Closing gender gaps in employment has been recognized as a critical driver of inclusive growth and fiscal and social sustainability in advanced and emerging economies. Within the context of the Eu Horizon project PATHS2INCLUDE, ARCO’s Researchers Federico Ciani and Arianna Vivoli studied and assessed the potential societal-level gains of reducing or closing the gender employment gap. The working paper “Simulating the closure of the gender employment gap in selected EU countries” shows that reducing the gender employment gap results in a clear increase in government revenues and a reduction in social benefit expenditures, confirming the potential economic and fiscal returns of higher female employment. The analysis is based on a microsimulation analysis with EUROMOD using the most recent tax and benefit systems available for Italy, France, Romania and Sweden.
While much of the public debate on gender equality policies tends to emphasise the costs of intervention, it often overlooks the costs of inaction. Europe has been relatively slow in adapting labour market and care policies to effectively promote gender equality. Quantifying what is lost each year as a result of this inaction can therefore serve as a powerful tool for policy advocacy.
In the case of female labour force participation, the “cost of inaction” translates into higher inequality, forgone productivity and fiscal revenues, and higher expenditure on social benefits. By estimating the effects of higher female employment, the study seeks precisely to quantify these losses, thereby clarifying the economic and social stakes of maintaining the status quo instead of progressing toward the creation of more inclusive and gender-balanced labour markets.
Reasons to close the gender gap in employment
A first and most intuitive reason for pursuing a reduction in the gender employment gap (GEG) lies in the full realization of social rights within the European Union.
A second strong argument in favour of closing the gender employment gap lies in the inefficiencies generated by systematic barriers to women’s participation in the labour market. When women face structural obstacles—whether through discrimination, unequal access to childcare, or inflexible work arrangements—the overall allocation of human resources within society is compromised.
A third compelling rationale for closing the gender employment gap relates to the middle and long-term sustainability of welfare systems. Several factors can threaten this delicate balance. Among them, demographic dynamics stand out for their magnitude and difficult reversibility. The European Environment Agency identifies population ageing as one of the defining megatrends shaping Europe’s future, with profound implications for welfare sustainability, labour supply, and intergenerational equity. Declining fertility and ageing are expected to lead to a relative shrinking of the labour force compared to the so-called dependent population. This will have a direct impact both on social needs (expected to grow) and on tax revenues and social contributions (potentially declining because of the reduced size of the workforce).
Assessing the consequences of closing the gender gap in employment
The analysis of the fiscal and distributive implications of closing and narrowing the Gender Employment Gap is performed using the EUROMOD tax-benefit microsimulation model and its Labour Market Adjustment (LMA) Add-On together with EU-SILC microdata. The aim is, thus, to construct country-specific scenarios that simulate the full and partial closure of the gender employment gap and assess the effects on:
- Fiscal space via changes in government revenues (through direct taxes on income and wealth, social insurance contributions etc.) and government expenditures (unemployment benefits, social assistance, housing and pensions etc).
- Poverty rates
- Income inequality across households
The simulation assumes two policy scenarios:
- Full closure of the GEG: a benchmark scenario where women’s employment rates are raised to match those of men within each country.
- Narrowing the GEG: the scenario simulates the target set in the European Pillar of Social Rights Plan, which aims to at least halve the gender employment gap by 2030 compared to its 2019 level in each country.
The microsimulation results show that, overall, increasing female employment not only contributes to greater gender equality and social inclusion, but can also generate positive fiscal returns, even when policies target more vulnerable women or involve employer-side incentives. Indeed, regardless of whether policies focus on women closest to or furthest from the labour market, expanding female employment consistently leads to net fiscal improvements.
Nevertheless, when incorporating projected demographic changes into the analysis, the picture becomes more nuanced. Microsimulation results indicate that, under the 2030 population projection, the fiscal gains associated with a larger tax base driven by higher female employment are partially offset by the growing fiscal burden of an ageing population, particularly in terms of pension expenditures and healthcare costs.
