Love and GDP – why economists think marriage equality will be good for growth

6 December 2017

Professor Fabrizio Carmignani

Fabrizio Carmignani

By Professor Fabrizio Carmignani, Dean (Academic) Griffith Business School

In November, just after a clear majority of Australians indicated they were in favour of allowing same sex couples to marry – and before a Private Members Bill was tendered in the House of Representatives – ESA panellists were asked to comment on the following statement:

Assuming that the law will be changed to allow same-sex couples to marry in Australia, this will generate net economic benefits for the nation as a whole over the next 10 years.

The Bill is currently being debated by parliamentarians and is expected to be passed by the end of the week.

A total of 31 responses from ESA panellists were received, with a significant majority (slightly more than 61 per cent) that either agreed or strongly agreed with the statement. The proportion of those who disagreed or strongly disagreed was around 23 per cent, while the remaining respondents were ‘uncertain’.

Before we dive into a more detailed analysis of the arguments presented by the panellists, we should acknowledge the importance of non-economic considerations in this case, as noted by some respondents (Flavio Menezes, Lionel Paige, Prue Kerr).

Same-sex marriage is about equality and the extension of freedom of choice to a certain group of individuals in the community. Does it really matter if it generates net economic benefits or not?

As Lionel Paige puts it “some policies can be good for non-economic reasons”; that is, even if the net economic benefit were marginal or even negligible, the case for allowing same sex marriage would remain equally strong.

Yet, without subscribing to theory of economic determinism, reflecting on the economic dimension of same sex marriage can be useful in understanding its possible short and long-term effects for individuals and for the society at large.

A recent ANZ study, quoted by Julie Toth, estimates that same sex marriage will add $650 million to GDP in the form of increased wedding expenditures in the first 12 months. In fact, several respondents (Lionel Paige, Kevin Davis, Bruce Chapman, Paul Frijters, Renee Fry-McKibbin, Jeffrey Sheen) argue that the increase in expenditure for weddings is unlikely to have a significant aggregate effect.

This is because other expenditures would be likely crowded out, thus leaving the economy with a negligible net benefit. Even respondents who acknowledge the potential for spillovers on tourism and hospitality (Uwe Dulleck) are unsure of how large the net impact could be.

The respondents that are more strongly in agreement with the statement generally emphasize indirect or longer-term benefits in addition to the increase in expenditures on weddings. For instance, Gigi Foster and Lisa Cameron suggest that once married, same-sex couples are likely to invest more (this has already been observed for heterosexual couples).  Saul Eslake and Margaret Nowak point to positive effects on the health, mental health in particular, in the LGBTIQ community. Peter Abelson and Joaquin Vespignani argue that increased health and inclusiveness could then result in a productivity boost.

James Morley and Mardi Dungey draw attention to the fact that same sex marriage increases the utility of some individuals without reducing the utility of others. I believe that this is a very important point. Marriage allows people to pool their resources (for instance, time) to produce more and better household commodities, such as preparing meals, caring for each other, achieving economic stability, and companionship.

Therefore, people who derive utility from these commodities will be better off if they have the opportunity to marry. Same sex marriage extends this opportunity to a broader group of individuals. At the same time, there is no convincing evidence that allowing same sex couples to marry produces negative externalities for heterosexual couples or for the society as a whole. The net welfare effects of same sex marriage must therefore be positive.

Lin Crase raises an interesting qualification: some, if not most, of the benefits of marriage can in fact be achieved through arrangements such as civil unions or cohabitation. In this case, the introduction of same sex marriage would not have much of an impact, essentially because the relevant benefits can be achieved by de-facto couples without the need to marry.

However, at least in Australia, same sex couples in a settled domestic relationship do not have the same rights as people who are married. This means that allowing them to marry would still improve their welfare.

Two respondents then point to broader societal benefits. Beth Webster suggests that by introducing same sex marriage, Australia’s reputation as a respectful and accepting society would be increased. This would in turn increase Australia’s ability to attract talented workers.

The productivity gains stemming from this effect are however difficult to quantify. Gigi Foster instead argues that once the same sex marriage issue is settled, then Australian lawmakers will have more time to focus on other issues that are, probably, more likely to have a significant impact on growth.

Amidst the many comments that argue for positive effects (large or small), Brian Dollery provides one that goes against the tide. He suggests that same sex marriage is likely to generate considerable legal costs in terms of conscientious objection, with a possible negative multiplier effect on the economy.

In conclusion, if I were to summarise the view of the Panel, I would say that Australian economists believe that same sex marriage has positive economic effects (not limited to the short-term increase in expenditure in the wedding industry), but these are difficult to quantify and could be, in the end, small.

This uncertainty on the size of economics benefits, however, does not weaken the social and political case for allowing same-sex marriage.

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