Too few women at work: Fix this distortion to spur the economy

Inefficient labour allocation holds growth back. Address it by removing barriers to women’ participation in the workforce

- PINELOPI KOUJIANOU GOLDBERG

With protectionism and industrial policy returning to advanced economies, and with geopolitical tensions on the rise, this is an inauspicious moment for trade-led growth strategies.

Since future growth will increasingly depend on sound domestic policies, lowand middle-income countries should focus on ensuring that existing resources are fully and efficiently deployed. And no resource is more valuable than human capital.

While economists and policymakers have long recognized the accumulation of human capital—particularly through investments in education—as a driver of growth and development, they have devoted far less attention to the efficient allocation of existing human capital. An economy at any level of development can achieve its full potential only if individuals pursue occupations that best suit their talents and preferences.

Eliminating, or at least reducing, misallocations of talent should therefore be a top priority. A growing body of economic research has shown that even in advanced economies such as the US, reducing talent misallocation can have meaningful economic effects.

For example, an influential paper published a few years ago attributed 20-40% of US per capita market output growth from 1960 to 2010 to improvement in talent allocation. This additional growth was achieved by reducing labour market discrimination against women and African-American men, and by lowering the barriers these groups faced in developing human capital.