Women are an overlooked resource in the battle to tame inflation

Fully integrating women into the labour market would substantially boost economic output.

About 75 percent of US women in their prime working years are employed, a record high. These women are playing a crucial role in helping to ease labour shortages and alleviating upward pressure on inflation. That’sespecially true of mothers with young children. But the expiration of $24 billion in pandemic-era emergency aid to child-care providers not only threatens to undo the gains women have made in the labour force but harm the broader economy now and in the future.

What makes the record employment rate for women so impressive is how fast it recovered from the eight-percentage-point plunge at the start of the pandemic, which was twice the decline for prime-age men. The result was a larger spike in unemployment than for men since women are more likely to work in the service sector, which was hardest hit by the pandemic. Plus, many women — especially those with children — dropped out of the labor force as schools and child-care providers closed.

Recognising the strain on working parents, the American Rescue Plan included emergency aid as a stopgap to keep day-care centers open and in-home care operating. It offered grants for maintenance, utilities and salaries for caregiver staff. A portion went to expanding centers, but the primary goal was to protect the services that were available. A survey during the pandemic by the Century Foundation, a progressive think tank, revealed that one-third of providers said they would likely have to close permanently without aid. But the aid ended last week.

So now we’re faced with the prospect of women again leaving the workforce due to insufficient or unaffordable child care. Up to this point, the rising participation of women has been good news for the Federal Reserve’s fight against inflation. Although inflation at a rate of 3.7 percent is down from last year’s peak of 9.06 percent, it remains higher than the Fed’s 2 percent target. And sectors that rely on women workers such as food services are experiencing even higher rates of inflation of 6.5 percent. The lesson here is that stable child care can help support stable prices.

And although the women’s labour force participation rate is a record high, there is potential for more gains. The employment rate for prime-age women is back on its pre-pandemic, upward trend that started around 2015. This latest move higher is most likely attributable to a strong labour market with plentiful job opportunities and rising wages that can help cover the cost of child care. But the thing about business cycles is that they swing both up and down, and they are less reliable than public or private programs that support working women.

Letting women’s labour force participation slip again could also be risky for productivity growth. The reason why is that education levels for women continue to rise, setting them up to boost productivity. However, gaps in careers, such as taking time off to provide caregiving, can lead to a loss of skills. And an inability to pursue careers that are currently less family-friendly can keep women from contributing their potential to the economy. Technology that allows for things like working from home helps but fails to apply to many jobs.

Fully integrating women into the labour market would substantially boost economic output. The labour force participation rate for prime-age men is 10 percentage points higher than it is for women. Researchers at the Federal Reserve Bank of San Francisco examined the differences in employment, hours worked, educational attainment, educational utilisation and occupational allocation by gender and race. They calculate that closing the current gap with women would have added $1.7 trillion, or 8 percent, to gross domestic product in 2019. The largest contributor — $600 billion — to the additional output was equalising employment rates, underscoring the importance of getting more women into the workforce.

That’s especially true when you consider that women’s employment in the US has fallen behind its peer countries. In 1990, 71 percent of prime-age US women were employed, essentially the same — 70 percent — as prime-age Canadian women. Canada has since pulled ahead, with 81 percent of its prime-age women working. Cornell University economics professors Francine Blau and Larry Kahn compared the prevalence of women’s labour force participation and family-friendly programs across 22 OECD countries. They found that the more generous programs abroad can largely shrink the gap in participation between men and women, albeit mainly from more part-time work.

Changes in demographics make drawing women into the workforce critical. With the aging of the population, the dependency ratio of workers supporting the retired is falling, helping to explain the burgeoning costs of old-age programs such as Social Security and Medicare. More workers paying into the system would help cover costs in a growing economy, help maintain those programs and raise revenues in general.

Women are an untapped resource of additional, productive workers. Finding ways to support women, including mothers, in the is a way to support economic growth.

Claudia Sahm is the founder of Sahm Consulting and a former Federal Reserve economist. She is the creator of the Sahm rule, a recession indicator. Views are personal and do not represent the stand of this publication.

Credit: Bloomberg