Gender, Monetary Policy, and Employment: The Case of Nine OECD Countries

Abstract

In many countries, low and stable inflation is the focus of monetary policy. Recent empirical evidence from developing countries indicates, however, that the costs of reducing inflation are disproportionately borne by women. This paper seeks to determine whether a similar pattern is evident in nine Organisation for Economic Co-operation and Economic Development (OECD) countries, using quarterly data for 1980–2004. The study examines economy-wide and sectoral employment effects by gender by utilizing two methodologies: single equation regression and vector autoregression analysis. Results indicate that the link between monetary policy instruments (short-term interest rates) and employment in the industrial countries under investigation is weak and does not vary by gender.

Keywords:

• Gender
• employment
• monetary policy
• inflation
• OECD countries
• JEL Codes: E4, E5, J1

Acknowledgments

The authors thank Renee Courtois, Mary Daly, Fred Furlong, Eric Swanson, Gary Zimmerman, the guest editors of the Special Issue of Feminist Economics on Inequality, Development, and Gender, the anonymous referees, and the participants in the Western Economic Association International (WEAI) 2007 annual conference for their useful comments. We also thank Charles Notzon for outstanding research assistance. All remaining errors are the responsibility of the authors. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System.

Notes

¹ Gerald Epstein and Erinc Yeldan (2008) provide a summary of recent work that challenges the benefits of inflation targeting. Note that a focus on price stability does not necessarily imply inflation targeting.

² At the same time, it is important to bear in mind that monetary policy is a national policy (or in the case of Euro-zone countries in our sample, Finland, Italy, and Spain, the European Central Bank (ECB), set monetary policy in the interests of a group of countries), and cannot be used to address interests of one particular group. However, contractionary monetary and fiscal policies have adverse class and gender-differentiated effects, as explained by Diane Elson and Nilüfer Çagatay (2000) and documented recently for a group of Latin American and Asian countries (Günseli Berik, Yana van der Meulen Rodgers, and Ann Zammit 2008). That said, high inflation has considerable costs, as does deflation (as the recent Japanese experience reminds us). Thus, in our opinion, abandoning the current focus of central banks on low and stable inflation is not a solution, even if it is found that women more than men are negatively affected by contractionary monetary policy. A greater understanding of its economic implications for various social groups is warranted, in our view, as social policies can be designed to address these adverse consequences of national policies.

³ For a survey of evidence of gender differences in economic behavior and the implication for macroeconomic policy for developed and developing countries, see Janet Stotsky (2006).

⁴ For the purpose of this paper, our attention rests on the short-term effects of interest rates on employment. The theory of money neutrality posits that monetary policy cannot influence long-run employment, although this view has been challenged (see, for instance, Laurence Ball [1999a]).

⁵ Both demand- and supply-side explanations for employment segregation have been advanced. On the demand side, employer discrimination against women, including the perception that women are on average less qualified, could result in a greater willingness to hire men and a greater willingness to lay off women first during economic downturns. On the supply side, one explanation is that women self-select into occupations that require smaller human capital investment, due to lower penalties for career breaks. This could be attributed to “societal discrimination,” whereby women are expected to bear the burden of raising children, thus requiring more flexible jobs.

⁶ Gender disparity in job tenure has been decreasing in the US, with men's tenure decreasing since the late 1990s and women's tenure remaining more or less stable since the early 1980s (Craig Copeland 2007: Figures 2 and 3). Booth, Francesconi, and Garcia-Serrano (1999) find that in the UK, although women are more likely to be laid off, the termination rates among men and women are similar.

⁷ One alternative to our approach would be to do an exercise similar to that of Braunstein and Heintz (2008) – that is, to identify deflationary episodes for a selected set of countries and then look at actual employment trends during each deflationary episode, comparing these actual employment trends to long-run employment trends. However, in that case it would be necessary to take a stand on our choice of deflationary episode identification methodology. Additionally, we would not be able to control for changes in other macroeconomic variables that can also affect employment (such as real exchange rate fluctuations).

⁸ We also experimented with a four-quarter inflation average ( ) and obtained similar results.

⁹ For a detailed discussion of rational expectations models and the challenges they pose for empirical research, see Laurence Ball (2000).

¹⁰ The random walk model can be described as y_t = y _t‐1 + ε_t , where ε_t is white noise. When inflation behaves like a random walk, shocks to inflation have a long-lived effect on inflation. That is, when inflation goes up (down), it stays up (down).

¹¹ The database was discontinued in 2004. For many countries, employment data is not available for the pre-1980 period.

¹² We calculated percentage changes in the index by comparing the change in the index based on consumer prices for the country concerned (expressed in US dollars at market exchange rates) to a weighted average of changes in its competitors' indices (also expressed in US dollars) using the weighting matrix of the current year. We then calculated the indices of real effective exchange rates from a starting period by cumulating percentage changes. This gives a set of real effective exchange rates based on moving weights.

¹³ The money market rate for Canada is the overnight money market rate; for Finland, it is the average cost of central bank debt; for Italy and Switzerland, the money market rate; for Japan, Norway, and Spain, the call money rate; for the UK, the overnight interbank rate; and for the US, the federal funds rate.

¹⁴ We also examine the sensitivity of employment sectors and interest rates by comparing statistically significant correlation coefficients (available from the authors upon request). These results indicate that agriculture is not correlated with changes in interest rates, but industry and services are. Employment in industry is most strongly correlated in Spain, Japan, Canada, and Finland in the whole sample and in the UK for the earlier period. Services exhibit a strong correlation in Spain, Norway, Finland, and the UK. Male employment in the industry sector is correlated with changes in interest rate in Canada, Finland, Japan (but with the opposite sign), and Spain. In Spain, the UK, and the US (with a positive sign) female employment also exhibits this correlation. For services, we find a correlation for both genders in Italy, Norway, and Spain, and also female employment in Finland and male employment in the UK.

¹⁵ We performed an augmented Dickey-Fuller unit root test on all the series and experimented with three different versions of the equation by including a constant, a constant and linear trend, or neither. We could not reject the null hypothesis of a present unit root in most cases for the employment and real exchange rate series.

¹⁶ Estimating an equation relating employment to other macroeconomic variables in log differences is standard in the literature. See, for example, Jose M. Campa and Linda S. Goldberg (2001) and William Nordhaus (2005).

¹⁷ This is discussed in greater detail in Yelena Takhtamanova and Eva Sierminska (2008).

¹⁸ Monetary policy shocks can arise due to a variety of random factors affecting monetary policy decisions. These include models employed by monetary policy-makers, measurement error in the data available at the time of decision making, and political factors.

¹⁹ There is a debate about whether the variables in a VAR need to be stationary. Some argue against differencing (even if the variables contain a unit root), as differencing “throws away” information concerning co-movements in the data (Sims 1980; Thomas Doan 1992). A similar argument applies to de-trending the variables. We calculated the VAR with both de-trended and differenced variables, and obtained qualitatively similar results to those obtained from neither de-trended nor differenced series. Thus, we only present one set of results.

²⁰ The ERM crisis break data also coincides with large differences that have occurred in the labor market in the 1980s and 1990s, particularly for women.

²¹ Another may be that industry classifications are too broad to pick up some within-industry effects of monetary policy changes by gender. We are unable to address the latter concern due to lack of more detailed comparable quarterly cross-country employment data that is gender disaggregated.

²² While assuming exogeneity of exchange rates is hardly plausible from a theoretical standpoint, empirical studies show that macroeconomic variables have little explanatory power over exchange rates (Richard Meese and Kenneth Rogoff 1983; Kenneth Rogoff 1992; Walter Enders 1995).

²³ Estimation results of the responses of male and female employment to a contractionary monetary policy, as well as the difference in the two responses in a table format, and separate figures for the responses of male and female employment are available from the authors upon request.