Working women have kept Canadian economy strong, IMF says

More favourable taxation policies for families with two incomes and an increase in child-care benefits have helped bring thousands of Canadian women into the workforce since 1995 and that has had a direct benefit to the economy, according to a working paper by the International Monetary Fund.

Better child benefits, less taxation boosted female workforce since 1995

About 73.5 per cent of women of working age in Canada had jobs in 2004, up from 67.7 per cent in 1995, and that helped the economy grow, an IMF paper says. (Associated Press)

More favourable taxation policies for families with two incomes and an increase in child-care benefits  have helped bring thousands of Canadian women into the workforce since 1995 and that has had a direct benefit to the economy, according to a working paper by the International Monetary Fund.

And women at work have helped propel Canada’s economic expansion in that period, despite growth in labour productivity that is merely average, according to the report’s author, Evridiki Tsounta.

Female participation in the workforce increased to 73.5 per cent in 2004, from 67.7 per cent in 1995, putting Canada behind only a few countries like Sweden, Norway and Denmark in the percentage of women working.

"This remarkable performance has helped spur Canada's remarkable growth performance since 1995, despite only average growth in labour productivity," she said in her paper.

Canada led OECD nations in economic growth, in part because mothers joined the workforce.

Women in the workforce 1995 2004
Canada 67.7% 73.5%
Nordic countries 73.1 75.1
EU15 57 62.6
OECD 58 59.9
U.S. 69.7 69.2
G10 63.4 66.6

Countries such as the U.S., U.K., Australia and Japan lag Canada in rates of women working and that could present problems as the labour force ages, leaving fewer people to pay for seniors’ health costs and pensions, Tsounta says.  It also has had an impact on their economic growth, because families with less spending money are less likely to indulge in retail spending.

She recommends other countries find ways to boost female participation in the workforce before an aging population catches them with high debt and a shrinking pool of labour.

Tax measures left more money for families

Tsounta traces the increase in Canadian women working in part to the increased amount of take-home pay Canadian families enjoyed in the late 1990s after the federal government relaxed taxation measures meant to deal with Canada’s high deficit.

Among the differences:

  • Elimination of a three per cent general surtax for low- and middle-income families in 1998 and for all Canadians in 1999.
  • Elimination of a five per cent deficit-reduction surtax for incomes up to $85,000 Cdn.
  • Lowering of middle-income personal income tax rates to 24 per cent from 26 per cent in mid-2000.

Because women are usually the second earners in the family and make a lower income, their decision on whether to work often depends on how much more of their income goes into family coffers.

Tsounta calls the difference between income lost to mothers who stay home to raise their children and the take-home pay of mothers who work the "secondary earner tax wedge."  She estimated the net tax wedge on secondary earners, usually mothers, fell by 30 per cent between 1995 and 2001.

Child benefits improved

At the same time, Canadian provinces and the federal government were improving child tax benefits and putting more money into child care.

Some of the measures taken:

  • Introduction of the Canada Child Tax Benefit.
  • The expansion of maternal and paternal leave benefits in January 2002.
  • A 2003 agreement between Ottawa and the provinces to invest in early childhood education and childcare, with the federal government committing $5 billion over five years.
  • Provincial measures such as Quebec’s universal child care at $7 a day and Ontario’s expansion of all-day kindergarten.

Tsounta calls this a "benefit wedge" and points out that each improvement reduces the costs to families and leaves more of a mother’s income available for family expenses.

Policies with greatest impact

Other factors such as the wage gap between men and women, how secure employment is, whether male unemployment is high and education enrolment by women can have an impact on whether mothers decide to work, she said.

But family-friendly policies and lower taxation on middle-income Canadians over the last 18 years appear to have had the greatest impact in encouraging participation in the workforce, she said.  

"The analysis indicates that policies, similar to the ones initiated in Canada to 'reconcile work and family,' could positively boost female participation in other countries that suffer from low female participation," Tsounta writes.

"Policies that induce particularly young women to enter the workforce could also have positive long-term implications ... by raising life-time participation," she added.