In Armenia, is the ‘economic pie’ smaller than it should be?

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Last week, I posed a provocative question – and today I would like to share some recent research by our analytical team here in Yerevan that looks at this issue in detail: what is the economic cost of Armenian women not participating in the labor market?  

Is it possible that the constraints women face result in misallocated talent which constrains the overall economy and makes the economic pie artificially smaller?

Let’s see. Using an approach called ‘equilibrium occupational choice model’, our team started out with these basic ideas:
  • People have various levels of entrepreneurial and managerial skill: individuals with the highest skill level become employers, those with intermediate skill become self-employed, and those with the least entrepreneurial skill become employees.
  • Less talented managers run smaller or less innovative firms, which have lower production, wages, and profits.
  • Women and men are identical in their endowment of skill , and if supported in pursuing education and opportunities, are equally able to develop the technical knowledge to pair with that managerial and entrepreneurial skill.
  • Women face constraints imposed on them from outside that keep them out of the labor market , so they don’t progress to becoming employers or being self-employed … and some women are excluded entirely from the labor market.
In Armenia, is the ‘economic pie’ smaller than it should be?

Using all of the characteristics and data that we have on Armenia’s economy, and applying a methodology for modelling that has been used for a wide range of other countries in the world, we then try to test whether we would see – if gender gaps were closed and barriers to women’s participation removed – an economic ‘bump’.

Our modelling results show that as much as 14% of potential GDP is lost in Armenia due to unequal opportunities for women to participate in employment and entrepreneurship. From the point of view of total economic output, this tells us that the ‘economic pie’ could be considerably bigger. That means that raising women’s participation is not a ‘zero-sum game’ !
 
Women face constraints imposed on them from outside that keep them out of the labor market

But, Armenia is not alone in having a smaller ‘economic pie’ … and this challenge is not exclusively a problem for ‘developing countries’ either. So, the challenge for policymakers – and for the World Bank Group, as we seek to help – is to take action on multiple fronts to help grow that ‘economic pie’ in Armenia and beyond.

Authors

Laura Bailey

Global Lead for Stability Peace and Security, Lead Social Development Specialist

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