Speech

Speech: Catalyst for Change: Empowering Women and Tackling Income Inequality by Christine Lagarde, IMF Managing Director

October 22, 2015

Introduction

Good evening, everyone—I am delighted to be here. Let me congratulate Oxfam America on the opening of their new offices!

Oxfam has come a long way since it was founded at 17 Broad Street in Oxford 73 years ago. Today, you work in over 90 countries, with 17 national chapters—including Oxfam America. Oxfam is a longstanding advocate for social justice on many fronts.

Personally, I have been especially struck by your recent work on inequality, including your finding that last year “the world’s richest 80 people had the same wealth as the bottom half of the world’s population.” Your work in this area is deservedly attracting attention.

We at the IMF have also intensified our focus on the macro-critical dimensions of inequality. This evening, I would like to take this opportunity to launch a new IMF Staff Discussion Note—“Catalyst for Change: Empowering Women and Tackling Income Inequality”, our third paper on gender equity in the past 2 years. Copies are available in the room, and on our website.

I will highlight some of the key findings from our recent inequality work, focusing on our new paper, which addresses the two questions of why gender inequality matters, and what different policymakers can do about it, depending on the circumstances. But first of all, why does income inequality matter?

Put simply, reducing excessive income inequality is not just sound social policy, but sound economic policy as well.

Fund research has confirmed that growth and inclusion reinforce each other. Most recently, our research¹ demonstrates that a 1 percentage point increase in the income share of the poorest 20 percent can lift growth by about 0.4 percentage points in the following 5 years. Conversely, increasing the income share of the richest 20 percent actually works in the opposite direction: it can actually harm growth by about 0.1 percentage points in the following 5 years.

So there is ample evidence that inclusion is good for the economy. Not only is this true of income, but it is also true of gender. And this is what this most recent paper focuses on:

1. Why Does Gender Inequality Matter?

Empowering women is not just about fairness—it also has macroeconomic benefits. For example, eliminating employment gender gaps could boost GDP by 5 percent in the U.S., 9 percent in Japan, and 27 percent in India.

Today’s new IMF staff paper goes a step further: gender inclusion not only supports growth; it also reduces income inequality.

The paper uses a multi-dimensional Gender Inequality Index that encompasses gender inequality in labor market outcomes and opportunities. It studies links between these two phenomena for almost 140 countries over two decades.

The paper’s key finding is that moving from 1 to 0 can give you 10.

Let me explain. To move from the worst possible to the best possible world. That is, going from total gender inequality—1 on the Index—to total gender equality—0 on the Index—could reduce income inequality by 10 Gini points. This is a big deal—10 Gini points is the approximate difference between Europe’s least inclusive and the most inclusive country.

So, from 1 to 0 gives you 10: tackling gender inequality can reduce income inequality significantly. And as we know, reducing excessive inequality is conducive to more sustainable growth. Now we need to ask:

What dimensions of gender inequality lead to income inequality? Channels and policies.

2. Policies to Tackle Gender Inequality

The new paper examines channels linking gender inequality with income inequality. While the main drivers are gender gaps in labor force participation and education, there are differences across countries.

For emerging market and low income countries, the paper finds that inequality of opportunity for women is an important driver of income inequality. Policies to expand opportunities include:

• Investing in health and education—increasing education spending by 1 percent of GDP in India could boost female labor force participation by 2 percentage points.
• Improving access to infrastructure and finance—in many low income countries, microfinance has helped to reduce the gender productivity gap.
• Removing legal barriers—another IMF staff paper published earlier this year found that constitutionally granting gender equity could increase the number of women in jobs by 5 percent. This was demonstrated in Peru and Namibia for instance.

In advanced countries—where women tend to have greater opportunities—inequality in economic participation contributes significantly to income inequality. Policies to close these gaps include:

• Introducing paid parental leave for both mothers and fathers and providing high-quality, affordable childcare—reducing the cost of childcare by half could increase the number of young mothers in the labor market by 10 percent. This has certainly been taken into budget considerations in Japan, where a million more Japanese women have joined the job market.
• Raising women’s pay—currently, women earn just three-quarters of what men earn, even with same level of education and in same occupation.
• Replacing family taxation with individual taxation—can reduce marginal taxes on secondary earners, thereby encouraging women to work.

In sum, by creating opportunities for women and by promoting their economic participation, policymakers can also tackle income inequality. I am pleased that our work in this area is continuing in other settings: next week the African Department will release its latest Regional Economic Outlook with a chapter on the impact of income and gender inequality on growth in that region.

Conclusion

To close, Oxfam’s co-founder, Cecil Jackson-Cole, once said: “There is a world of need out there; we must go on.”

Today, there is a need for sustained growth and stability. To achieve this, we must go on by strengthening inclusion—including by empowering women. I believe this is an area of mutual interest where Oxfam and the Fund can work together for a common cause.

Thank you.

¹ Causes and Consequences of Income Inequality: A Global Perspective. Era Dabla Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta. IMF 2015