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Reasons Workforce Gender Diversity Matters for the Economy

More women in the labor force can bring substantial benefits for both the economy and for society. A pair of recent reports from top financial industry research shines new light on how powerful those benefits can be.

A report titled Women in the Economy: Global Growth Generators from Citi Global Perspectives & Solutions (May 2015) and a series of reports starting in March 2016 on gender diversity including the “Putting Gender Diversity to Work: Better Fundamentals, Less Volatility” from Morgan Stanley’s Sustainability Research and Quantitative Strategy teams are important contributions to the conversation about how women’s labor participation boosts company performance and overall economic growth.

The reports offer useful insights and lessons for investors, business managers, educators and policymakers about how expanded gender diversity is a net plus for companies, society and the larger economy.

Here are seven key take-aways from the Morgan Stanley and Citi reports:

It’s not simply a matter of giving women priority in hiring—it’s about creating a diverse environment that encompasses multiple talents, skills and viewpoints.

The Morgan Stanley report makes it clear that diversity is the goal:

Our analysis of gender diversity does not suggest that female employees should be given priority, but rather that they be given equitable and meritocratic consideration. That said, it is women who are often underrepresented in certain workplace settings, such as management. One gender is not presumed to be preferred over another; gender diversity itself is the preference.

These studies serve as a timely reminder that creating more opportunities for women in the workforce can enhance individual companies’ performance while driving growth in the larger economy. At a time when growth rates in the United States and worldwide remain slower than desired, that’s a win-win scenario. 

Gender diversity in companies can bring noteworthy performance benefits.

Looking for increased productivity, greater innovation, better decision-making, and higher employee retention and satisfaction in your company? Then strive for a more diverse mix of gender representation in the workforce, management and the board of directors, the Morgan Stanley researchers suggest.

For enterprises, more gender diversity is good for the bottom line.

The Morgan Stanley report finds a positive link between a company’s financial performance and gender diversity in its workforce. Companies with well-rounded and inclusive work environments can see higher returns on investment, the researchers find.

Morgan Stanley researchers Jessica Alsford and Eva Zlotnicka point out that gender diversity is correlated with positive attributes of “growth, profitability, corporate spending and accounting quality.” They say:

Gender diversity can improve team decision-making and improve innovation capabilities for development of new products or services. It can also create alignment with diverse customer bases and, thus, open up untapped business opportunities.

Gender diversity is particularly important in certain sectors.  

Gender diversity can offer an especially powerful boost in industries with a strong consumer focus, researchers find.

The Morgan Stanley report points out that equal representation of the sexes is particularly key for sectors where employee engagement and satisfaction reflects directly on the quality of the product or service—financials, technology, retail, leisure and business services, among others.

Benefits don’t only show up at the company level—the larger economy benefits from gender diversity, particularly in countries with older populations. 

Especially in developed economies with lower birth rates and aging populations, more women participating in the workforce can expand the labor pool, unleash untapped talents and drive growth, the Citi report finds:

By better utilizing educated and highly skilled women in the labor force, countries facing demographic challenges could boost competitiveness, tap into a more skilled labor force and generate growth with little incremental cost, as well as increase the tax base per retired person, increase the tax base relative to debt load and help address the issue of pension sustainability, amongst other benefits. 

The Morgan Stanley report offers a similar conclusion, emphasizing that the growth in the labor supply stemming from gender equality can boost productivity and incomes.

Women’s labor participation also brings “a boost to human capital” for future generations.

An underappreciated aspect of gender diversity is the follow-on effect generated by women investing their incomes in the education and welfare of their children, analysts Heidi Crebo-Rediker and Tina Fordham write in the Citi report. Those positive effects are seen in both advanced and emerging economies, and can result in long-term social benefits of improved education and living standards for future generations, they explain:

Because women in control of their income typically use more of their income to invest in their families (health, education and welfare) than do men, women in the paid labor force can, in fact provide a double boost to human capital. Women’s track record of investing a large proportion of their household income in their children’s education, including the education of girls, potentially triggers a virtuous cycle.

Emerging economies may see the biggest potential and gains from gender diversity.

While developed economies like those of the United States and western Europe should continue striving for gender equality, emerging economies with a more significant labor imbalance are likely to see the most substantial gains from bringing more women into the workforce. As the Citi report explains:

Overcoming formal and informal barriers and translating education into equal opportunity to work could unleash women’s economic potential and lead not just to higher growth outcomes, but also create far broader consumer bases with enormous commercial implications as these women begin to control and spend income. Women in the workforce are also key to lifting families out of poverty in the poorest countries.