Introduction

It is a well-known fact that economic prospects for women have been much diminished by the experience of the COVID-19 pandemic across different social structures, and in both high-income and in low and middle-income countries alike. As the burden of caretaking often falls disproportionately on the shoulders of women, many working women across jurisdictions were forced with the choice to act as a primary caregiver, thus often necessitating a withdrawal from the labor force during the pandemic. This decline in female labor force participation catalyzed what the International Monetary Fund (IMF) has referred to as a ‘She-cession.’^[1] As a result of the loss of economic opportunity during COVID-19, the United Nations (UN) posits that an estimated 47 million women have been pushed to extreme poverty. Even despite a robust recovery in advanced economies such as the United States — and an uptick in wage growth for women in 2022 YTD — the gender wage gap remains material, with female wages in the United States standing at 83.1% of the earnings of men.

In response, both temporary policies— as well as some structural changes — are afoot with policymakers from countries such as Japan, Italy, and the United States announcing measures to improve the labor force participation rate (LFP) of women (such as by expanding affordable childcare), as well as introducing measures to achieve gender parity in wages, increase the number of women on boards, and to boost digital skills for women. Moreover, amidst the backdrop of an accelerated focus on Environmental, Social, and Governance (ESG) factors and the commitment to “build back better” in the wake of the pandemic, investors, executives, and industry bodies have a renewed focus on improving the “G” or governance component. This includes accelerating the path toward gender parity in the boardroom, as well as by stepping up the number of women on executive management teams.

While some of these measures might vary in their degree of scope, efficacy, and eventual implementation, the question begs to be asked: what is the next “big thing” in female economic empowerment, and accordingly, in ESG policy and investment? As we shall see, closing the wealth gap between men and women is likely to expand as both a need as well as an opportunity. As more women enter the labor force; as protocols and quotas are expanded to include more females on executive teams and boards; and amidst growing efforts to achieve parity in pay, women are likely to accumulate more wealth over time.

As we shall explore, the ways in which this wealth is secured, managed, and grown over time presents a challenge to societal, cultural, and organizational norms across countries, and indeed to women themselves. Interrelated factors such as uneven access to credit, barriers to female entrepreneurship, unbalanced venture capital funding, lack of ownership of business assets, and the pension gap have hitherto hindered progress in creating a more level playing field for women to hold wealth. In the case of some countries, lack of access to financial services, and to both land and non-land assets— as well as comparatively lower financial literacy and confidence levels for women – have hitherto hindered progress in creating a more level playing field for women to hold wealth. Efforts to mitigate the gender wealth gap present a sizeable opportunity for governments to truly deliver on their promises to improve the lot of women; for organizations and investors to fulfill the “S” and “G” components of ESG mandates; and for societies and economies to grow durably and sustainably over the long-term.

Closing the global gender gap: a terracing effect

A close look at the data behind the World Economic Forum’s Global Gender Gap Report reveals a terracing effect of advancements for women in the world. Achievements in each category or metric— including health and survival; access to education; political empowerment; and economic participation and opportunity— have often paved the way for each successive component to be met. In other words, to work towards gender parity, health and survival is a foundation, which then enables access to education; expanding educational opportunities allow for political empowerment; and the positive signaling from female political empowerment can spill over into opportunities for economic participation. It is important to note, however, that progress is not linear. While 2020 presented setbacks for women in economies across the globe— and, as the UN posits, the potential for decades of advancements to be lost – countries can also backslide on previous achievements in political empowerment, as well as on economic participation.

By breaking down the various components which may comprise female economic empowerment and arranging them into a terracing effect, one can see how expanding female LFP, increasing quotas for women on management teams and boards, and greater moves toward gender parity in wages— in the case of some countries, enshrining this balance into law — form the foundation for greater opportunities for women to hold wealth, and thus to generate both wage and non-wage income.

Wealth inequality: diverging asset composition, and the marriage downside?

Wealth inequality between men and women is not just a problem in developing economies, where women might face barriers to accessing financial services, or accessing inheritance, or land or non-land assets. In the heart of Europe, within Germany, a man’s wealth is on average 45% higher than that of a woman; in France, 15% higher, and in Italy, 18% higher.^[2] A recent study of administrative data in Estonia reveals that even within households, substantial wealth inequality exists: in households of married couples, “men have on average 89% more wealth than women.”^[3]

This wealth gap widens significantly at the top of the income distribution, and the data from Estonia reveals that diverging asset composition underpins this gap. At the lower part of the income distribution, women tend to hold deposits, as well as men. At the top of the income distribution, men tend to hold more business assets than women. Indeed, researchers point to a “striking” difference in business wealth between men and women, with men in Estonia holding “nine times as much business wealth” than women; in Germany, men hold 5.5 times more business wealth than women. On the whole, women tend to be more conservative in the types of investments they hold (such as savings deposits or real estate),^[4] while men might harbor a stronger risk appetite. Hence, the rephrasing of the old adage, that women hold savings accounts on Venus, and that men hold shares on Mars.

Closing the confidence gap: yes, she can

Empirical data also shows that women often suffer from a confidence gap in measuring and communicating their own performance, vis-a-vis men. In a closely controlled study, researchers find a “large gender gap in self-promotion,” which is “persistent” and emerges as early as the 6th grade (11-12 years old). If a woman completes a math and science test (designated as “male oriented” fields), and is told that her results will impact potential employment and earnings opportunities, a “robust” gap between how women describe their performance vis-a-vis men exists. By contrast, when a woman is tested in what is designated to be more “female,” that is, verbal tasks — or she is asked to subjectively describe the performance of others — the gap narrows. Strikingly, even when women outperform men on a math and science test (answering 9.94 questions correctly, vs 9.34 for men),— and even when women are informed that they have participated well — women persistently underestimate their own performance.

The “pass through” of these lower confidence levels into wealth inequality is clear. Research indicates that there is an interrelationship between lower financial literacy scores for women, and thus lower stock market participation rates. In the UK, a recent report evidenced that women “consistently” lag behind men on financial literacy, “across generations.” To address these gaps, bright and bold measures have been taken by women working with one another, in the form of offering services to improve financial literacy and to provide insights on investing; the generation of female-owned investment services; as well as a notable increase in female wealth managers catering to women. While the growth of such services is laudable, the onus is ultimately on women to find within themselves the ability to chip away at the confidence gap.

Conclusion: Balanced opportunities for business ownership – and reimagining female entrepreneurship

In considering the persistence of an unbalanced playing field between men and women in the business world, much ink has been spilled in revealing the inequity in the start-up and venture capital ecosystem. In the United States, 75% of venture capital firms do not have any female partners. US policymakers have recently drafted legislation to mitigate this and thus to improve access to capital for female entrepreneurs via tax credits for both employees and investors.

And yet, it is worth pointing out that female entrepreneurship — and corresponding levels of women owning business assets — is not limited to a female-run business or a start-up. Women can exist as entrepreneurs within larger organizations. Accordingly, incentives need to be designed to facilitate greater shares of co-ownership within companies. To extend the analogy of the terracing effect of female economic empowerment further: enhancing, expanding, and incentivizing opportunities for women to build up business assets naturally follows on from a longer term trend of higher female LFP, increasing numbers of female managers, and efforts to mitigate the gap in wages. Management practices, too, will need to keep pace: for to imbed and enact such incentives portends (a perhaps welcome) departure from the “quota” mentality. While setting targets for the number of women to be included on boards or management teams might be useful for an initial benchmarking or exercise in incentivization, forward-thinking investors should identify companies which truly integrate this concept of balance and parity in their ESG strategy.

In sum, while a bulk of attention remains on closing the persistent income gap between men and women in the form of earned wages, forward-thinking policymakers, investors, and executives should focus on addressing the “next big thing” in female economic empowerment. Fostering and embedding ways to close the gender wealth gap yield the potential to address a persistent problem which has developed over a long time horizon, and which has had negative spillover effects into issues such as the gap in pensions. As such, mitigating the wealth gap could create a positive feedback loop into prospects for sustainable economic growth and development, and presents a substantive measure for efforts to closing wealth inequality overall.