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I am delighted to host another student guest post, this time by Jong Beom Park. This is the 8th student guest post of this semester. You can see all the student guest posts from my “Monetary and Financial Theory” class at this link.

Gender inequality is most often thought more of as a social phenomenon. However, The McKinsey Global Institute, in its September report, has conducted a gender equality assumption study in which a mouth-dropping number was concluded as the potential economic implications of gender inequality: by promoting and achieving gender equality, global GDP could potentially increase by $28 trillion in 2025. It turns out that the economic loss, arising from gender inequality, is enormous.

Here is a figure taken from the McKinsey’s full report:

The research selected women in 95 countries, which together account for 37 percent of global GDP, for this analysis. The last category of the figure above, full-potential GDP, is a prediction that assumes work participation, in terms of labor-force participation rate, of men and women in chosen countries as equal. First, the study looks at the “best-in-region” scenario, which assumes that all countries achieve the same level of gender parity as best-performing countries in their respective continents. For example, India, one of the poorest performing countries in terms of gender equality, is performing well below its fellow countries in South Asia, and this scenario assumes that India is at the same level as other South Asian countries. And then, other potential GDP measures were calculated, taking economic drivers, such as gender wage gap and work hours, into account. Adding all these numbers results in an enormous increase, $28 trillion, in potential GDP by 2025.

So, how exactly was $28 trillion calculated? In this number, all unwaged work, such as housework, and lower-waged work taken by women were replaced by higher-wage work to be equal to those of men, thereby boosting the potential GDP. This means that women working in unpaid jobs, which is more prevalent in developing economies, were included in calculating labor participation rate until the figure was identical for men and women. In order to calculate the economic costs of gender inequality, McKinsey has created its own Gender Parity Score (GPS) of over 90% of men and women around the world and compared which region or country performed well in relative to others (the strongest scoring region is North America and Oceania at 0.74). It is clearly stated in the study that rich economies, though far from perfect, performed significantly better than developing and poor economies, which can then be concluded as the presence of a strong correlation between gender equality and economic performance. And then, calculating the productions from newly-assumed jobs taken by women in the study, new potential GDP was forecasted, resulting in $28 trillion at full potential and $12 trillion in the “best-in-region” scenario.

On contrary to the result that strong economies show relatively more gender equality, South Korea is an example of an advanced country with deeply-rooted gender discrimination (scoring 0.65 on GPS). Here are some statistics: in the World Economic Forum’s gender gap index, an index measuring gender equality, the 14th largest economy in the world, South Korea is ranked 117th with only 53% of South Korean women currently in the active workforce. South Korea is also rated poorly in other figures, such as gender wage gap. The situation is certainly improving with new measures, such as guaranteeing longer maternity leave. A larger population of highly educated women also contributes to less gender discrimination. South Korea has had a long journey, from the ashes of the Korean War to a today’s high-income developed country. But, with further measures towards gender equality, according to the McKinsey report, could lead South Korea to another “Miracle on the Han River.”

Going back to the McKinsey report, McKinsey offers several measures that can be initiated to improve this global problem, such as favorable laws and financial support. Personally, I believe that the roles of new businesses are extremely important. Gender equality might not be achieved in a short time in businesses that have long history and deep-rooted corporate culture. However, newly-formed firms have opportunities to start anew with gender equality. As more newly-formed businesses, with fair mindsets, enter the market, I believe, it could ultimately lead to a society with no or little gender discrimination.

Maybe, it is time that we start taking gender inequality issues seriously as a remedy for the ailing global economy.