regions and by per capita income. The GEGIs are roughly humpshaped in per capita income, which stems from the U-shaped rates of female labor force participation with income (Goldin 1995), but relatively constant male rates of labor force participation. The lowest- and highest-income countries have smaller GEGIs, but a there is a great deal of dispersion for middle income countries.<sup>2</sup> Overall, the largest GEGIs are in the Middle East and North Africa (MENA) and South Asia (SA), with GEGIs of around 40%-50%. The lowest GEGIs are in Europe and Central Asia (ECA) with GEGIs of around 10%.

A key motivation for this paper is to calculate the economic effects of closing gender employment gaps in Pacific Island nations, as almost all of these countries are excluded from other studies. As documented in Section 7, the GEGIs average 22% across 11 Pacific Islands indicating that GDP per capita would be 22% higher in the long run if gender employment gaps were to be closed. However, this simple average masks substantial heterogeneity across islands, with GEGIs ranging from less than 10% to more than 35%, depending on the country considered.

The GEGIs use simple neoclassical growth theory to show that a specific measure of gender employment gaps in fact equals the GDP per capita gains from exogenously closing those same gender employment gaps. There are two mechanisms behind the relationship, relating to labor (direct) and capital (indirect). First, when more women work, they will directly produce more output. The basic GEGI is the percentage increase in employment from closing gender gaps. This channel involves an exogenous change in female employment, keeping other factors constant (like total factor productivity, human capital, etc.). Note that in a cross-section of countries when female labor changes _endogenously_ , those other things will not be equal, which obscures causal relationship. Second, an increase in employment will induce an increase in physical capital accumulation (again, other things equal). This is because more female labor creates a relative shortage of capital equipment and structures which raises their marginal productivity and encourages the accumulation of more capital – though this only happens in the long term. Combined, these two mechanisms mean that an exogenous X% increase in total employment also increases long run GDP per capita by X%. A similar capital-adjustment mechanism is at the heart of economic interpretation of the World Bank Human Capital Index (Kraay 2018) and the Utilization-adjusted Human Capital Index (Pennings 2020).

While the GEGIs do not capture all of the mechanisms through which gender employment gaps affect growth, they are highly correlated with more comprehensive measures in other studies (>95% across regions). This suggests GEGIs capture some of the most quantitatively important channels. Other mechanisms the GEGIs do not capture include effects of female employment via fertility (Galor and Weil 1996), effects through faster growth due

> 2 This is a consequence of the well-known U-shaped relationship of female labor force participation with income first documented by Goldin (1995). However, Klasen (2019) argues that the U-shaped pattern is mostly due to region fixed effects, and individual countries do not display this pattern along their development path.

2