Macroeconomic costs of gender gaps in a model with entrepreneurship and household production

Abstract

This paper examines the quantitative effects of gender gaps in entrepreneurship and workforce participation in an occupational choice model with a household sector and endogenous female labor supply. Gender gaps in workforce participation have a direct negative effect on market, while gender gaps in entrepreneurship affect negatively market output not only by reducing wages and labor force participation but also by reducing the average talent of entrepreneurs and aggregate productivity. We estimate the effects of these gender gaps for 37 European countries, as well as the United States, and find that gender gaps cause an average loss of 17.5% in market output and 13.2% in total output, which also includes household output. Interestingly, the total output loss would be similar (12%) in a model without household sector, since the market output loss is larger when the female labor supply is endogenous. Eastern Europe is the region with lowest income fall due to gender gaps, while Southern Europe is the region with the largest fall. Northern Europe is the region with the largest productivity fall, which is due to the presence of high gender gaps in entrepreneurship.