Forecasting Eye 

 

Our present short term focused market system does not lead to proper allocation of resources because it doesn’t price externalities properly with little account taken of long term impact of actions. This is of course changing as concern over environmental issues such as climate change is increasing but prices and actions are adjusting too slowly and will continue to move slowly unless there is concerted international government and institutional action to deal properly with the issue. Sometimes you need to regulate. And sometimes nudge. More often than not you need both.

 

And that is how it is with women’s labour market participation too- but here the balance of nudge versus regulation is too tilted towards the nudge. We would, I suspect, be further ahead if we had a bit more regulation that encouraged labour market participation- from equal pay to better parental leave and more heavily subsidised childcare. What is not priced properly in the case of women is the loss in productivity, prosperity and growth more generally in not having women acquire more skills and work at their skills levels- and not quit high paid or otherwise hoped for professions without achieving their potential.  Barriers are put in women’s labour force participation all across the world – many more than those seen in the Soviet era and in communist China, whatever we may think of the merit of those regimes, before they opened up to embracing globalisation.

 

In the UK, with one of the worst maternity benefits in the OECD,  something that is attracting attention now in the election built up , it is clear that when women leave work for a while to have children or opt to work part time for whatever reason including recovering from childbirth they end up working at least one level below their skills level and almost never recover their earlier career path. According to the IFS women’s earnings decline for a good 12 years after the birth of their first child and plateau thereafter. In contrast, those of men start rising at that point and continue rising.

 

And yet capitalism will tell you that utilising skills to the full is good for revenue and profits. And there is increasing evidence that companies with more women in senior positions- and more diverse in general- do better financially. But it requires long term commitment for firms to achieve the changes necessary to get there and the pressure for short term profits does not justify the long term investment needed.

 

Truth is that most advances for women in the UK have been through government intervention. Women were needed in the wars as so many men were senselessly sent to fight, many to their deaths. After the wars women were put back into their boxes in the mistaken belief that that there are only that many jobs and men needed them. The “lump of labour” fallacy is still not understood as witnessed in the Brexit immigration debate. And it is only relatively recently that women have been let out of their boxes, through legislation such as equal opportunity and equal pay – but still only tentatively.

 

There are many issues of fairness one can talk about in relation to the urgent need for gender equality. Feminists are very vocal on this and I share the frustration felt by many. But my view is that economic empowerment is the necessary, though by no means sufficient condition to achieving equality. The Me Too  movement has gone a long way to raise awareness of this power imbalance, Mary Beard and others have written about it yet we are all still shocked by revelations of pay inequality in places like the BBC .

 

What is happening is that the system we have been running for centuries is inhibiting women’s labour force participation at the right level and this is a market failure in itself. Left untreated it results in a miss- allocation of resources leading to lower productivity,  less prosperity and growth and greater inequality- between nations and within nations- that inequality being felt more strongly by women who tend to be paid less than men and have lower pension wealth and with much greater chance of falling into poverty . The pay gap is a manifestation of that market failure. And as an ex government economist I know that when one sees a market failure there is good ground for intervention.

 

Despite the emancipation of women that we have witnessed through the last few decades many are still unaware of the obstacles ahead when they choose their studies and plan their careers. Girls now outnumber and outsmart men at University in the UK. But are they doing the right degrees that will guarantee them high income through life? And do they appreciate the shock and cost of having children or being taken less seriously than men as they try to advance? Problem is that nobody tells them! A bunch of heads of business schools have written an open letter arguing that this should be taught at all MBA courses.

 

Vicky Pryce’s book, ‘Women vs Capitalism’ is published by Hurst Publishing on November 10.