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Industry Spotlight > Women in Wealth

Narrowing Gender Pay and Power Gaps Could Boost Growth, Markets

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In commemoration of Women’s History Month in March and International Women’s Day on Friday, March 8, a number of financial organizations are focusing on the actual and potential power of women in the economy and financial markets. Narrowing the gap between the two would not only boost U.S. and global growth but also increase gains in U.S. and global stock markets.

S&P Global found that increasing the participation of women in the U.S. workforce to match the rate in other advanced economies — the U.S. placed 13 among top OECD countries, according to Bank of America Merrill Lynch and the World Bank — U.S. GDP could potentially increase 0.2 percentage points annually, which would boost S&P 500 growth by 0.7% per year.  

After 10 years that could yield a $2.87 trillion increase in market capitalization in the U.S. and $5.87 trillion increase in capitalization of global markets, according to S&P Global, which notes that stronger growth in the U.S. boosts market growth abroad. The increases, however, vary by country, according to S&P Global.

The World Economic Forum in 2017 said that closing the economic gender gap across countries by 2025 could increase global GDP by $5.3 trillion; Merrill, citing McKinsey & Co., says the increase could be several times that, $12 trillion to $28 trillion, which translates into 13% to 31% faster GDP growth.

For individual companies and their stocks, performance tends to strengthen as the number of women on corporate boards and in the executive suite increases, according to studies by the Peterson Institute for International Economics and McKinsey.

“Bottom line: Reducing gender disparities in the workplace can bring material, financial benefits to corporations as well as help drive global economic growth,” according to Erica Lasdon, ESG senior analyst at Calvert Research and Management, in a recent report. Companies with greater boardroom and workplace diversity “have been shown to have a competitive advantage — including reputation, investor confidence and financial performance,” writes Lasdon.

Despite such data and reports, gender gaps in pay and representation on corporate boards and in top management persists. 

Women comprise roughly 22% of the seats on corporate boards and positions in executive management while men account for about 77%, according to Lasdon, citing reports from McKinsey, Deloitte and the National Center for Education Statistics.

There are some initiatives focused on changing those imbalances, among them a new law in California requiring that all public companies with principal executive offices in the state have a minimum two women on five-member boards and three women on seven-member boards by the end of this year.

In the U.K., private and public companies with more than 250 employees are required to report, since last year, the difference between men and women’s hourly pay rate, bonus pay, and their percentages in each quartile of pay band.

In the U.S., an Equal Employment Opportunity Commission rule was expanded in 2016 to require companies to include pay data by gender and race for companies with at least 100 employees. The Trump administration blocked its implementation and a federal district court ruled last week that it must be reinstated, a decision that’s likely to be appealed.

Also in the U.S., a growing number of states and cities have passed laws or regulations that ban prospective employers from asking applicants about their pay history, and momentum is building for passage of the Equal Rights Amendment by the states.

Women in Arizona are planning three days of marches to sway state legislators to pass the ERA, which would bring the total number of states in favor to 38, just topping the required three-quarters needed for passage. Even then, legal challenges are expected.

On International Women’s Day, more than 83 stock exchanges around the world rang their bells in favor of gender equality, according to Women in ETFs, a nonprofit organization with more than 4,700 members.

The organization, which formed five years ago, is dedicated to expanding connections among women in the ETF industry, and to support and inspire them. Less than a year ago, it introduced a speakers bureau to promote the visibility of of women in the industry, including at the Inside ETFs conference held annually in Hollywood, Florida.

Linda Zhang, the founder and CEO of Purview Investments, an RIA firm, and co-founder of Women in ETFs, tells ThinkAdvisor that the key to closing the “power gap” between men and women rests with hiring, promotion and the pay of women.

In the meantime, the share of women in the U.S. labor force continues to rise and women account for a growing share of income. “It is therefore important to get into the minds of women,” Merrill writes in a new report.

Its strategists found that women spend more on health care, food at home and housing than men, average almost an hour more at work and tend to use incremental disposable income to pay down debt.

Advisors serving female clients or having female co-workers may want to keep those gender differences in mind. “Studies have shown time and again that women tend to manage their finances differently than men,” according to the BofA Merrill Lynch strategists. “Women tend to be more inclined to reduce debt and are also less optimistic about future income growth.”

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