Westpac’s plan to lower productivity

You may have seen the story in various media a few days ago about new work commissioned by Westpac suggesting that

New Zealand’s economy has a nearly $900 million annual economic hole because of low numbers of women in management roles, new research suggests.

But if there was an even split of men and women in management there would potentially be an $881m boost to the economy and a positive impact on businesses themselves.

I didn’t pay much attention to it, beyond noting to myself that $881 million is about 0.3 per cent of GDP –  not much of a “hole” in other words, even on Westpac’s (and the consultancy company they paid to do the research) own claims.

But I wondered quite how they’d come up with these estimates so last night –  while the resident woman in management was off at her office party –  I downloaded the document.

It begins with lots of puffery around the alleged economic and financial benefits of diversity –  our banks now apparently see themselves as “social justice warriors”.   I don’t claim any expertise in that particular literature, but I’d refer you to some of Eric Crampton’s reads or, indeed, to a paper I wrote about here a while ago, that leaves me pretty sceptical that there is anything much in the sorts of claims Westpac makes.

The bank is horrified that “60 per cent of businesses do not have a gender parity policy or strategy in place” –  as if picking the best person for the job, male, female, black, white or whatever –  isn’t any sort of legitimate approach to employment these days.   And seems to think that the mere existence of gaps between median earnings of mean and median earnings of women is somehow proof that employers are breaching laws “mandating equal pay for equal work”.  Perhaps Westpac’s crusading CEO could spend some time reading Claudia Goldin, for example.    In the Westpac world, there is apparently no recognition that more mothers than fathers prefer to take time out –  or work in less demanding roles –  to be actively involved in raising children (note the word “more” –  in this household, I’m the “primary caregiver”).  There are implausible claims (without proper documentation in the report) that raising the share of female managers raises rates of return on assets –  in New Zealand’s case they argue that reaching parity could raise returns on assets by 1.5 percentage points.     Not only are these huge numbers, but what sort of metric is return on assets anyway?  Some businesses require lots of fixed assets and other require not many at all.

But what I was really curious about was this alleged $881 million per annum that Westpac reckoned was being left on the table, simply because the share of female managers was less than the share of male managers.  How on earth, I wondered, did they get these estimates?

Fortunately, there is appendix to the report on the modelling.  They’ve attempted to come up with estimates of two separate effects:

  • a “role model” effect in which a higher share of female managers encourages more women into the labour force, and
  • an effect in which the availability of more (by number) flexible employment policies increases the number of women in the labour force.

Taking the “role model” effect first, the OECD has apparently been collecting data recently on the share of employed workers who are managers, by gender, for various countries (unfortunately for this study, there is no data for New Zealand).    But there is only data for four years (2011 to 2014), which even the authors concede make the subsequent model they estimate “statistically challenging”.    They model the labour force participation rate as a function of various things, including the share of women in managerial roles, and they find a statistically significant result.  Statistically significant, but very small.  On the assumption that the gap between the share of male employees who are managers and the share of female is the same in New Zealand as in Australia, if that gap was not there then, on this model, overall labour supply in New Zealand would rise by 0.15 per cent and –  according to a separate Deloittes model –  that would raise New Zealand GDP by 0.07 per cent.   Knocking off an hour earlier/later on Christmas Eve is probably worth about the same amount.

Even then, the results don’t really hold up to much scrutiny.  There is no underlying model of what determines the share of women in management roles (whether here –  for which they have no data –  or abroad), nothing that is robust across time (remember four years of data) and no insight as to what might be involved in achieving the sort of “parity” Westpac wants to see: closing the gap is treated (or so it seems) as something one can simply wave a wand and deliver.

If those estimates are both small and shaky, what follows is worse.   They attempt to estimate an effect on a company changing the number of flexible work policies of the proportion of women in management, and then translate that into an increase in overall labour supply.   Unfortunately all their data are Australian –  include a survey result on the number of working age people not in the labour force who claim that flexible working policies are very important consideration for them, and a count on the number of flexible working policies surveyed companies have in place.   In a simple model, they find that the number of flexible working policies (there is no sense of the empirical size/significance of any of them) is explained (statistically significantly) by the number of women in management in those companies, and thus conclude that if the proportion of women in management was raised to the same as men, there would be (in Australia) a 13 per cent increase in the number of flexible working policies.

The authors then take that 13 per cent increase, the 23 per cent of people not in the workforce who said flexible working practices mattered to them to get an estimate of how many more people would join the labour force through this channel if only the proportion of women in management was raised to parity with men.    They then adjust the result for the fact that many of the new entrants would only be part-time, and estimate that the overall labour supply in New Zealand would rise by 0.55 per cent.   Using the same Deloitte model as earlier this, it is estimated, would raise GDP by 0.26 per cent.

This is all incredibly ropey.  There is no attempt, for example, to assess how robust those answers to the survey were (probably many more people will say flexible working conditions really matter than actually mean it –  it is a socially desirable response).  There is no attempt to look at what the trade-offs for more –  by number –  flexible working policies might be: is there, for example, an offset in lower wages?  And there is no attempt to look for common third factors: maybe it isn’t women in management who  (causally) lead companies to offer more (by number) flexible working policies, but (say) a particular ethos among the owner and top managers of the particular business that drives both outcomes.  And there is no attempt to look at whether the presence of those flexible policies affects more strongly which firm a person (especially a woman) joins, rather than the choice to join the labour market at all.   And there is also no evidence for whether there are threshold effects –  eg perhaps having a lot of women managers lead to more –  by number – flexible work policies,  but the effects might be much smaller if the share of female managers moves from  say 35 per cent to 50 per cent, than if the share moves from 5 per cent to 20 per cent.

I’m not suggesting there is no effect, just that the case is not even remotely compellingly made on these numbers.  It might be fine for David McLean –  Westpac’s CEO –  to lead his firm’s “social justice warrior” campaign, but he really should be rather embarrassed to rely on numbers as shaky as these in support.  I do hope he does banking itself a bit better (then again, there were all those unapproved models where he found himself falling afoul of the Reserve Bank).

But to revert to my headline, did you notice the bottom line numbers for those two effects?  Here is my summary, just replicating their own numbers:

westpac lab supply

In each case, the increase in the labour supply (a cost to the individual concerned) exceeds the estimated increase in GDP.  In other words, on their own numbers nationwide productivity falls as a result (of increasing the proportion of female managers to that of males).

Do I believe the number?  No, I don’t.  I’m sure they are just an artefact of the CGE model of the New Zealand economy they assume –  perhaps something like adding labour, but with no change in productive capital or somesuch.  But Westpac published the numbers, and Westpac claimed the headlines, even though their own numbers suggest our nationwide would fall in the magic wand could be waved and their goal of parity achieved just like that.   It is a case of ropey inputs, ropey outputs, and not much more in the end than a left-liberal feel-good crusade.  Perhaps bankers should stick to banking.

 

21 thoughts on “Westpac’s plan to lower productivity

  1. If replacing male managers with female managers to the point that women are 50% of all managers produces a boost in our economy then does it follow that replacing all male managers with women would produce an even greater boost?
    Or do we start with the assumption that men’s brains and women’s brains are equal? That is the distribution of dumb to brilliant is roughly identical. So our shortfall in women managers results in a loss of potential talent. So if the dumbest male manager is replaced by the brightest female non-manager then there would be a real boost in economic return but this positive return will tend to zero as the last dumb male manager in excess of female managers is replaced.
    However lets challenge the assumption that men and women are equally bright – at present women are doing better than men at virtually all levels of education. So lets reflect university entrance and have women taking 60% of all management positions.
    When this issue is resolved can we deal with the bias against the left-handed. Us lefties are more prone to be detained with mental disorders and whereas accusing a manager of being a woman is not these days a criticism we left-handers are labeled as gauche and sinister which is unfair. At least a keyboard removes the problem of writing with a pen stabbing the paper rather than drawing across it.

    I remember an anthropologist explaining that in every culture men have the high kudos jobs. Almost all religions have men in charge. There is a place in the Sepik where women do all the trading but their men do dances and religious art that is kept secret from women. In my youth women were often chefs in the UK but in France where the position had a higher status they were invariably men. And at the same time (50 years ago) women were more likely than men to be doctors in Russia however Russian engine drivers were male and earned double the wage of a doctor. More recently women were beginning to match male pop stars and lo and behold first reggae and then rap music abruptly arrived to put women back in their place (scanty clad acolytes). So whenever women arrive in high status positions I realise the role is losing its status. So this year we have women playing rugby (both codes) and that indicates the beginning of Rugby’s decline as the top status activity in NZ. Does it need saying politics and politicians have become less reverred by the public since Maggie Thatcher? So the concept of women holding more management roles means the status of manger has begun to decline. I look forward to executive salaries declining accordingly.

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    • In this particular work, there is no distinction drawn between the productivity/ability of men and women – all the gains simply come by drawing more women into the workforce.

      Personally I’m working on the assumption that men and women on average, across all skills in aggregate, are equally skilled. But the distributions seem to be wider for men (as indeed for left handers, like you and me), and some skills seem to be ones where on average men do better, and other women do better. But those are all averages. I suspect the tertiary attendance numbers tell you as much as styles of teaching in skills, and perhaps the nature of the rather more vocational courses – to be a nurse you now get a university degree, but to be a builder you don’t – rather than anything about innate abilities.

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      • Two bell curves of equal area but one taller than the other. So more men found at the extremes: criminals, detainees for mental issues, etc balanced by the scientists, artists and political leaders. This was and too some extent still my opinion but the advantage of age is seeing so many assumptions destroyed and the nuture -v- nature debate keeps throwing up exceptions. The late Maryam Mirzakhani was the first female Fields medalist (2014); Mary Lou Williams could match just about any male jazz musician; Maggie Thatcher (love or loath) was more effective than all the male PMs in the UK. When I grew up all world class violinists were male and Jewish and had been for a century but that has sure changed. It is safest to judge people on a one by one basis.
        I can hear my wife returning from the shops so I’d better stop writing.

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  2. Another perspective

    These days it is de-rigueur for an elite to issue forth with some form of flummery, using big words in a form of blether that is meaningless to the man-in-the-street

    Call it the dark art of deception. Is this an attempt at distraction? You call it puffery. What is a major bank doing engaging a consultant to undertake such research? Why is a bank engaging in “social warrior justice? Haven’t they got anything better to do.

    Another immediate instance of elitist nonsensical misinformation, using the same approach but a different topic was unveiled this week in this interview on Newsroom
    http://www.radionz.co.nz/audio/player?audio_id=2018622415
    waxing lyrical how NZ companies are locking onto climate change using big words in a vacuous way

    I was in Australia in 2005 when it introduced a Clean Energy program consisting of Wind and Solar Energy for residential homes, with subsidies available for the non-rich segment of society. Today, 2017, 30% of all homes in Australia are grid-tied with solar panels. Many commercial businesses have gone 6 star ratings in their buildings and have installed solar energy. Today Australia has 3,000,000 homes installed whereas NZ has 3,000 installations whether residential or commercial. Regional areas such as Daylesford (VIC) have embraced shared clean energy for the entire community

    New Zealand talks about it.

    Within our culture there has been an increase in the number of voices expressing opinions about just about everything. Parallel to this there has been a corresponding decrease in any quality investigative journalism in favour of infotainment. Interviewers for the most part merely give the interviewee a platform on which to express opinions geared to lead us to the view that those in the know are taking care of things and there is no need to worry. An interviewee can spout inane feelgood views which for the most part go un-challenged. We slide along the surface of issues of great importance to our lives and never go any deeper. Unfortunately this allows those in power to do and say pretty much what they want. We are in deep trouble if our views can be so influenced and our opinions so manipulated. Put on your man-in-the-street hat and watch the Newsroom interview

    Liked by 1 person

  3. Personally, I have always turned down jobs where the boss is a woman. Nothing to do with conscious or unconscious bias but I have a problem dealing with emotional decision making where logic gets thrown out of the window and important decisions are based on the illogic of “I feel it’s the best way and therefore That’s the way it’s going to be done”. I place zero value on women’s intuition which is typically 50% wrong afterall in any decision you can always have a 50% chance of getting it right or wrong anyway.

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    • GGF: I really enjoy your contributions and have often clicked ‘like’ but your description of intuition and illogic does seem to describe the confident style of your assertions. I’m assuming you are male?

      At least you had the choice to turn down jobs – not an option for most of us.

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      • There is a difference between common sense based on years of real life experience and women’s intuition. Most of what I write is based on interpretation of facts ie thinking outside of that square box, usually a logical conclusion of aligning the facts. Also under stress women have a tendency to cry and seek a shoulder to cry on. When you are a subordinate it gets rather uncomfortable when that happens to be my shoulder and I am the subordinate.

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      • Don’t get me wrong. I have 2 daughters. One is a budding lawyer and will start working in 2018. I have encouraged her to join the Institute of Directors knowing that she has a greater opportunity to sit on the Board of Directors with the increased public pressure to equalise top managerial positions of top corporates with women. I believe she has now an unfair advantage over her male colleagues by being a woman.

        Liked by 1 person

    • Dude. This is so brazen I wonder if it is said in jest.

      Taking you at your word, this is absolutely conscious bias against women. You are judging the abilities of a potential manager based on their gender – as opposed to their perceivable management qualities. Not only is that bias, it is lazy thinking.

      Further down the thread you mention your own daughters. Would you be happy for them to miss out on a job or a promotion because they were evaluated based on their gender rather than their abilities?

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      • I have worked with many women over the years. In my earlier years I have reported to women bosses and those are the toughest jobs due to having to deal with emotional issues, emotional decision making, self esteem issues and too much focus on detail that the overall strategic outcome becomes usually lost.

        My personal assessment of my budding lawyer daughter is that she is very capable, very intelligent and an excellent memory recall. But as she reads far too many romantic novels, love her shopping and travel and insufficient real world readings her depth and breath of business and real world knowledge is suspiciously shallow even though she breezes through her examinations, gets top grades and achievement accolades.

        I have managed teams of women over the last 30 years but I find that it is the men who develop the business and financial depth and breath of knowledge that gives them better decision making and eventually better leaders due to the depth and breath of knowledge generally. They do get the jobs done and some at super fast pace but they generally skim as their social activities take precedence over their work.

        Men in general develop a passion for their work and it also becomes a hobby learning all the finer gears that makes the business and financial machinery work. Many take a slower pace and are more plodders as they take the time and effort to development a indepth knowledge of the job.

        The recent spate of studies showing concious and unconcious bias in hiring and payment cannot measure the depth and breath of knowledge that eventually leads to better and more sensible decision making that men would bring to the table in the workplace.

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      • Correction: Women in general do get the jobs done and some at a super fast pace but they do generally skim as their social activities take precedence over their work in their spare time.

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      • Thanks for your response, but you did not answer my question:

        Would you be happy for your daughter to miss out on a job or a promotion because she was evaluated based on her gender rather than on her abilities?

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      • Frankly, I do not believe that NZ businesses in general discriminate based on gender whether conciously or unconciously. They usually hire the best person capable of getting the job done and managing their teams most efficiently and effectively whether it is male or female. The fact is that more males do get into more senior position because they do deserve to be in those jobs. I believe my daughter will do extremely well in the current climate of gender equality because she is a woman rather than the expertise that she would bring to the table. She will do a fantastic job but I do not believe that she would have the same passion in terms of putting the job ahead of her social commitments.

        If you walk into any department store, the largest and widest range of clothing is for women and not for men. That is the reality. Women do shop in their spare time, any spare time and as a hobby and for stress relief. Men will generally have work in mind and also as a leisure and hobby activity.

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  4. Cant be fake news

    According to The current godfather of the pubic service, State Services Commissioner Peter Hughes the public sector employs 348,000 people where the number of women make up 48% of senior managers and where the number of female chief executives is 41%

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11956696

    As noted in the first comment above, NZ is a democratic equal opportunity society where females have equal opportunity to establish or buy their own businesses and be the Chairman of Directors and Managing Director and CEO and Manager and dogsbody all in one. That they do not do so in greater numbers suggests they ascribe a greater preference to family creation

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  5. Michael – similar conclusions reached to you from a meta-study released earlier this year by Wharton: http://knowledge.wharton.upenn.edu/article/will-gender-diversity-boards-really-boost-company-performance/

    However, this is a tricky area. A key to improving company performance/returns (therefore contributing to NZ productivity improvement) is to remove discrimination (conscious/unconscious) to allow the most talented to rise to the top, regardless of gender, race, religion or sexual orientation. Simple algorithm that people drive performance, so having the best people will drive the best performance.

    On population distribution (including population within the best schools, universities etc) this should mean that in a non-discriminatory environment we would expect to see a much higher % of female representation in senior management and boards than we currently have (ie we are only about 22% women on our top 100 company boards).

    Unfortunately I don’t believe blunt quota-based strategies will impact on performance (because the research data suggests it won’t) but I wonder how we can actively drive down the barriers to equality in talent advancement?

    Ultimately I hope that there are some smart equity analysts out there that don’t just look at the board photos in the annual report and actually go in and grill management on what they are specifically doing to break down discriminatory practices in the workplace. This can range from flexible working, providing childcare support, support networks for minorities, confidential whistleblower mechanisms/support/action for those subject to discrimination & misconduct, formal unbiased talent management frameworks (with measured results), and even down to how the softer side of how work interactions take place (i.e. are Christmas parties inclusive for all or just blokey drink-fests?).

    The analysts that do this work and then invest in the companies that are doing the “real/substantive” things to allow true talent to rise in their organisations should be rewarded by outperformance of their portfolios vs the wider market (resulting in higher performance fees, increasing AUM over time etc).

    Finally, I guess the other takeaway about the meta-study referenced above is that whilst merely having women on boards does not in and of itself lead to better company performance, it also doesn’t lead to worse performance. So as a signal that the “glass ceiling is shattered” (encouraging more women to put their hands up for advancement), having greater board gender diversity is no bad thing.

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    • I agree that there should be encouragement for diversity by making work adaptable for folks differing requirements.
      The broader issue of requiring employment diversity (and social outcomes) based on gender, culture, ethnicity, age etc. is highly dangerous. It is impossible to begin to adjust for all the factors that contribute for a start; you would need to adjust for attractiveness, height, weight, intelligence, conscientiousness and so on. You would have to adjust right back to the level of the individual to achieve equality of outcome.
      The human brain has 100 billion neurons, the possible interactions between them is as infinite as the universe. What possible relevance does a superficial aspect of identity such as skin colour have in relation to that reality? I believe we should completely forget about race or gender based diversity goals or requirements, it’s an insult to our divine individuality.

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  6. “” Simple algorithm that people drive performance, so having the best people will drive the best performance.”” Is it true?

    Having the best people who do not gel into an effective team is a common mistake ~ there have been All Black teams full of talent that performed worse than less talented teams full of work-ethic and players who supported one another (ditto all recent Auckland Blues teams). In my sad dumb youth I watched a Man U team which contained more great players (Charlton, Best, Law) than any team of any period play embarrassingly badly (personality issues – they wouldn’t pass to one another).
    Moving from sport to IT departments they are most effective when everyone gets on well; you need the ability to open your mouth and say what is on your mind without too much concern about your next pay rise nor worry that your great idea will be shot down.
    I suspect age is a greater barrier to effective team work than gender of ethnicity.

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  7. I’m reminded of Milton Friedman’s classic video on why “equal pay for equal work” policies actually make women worse off. Maybe because it’s so old I haven’t seen this kind of argument being used, or is it something else?

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