Diversity at work and economic growth
There has been a growing realisation that better use of workplace minorities will have a direct positive influence on the Holy Grail of economics – increasing productivity growth.
Workplace minorities come in all shapes and sizes. They are based on gender, age, ethnicity, religion, sexual preference or a myriad of other traits. While some minorities were known for specific skills, it has been difficult to explain, let alone quantify, the overall benefit of diversity in the workforce.
The emergence of technology has triggered an explosion in potential markets for goods and services, as well as sellers of products. Free-trade agreements and specific policies to promote minorities have provided a powerful boost to different segments of the labour market and economy as well.
According to the Organisation for Economic Cooperation and Development1, as much as half of total economic growth in countries is due to innovation. Innovation often builds on what is already known. But a necessary ingredient is creativity.
Creativity is more likely to emerge if there are disparate people in a room trying to solve a problem. How to sell products to the massive Chinese market is a perennial question for many organisations. Having Chinese speakers, and people with family backgrounds from China, in a room debating the solution with others in an organisation is a good way to start.
Part of successful creativity is social cohesion. Enabling workers from all types of backgrounds to collaborate is a necessary condition for creativity. These sorts of social drivers of economic health are critical for future prosperity.
Former Reserve Bank of Australia board member, Professor Ian Harper of Deloitte Access Economics, wrote a report2 last year where he says: “How well people relate to one another facilitates creativity; social connectivity helps labour markets function efficiently; and a healthy population adds to overall economic welfare. This is where concepts such as diversity and inclusion fit in the economic landscape.”
The World Economic Forum3 has taken a much greater interest in social inclusion supporting economic growth.
“Economic growth coupled with social inclusion is one of the world’s most pressing global issues that require a concerted effort between businesses, governments and civil society,” the Forum says.
One of the drivers of greater social cohesion and inclusion has been technology. Technology has literally opened up global markets for local producers of goods and services. Selling to different markets takes different skill sets. Employing a more diverse workforce better enables a company to attract sales.
Twenty years ago, there were around 140,000 workers over the age of 65. That number is now closer to 600,0005. People are living longer adding to spending in the economy."
Technology has enabled teams to better collaborate. Working from home, or across borders, is now a realistic option for many workers. It allows people to manage their work-life balance better and be part of the labour market. Attracting workers into the market, particularly in part-time roles, aids in addressing a chronic labour market challenge in many western economies – underemployment.
Technology has also been a boon for trade across borders. From initial sales meetings to logistics and payments in different currencies, technology has smoothed the process. It has also allowed some older economies to become 'new' economies. In Australia’s case, the country’s trade is gradually shifting off the teat of agriculture and mining towards the services sector.
These changes and opening up of markets mean companies need a more diverse talent pool to recruit from.
The increase in female participation in the workforce in Australia – female participation rates have gone from around 54 per cent 20 years ago, to above 61 per cent today4 – is an example of a workplace minority boosting economic growth. It has helped use up spare capacity in the economy. Around half of the female workforce are in part-time employment, decreasing underemployment.
That’s good for employment levels, wage expectations and the rest of the economy.
Similarly, older workers are contributing more to the Australian economy. Twenty years ago, there were around 140,000 workers over the age of 65. That number is now closer to 600,0005. People are living longer, adding to spending in the economy.
An economy like Australia, over the longer term, has had excellent outcomes in employment growth, compared to the United States. Higher GDP growth and the avoidance of the Global Financial Crisis are key reasons behind this. However, Australia’s high migration rate could also be a reason that isn’t often mentioned. Half of Australia’s population growth is driven by migration. And migration boosts output and drives economic growth6.
There are also several instances of policies and debate that promotes inclusion driving better outcomes. Academic research7 in Australia shows that since the inclusion of more women on listed-company boards became a topic of discussion, better bottom-line outcomes and greater diversity have gone hand-in-hand.
The trillion dollar question is whether this all leads to rising productivity and higher living standards. The jury is still out on that one, at least in Australia.
| Fast facts |
| As part of the International Women’s Day initiative, the Global Institute for Women’s Leadership and Kings College London studied global attitudes towards gender equality in society and the workplace. The research has found notable progress, but there’s still a way to go worldwide. Key findings include: |
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Labour productivity growth has averaged around 0.8 per cent each year over the past five years, which is lower than the OECD average of 1.0 per cent. But it is still below the long-term average. We won’t know for sure for a few years yet.
Traditional Australian industries, such as mining, agriculture and manufacturing, depend on scale and technical innovation to improve productivity. But as Professor Harper says, greater productivity in the services sector depends on innovation driven by creativity and imagination.
Those traits are stimulated by human interaction.
“The more diverse we are when we gather, the more we stimulate, challenge and goad one another to greater heights of imagination and creativity,” Professor Harper says. “But for diversity to work its magic, there must also be inclusion.”
1 https://www.oecd.org/sti/OECD-Innovation-Strategy-2015-CMIN2015-7.pdf
2 https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/deloitte-au-economics-benefits-improving-social-inclusion-270819.pdf
3 World Economic Forum 2016, Global Challenge Initiative: Economic Growth and Social Inclusion
4 https://www.wgea.gov.au/data/fact-sheets/gender-workplace-statistics-at-a-glance
5 Australian Bureau of Statistics and Parliamentary Budget Office report, 2019, 'Australia's Ageing Population'
6 For more information, see: https://esacentral.org.au/images/Islam2.pdf
7 https://www.ey.com/en_au/assurance/how-to-get-more-women-in-the-boardroom
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