Hi,
I'm Dimple Gosai, head of US ESG at bank of America, based in New York.
Ahead of International Women's Day, this year we decided to explore the theme of the disproportionate impact of inflation on women's financial health.
But… let's start with the good news first… In 2022, the gender gap narrowed by four years-- and to reach full parity it will take another 132 years at the current rate of progress. More importantly, the biggest contributor to this was women's economic opportunity, where the gap now stands at 151 years vs 260 years the prior year. Contributing to this we saw
Women on average earning 2% more than they were last year.
The share of technical roles that women hold increase by 6.7% on the year
In 2021, half of start-up businesses being formed by women vs. 28% in 2019
However, while women have made strides in the workforce, progress on women's rights is not linear, and setbacks have occurred in recent years. Recent shocks such as Covid-19 led to women globally to lose around $800bn in income (more than the combined GDP of 98 countries) (according to Oxfam). Social unrest in Iran, and the Russia/Ukraine war has also worsened gender inequality by directly affecting women's lives and livelihoods or keeping them out of school and work.
We now are concerned that "post-pandemic" inflation is threatening to wipe out the progress women have achieved. In fact, the Ellevest Women's Financial Health Index (which considers 12 indicators such as pay gap, inflation, and employment rates) shows that the landscape for women was worse last year than at any point during Covid. And the sharp drop in early 2022 also corresponds to inflation trends, with nearly double-digit year-over- year growth.
Taking a closer look at the inflationary backdrop: global real monthly wages fell 0.9% on average in 2022, marking the first decline in real earnings in the 21st century. BofA's global economist, Ethan Harris suggests that while inflation is likely to ease in the next few years, it could remain higher than normal. And elevated one-year-ahead inflation expectations mean core inflation may be hard to bring back to target quickly. Today, women are especially at risk of real wage losses. Here's four reasons why:
Child-care costs are surging and have outpaced income growth. This is a significant barrier that prevents women from getting into, remaining, and progressing in the labor force. Recent research shows that the childcare crisis costs the U.S. economy $122bn a year in lost earnings, productivity, and revenue. The gender parity gap for labor-force participation rate stands at 62.9%, the lowest score registered since the index was first compiled.
No. 2 - Healthcare affordability: Medical benefit costs globally are projected to rise more than the global average of 10%, the highest in 15 years. This can disproportionately affect women given they tend to have lower incomes than men and spend 30% more on out-of-pocket healthcare costs than men do.
Third reason - Education costs: The rising cost of tuition and student loans could disproportionately affect women and minorities who may already face affordability constraints to accessing education. While in the US women are outpacing men in college completion, they also hold two thirds of student debt. Overall, this may hinder or delay women from becoming more financially independent.
Lastly - Unequal representation in the job market: Women and minorities have lower representation in "high-paying" industries that are more "insulated" from inflation pressures, such as technology or finance.
Now what?
This is a critical time for companies to get ahead of the curve by investing in DEI initiatives. While it seems counterintuitive as we see many companies cutting personnel and DEI budgets, this could have repercussions for culture, innovation, and growth. DEI becomes increasingly important for companies during these inflationary periods given the need to adapt and innovate in order to stay competitive. Fun fact - if the 'innovation mindset' were raised by 10% across countries, global GDP could increase by up to $8trn by 2028.
Secondly, while pay raises might not always match inflation, companies can retain employees by focusing on benefits such as flexible work, child-care or student loan assistance that "inflation-proof" employee's wallets. Companies that offer DEI-related programs generally trade at a premium to those that do not - while not true for every metric, we found this is currently true for Paid Parental Leave, Child Family Care, Tuition Reimbursement, and Flexible Work Options, in old economy sectors.
We further discuss the link between financial results and gender diversity, across geographies.
Our colleagues from around the globe gathered data on gender diversity in individual markets. They found that the proportion of women on boards has increased in the past decade, with the biggest gains in the US and Europe. Our figures show a correlation between gender diversity and higher future ROE for both the US and Europe and looking across large caps and small caps.
In Asia, companies with a greater proportion of women in management outperformed those with a lesser proportion by 29% over a five-year period, on our analysis. Since 2010, these companies have, on average, exhibited higher ROE, better ESG rankings, and a lower WACC.
Inside our report, please find specific stock screens.
