Getting Women Back into the Workforce Is a Priority of the Fed. Here’s Why.


Women have borne the brunt of the Covid recession, accounting for 55% of net U.S. job losses since February 2020. In addition to those women who left the workforce, millions more have reduced their work hours or stepped back from career opportunities—losses that aren’t fully captured in official government statistics.

The reasons for these trends aren’t hard to find: Women account for the majority of workers in education, leisure, and hospitality, enterprises that have been among the hardest hit by pandemic-related closures. In many families, women are also responsible for most childcare and eldercare needs, which have grown exponentially with the closing of schools and support services.

Women’s exodus from the workforce, or their diminished engagement, could have far-reaching economic consequences, ranging from a negative effect on the economic recovery to revised interest-rate expectations. It could even dent long-term portfolio returns.

Nearly two million women have left the workforce since February 2020. Men, too, have been hard hit by the Covid pandemic, but have seen a more pronounced jobs recovery so far. In March, for example, about two-thirds of net job gains went to men, according to the National Women’s Law Center.

Many women who lost or left their jobs haven’t just stopped looking for work, but now describe themselves as retired. Men are more likely to take a pause in their job search with the intention of returning to work, according to Gallup economist Jonathan Rothwell.

Two papers published recently by the Federal Reserve show that the recent job recovery has been especially elusive for mothers. While fathers and mothers of young children left the labor force at similar rates in April 2020, nearly all the fathers had returned to work by last November, while mothers had regained almost none of their lost ground, according to a February paper by the Minneapolis Fed.

Another paper just out from the San Francisco Fed found that if mothers had seen a recovery similar to that of nonparent women late last year, 700,000 more working-age women would have entered the workforce through December, according to Fed economists.

Leaving work since the Covid pandemic began, the U.S. labor-force participation rate among women fell to a 33-year low of 56.3%. It recently ticked up to 57.4%. Men have also lost ground,
Civilian Labor Force Participation (women 20 and older)Source: Bureau of Labor Statistics

Prior to the pandemic, the U.S. economy was enjoying a Goldilocks expansion characterized by strong growth with little inflation, partly driven by a rise in female labor-force participation between 2017 and 2019. Since the pandemic, however, the seasonally adjusted labor-force participation rate among women 20 years and older fell by more than two percentage points to a 33-year low before ticking up in March to 57.4%. Men’s participation in the job market fell by two percentage points in the 13-month period that ended in March, but remains higher, at 69.5%.

The departure of women from the workforce is a key concern for the Federal Reserve. In a speech last month, Fed governor Lael Brainard warned of “scarring effects, with longer-term implications for household incomes and potential growth,” if the decline in labor-force participation among prime-age women because of caregiving demands isn’t reversed soon.

Fed officials haven’t hidden the fact that they are focused on an inclusive recovery. Thus, it behooves investors to pay close attention to women’s labor-force participation and job growth. The Fed is unlikely to tighten monetary policy until employers can offer women their full-time jobs back, says Jessica Rabe, co-founder of DataTrek Research, an investment research firm. That’s why she expects Fed Chairman Jerome Powell to stay accommodative and be creative, using all the tools at the Fed’s disposal to get more Americans back to work as soon as possible.

“The only way to get female labor-force participation back to pre-pandemic levels is by getting the economy running as hot and fast as possible because growth is what pushes employers to hire,” Rabe says.

Among the challenges will be accessibility to in-person schooling and child care, especially as summer approaches. “This dynamic is particularly difficult for single moms who need their full-time jobs back in order to pay for childcare,” Rabe says. “In many ways, this needs to be the single-mom recovery.”

New attitudes toward remote work and flexible hours could also encourage more women to return to work after the pandemic, but the recovery might still be slower than the market anticipates.

“You can’t expect it to be an on-and-off switch in terms of labor-force participation; it’s going to be more of a dimmer,” says Nela Richardson, chief economist at ADP.

The challenge of getting more women back into the workforce is one reason why Pimco economist Tiffany Wilding doesn’t see the U.S. economy returning to pre-Covid levels until at least the middle of 2023. “There will be lingering scars,” Wilding says of the hit to the services sector, in which women are disproportionately represented. “Some jobs won’t come back and, similar to other crises, there will be some economic reallocation, with other parts of the economy growing where those people can transition to. But that will take time.”

Samantha Palm, manager of the Parnassus Fixed Income fund, says that barriers to bringing women’s labor-force participation back toward pre-pandemic levels could keep inflation below expectations, and interest rates subdued. As a result, Palm favors a heavier allocation to corporate bonds and high-yield bonds than lower-yielding Treasury securities.

The hit to household incomes could also temper an expected recovery in consumer spending, which the market has been betting on later this year. “When we have a swath of working-age adults who can’t engage in the workforce, we are losing out on economic growth, on development more generally, and on profits,” says Misty Heggeness, an economist and senior adviser at the Census Bureau. “It’s all intertwined.”

The consequences of the pandemic could play out over many years in terms of thinning the ranks of women moving up the corporate ladder. Senior-level women were 1.5 times more likely than their male counterparts to consider taking their careers down a notch or leaving their jobs because of Covid, according to a 2020 study by and McKinsey.

The talent drain is more than a human-resources problem; there is an empirical correlation between greater gender diversity on boards and in corporate management and higher profitability. Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, has found that companies with an above-median number of women in management generate a 30% higher return on equity than companies with a below-median number of women executives. Companies with an above-median number also demonstrate 30% lower earnings volatility over the next year.

Research from Morgan Stanley also unearthed correlations between gender diversity and return on equity. Among the reasons Morgan Stanley analysts cite for outperformance on such metrics: Gender diversity has been correlated with better employee engagement and retention; it helps companies attract talent and promotes innovation, and it can help reduce reputational risk.

For these reasons, some large investors such as Calvert Research and Management have been pushing companies to create more transparency around the issue of gender diversity. The head of Capital Group, one of the world’s largest investment firms, recently wrote to 1,500 companies, urging them to disclose more information about the composition of their workforce. The Securities and Exchange Commission is also beginning to consider rules for disclosures around companies’ environmental, social, and governance, or ESG factors, with workplace diversity high on the list.

Among the silver linings of the Covid pandemic has been heightened attention to these issues—and greater acceptance of flexible work situations. But for gender-gap dynamics in the workforce to really change, says ADP’s Richardson, companies need to think in terms of equity, not equality, recognizing that men and women often face different responsibilities outside of the office.

“Women’s careers have been built on masking that they have these responsibilities, but to get to the next level, we have to take an honest look at the situation,” Richardson says. “Because of the structure of the economy, it’s easier for men to go back to the office than women. What does that mean for promotions, pay, and bonuses? That’s going to be critical.”

That’s one reason Lori Keith, director of research at Parnassus Investments, favors companies such as Autodesk (ticker: ADSK) and Clorox (CLX), which have supported talent development and offer flexible work schedules, paternity and maternity leave, and other policies that facilitate the longevity of women’s tenure in the workplace. “Companies may have parity of pay, but may not be giving promotional opportunities to women, which limits the number of women in the executive ranks,” Keith says.

At Calvert, quantitative analyst Yijia Chen gauges companies on gender diversity not just at the board and senior management levels, but at the junior-management level. Also financially material, based on her research, are policies that provide for caregiving leave for the primary and secondary caregiver, offering a balance for men and women.

Mastercard (MA) is a standout in many of these regards, Chen says. The company is among the few to offer gender-segregated pay disclosure and generous parental leave for both primary and secondary caregivers. The ratio of the percentage of women in senior management to the percentage of women in the company’s total workforce is 0.85, suggesting women at Mastercard have almost as much opportunity to be promoted as men.

At Verizon Communications (VZ), the ratio is above one, suggesting women have the same shot as men at advancing. Adobe (ADBE) offers 16-week paid caregiver leave, publishes gender pay data, and has specific strategies in place to narrow the gender gap, Chen says.

With $4 of every $10 in global equity flows going into ESG funds, according to Bank of America, the types of companies that rank highly on metrics such as diversity will continue to get more attention. “We know that these are financially material issues,” says John Streur, chief executive of Calvert. “Once we get more transparency, people will allocate more to better management teams and companies that can provide an attractive workforce for women, people of color, and people from different ethnic backgrounds.”

In the meantime, America’s economic recovery will depend on getting women back into the workforce after the disruptions of the past year. When that happens, growth will accelerate, inflation could materialize, and interest rates might finally rise. That’s hardly a terrible outcome, and it could be a good one if it means a lower unemployment rate, a stronger U.S. workforce, and the potential for women to make more strides in the corporate world, helping to bolster many companies’ finances and investment appeal.

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