The Armistice of the Sexes: Gender Complementarities in the Production Function

Most macroeconomic and growth accounting models assume that male and female workers are perfectly substitutable in the aggregate production function. Whether this assumption is valid is an empirical question that this article aims to answer by estimating the elasticity of substitution (ES) between female and male labor. This study applies linear and non-linear techniques to firm-level data, cross-country sectoral data, and cross-country aggregate data. Findings show that women and men are far from being perfect substitutes in production, a result that is consistent with much microeconomic evidence, but has not permeated to macroeconomics. The failure to account for imperfect gender substitutability has far-reaching implications. Standard growth accounting exercises are likely to attribute to technological progress gains that are more properly attributable to the impact of greater gender inclusiveness in the labor force over time. Put differently, the gains from gender inclusiveness are likely much larger than standard economic models estimate.