Women and the Economy: An Emerging Growth Market

It hasn't been easy to find a bright spot in the global economy for a couple of years now. Growth markets, once as numerous as no-interest mortgage options, have grown scarce. But in the last few months, economists, consultants, and other business types have begun to track the rise of a new emerging market, one that may end up being the largest and most powerful of all: women. According to a new study by the Boston Consulting Group, women are now poised to drive the post-recession world economy, thanks to an estimated $5 trillion in new female-earned income that will be coming on line over the next five years. Worldwide, total income for men ($23.4 trillion) is still more than double that for women ($10.5 trillion), but the gap is poised to shrink significantly because the vast majority of new income growth over the next few years will go to women, due to a narrowing wage gap and rising female employment. That means women will be the ones driving the shopping—and, economists hope, the recovery. That growth represents the biggest emerging market in the history of the planet—more than twice the size of the two hottest developing markets, India and China, combined.

It's seismic stuff, and the impact of the shift—one that few leaders, either in the political world or in business, have fully grasped—will be broad and deep. An August report by Goldman Sachs entitled "The Power of the Purse" proclaims women the economic engine of the future, noting that future spending by women, which tends to focus more on health, education, and children's well-being, "should support the development of human capital" to a greater extent than spending by men, thus "fueling economic growth in the years ahead." At the same time, the report notes, economic growth continues to bolster gender equality, a virtuous circle that has already had massive impacts on the status of women around the world.

While most of us know intuitively that women's place in the world has risen in the last several decades, a look at the hard data is startling, in a good way. Huge improvements in female access to education around the world mean that the literacy rates for young women, which used to trail those of men by 30 percent or more, are now almost universally within a single digit of men's. In the U.S. and the EU, most college students are already women, and even in most of the key developing countries, girls now fare nearly as well as boys in primary- and secondary-school enrollment. Labor-force participation, already high in rich countries, has jumped exponentially in large swaths of the developing world over the last few years; 70 percent of women in countries like China and Vietnam now work. Health has improved dramatically, and fertility rates have dropped. While women are still underrepresented in politics, there have been significant gains in recent years, most notably in poor nations—countries like Uganda, Burundi, and Macedonia are among those that now have more than 30 percent female legislatures, thanks largely to the implementation of quotas. Around the world, nations are changing laws to give women more equal standing in areas like property, inheritance, and divorce rights. In many cases, technology and globalization have played an important role in changing attitudes. A 2007 study by the National Bureau of Economic Research on rural India found that within six to seven months of getting cable TV, men and women alike had become more open to the idea of women's autonomy, and more accepting of female participation in household decision making.

In fact, women already make the majority of the world's purchasing decisions. BCG estimates that they control some $12 trillion of the world's $18.4 trillion in annual consumer spending, and that percentage will likely rise as a new upwardly mobile class of young female professionals overtakes their male peers in wealth and status. In developed countries, there is already an elite cadre of urban women who are more powerful than their male counterparts. "If you walk down the streets of Manhattan, London, or Frankfurt today," notes BCG senior partner Michael J. Silverstein, "and you ask 100 single men and women between the ages of 25 and 30 what they make, the women will make more." It's nothing less than the entry of a new generation of potential leaders onto the world stage. "The shift is statistical," says Silverstein. "Older women who tended to be paid less are retiring, and a new group of younger women, who had equal education and started with roughly equal wages are rising." Silverstein believes that if this new group, now rising through middle management, stays on the fast track, the number of Fortune 500 CEOs who are women could rise from 38 today to over 100 in the next 10 years.

Higher female earners in the developed world, coupled with growing female employment participation in poorer countries, is the reason that women's earned income is growing at 8.1 percent versus 5.8 percent for men. The financial crisis has widened this gap, by hitting male jobs hardest. Some 80 percent of job losses in the U.S. during the downturn have befallen men, in part because male-dominated areas like manufacturing and financial services have been gutted during the recession. But the rise of female earning power is a deeper shift that has gone hand in hand with the other economic megatrend of our era: the advancement of emerging markets. As Goldman's report makes clear, improving gender equality has coincided with the rapid growth of the global middle class. From about 1.7 billion people today, this middle class is expected to reach approximately 3.6 billion by 2030, and 85 percent of the newly wealthy will live in the world's major developing nations.

The rise of women as a grand, cross-border emerging market could have implications as profound as the rise of India and China. There's a wide body of research to suggest that women's spending patterns may be exactly what the world needs at this moment. "Economists have studied how women spend in comparison to men, and they tend to spend more on things that are linked to people's well-being, like health and education. They also tend to save more, and exhibit less risky financial behavior," notes Yassine Fall, senior economic adviser for UNIFEM, the U.N. agency dedicated to women. The fallout for business and investors could be significant. Goldman Sachs estimates, for example, that more male-oriented product categories like alcohol and tobacco may show slower growth rates than areas like consumer durables, food, health care, and child care—in short, all the stuff that women spend their money on.

Women may also play an important role in reshaping industries like financial services. The female propensity to save may fuel growth of banking services in countries such as India, where roughly half of all household assets are currently held in physical categories like land and machinery. The vast unmet desire among Western women for more simple, understandable financial products and services could also help make retail investing in countries like the U.S. more accessible and transparent. Analysts say companies like Visa, Wal-Mart, Nestle, Johnson & Johnson, and others that already have a strong leg up in the women's market stand to prosper further from the female consumer boom.

Meanwhile, as women gain greater power at the political level, there will also likely be macroeconomic spending shifts. A study last year of Britain's Parliament found that since 1997, when the country doubled its female representation in Parliament to 18.2 percent, family issues such as tax credits, health care, child care, and education have received more money and more attention. Likewise, in India, where a 1992 law mandated increased levels of female participation in local government, female council leaders have taken on 60 percent more water projects than their male counterparts. Of course, there's widespread consensus now that government spending on health, education, and social safety nets are exactly what the world needs to get growth back on track. If women can help do that, with political power as well as the power of the purse, they may be the catalyst for any number of new growth markets.