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The Evolution of Women’s Economic Role: Goldin’s Nobel Lecture

by xyonent
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Claudia Goldin’s Nobel Prize Lecture “Evolving economic power” Published in the June 2024 issue American Economic ReviewOr, if you prefer,Please see the lecture (lots of slides!) from the link. On the Nobel website she wrote:

Women are now at the center of the global economy. Female employment rates are at an all-time high around the world. Nearly 60 percent of 165 countries have female employment rates (ages 25-54) above 0.70, and 80 percent have rates above 0.50. For comparison, in the United States, half of women in that age group were working in 1970, and about three-quarters have been working since the early 1990s. Women are at the center of the global economy not just because they are so heavily engaged in paid employment. They are rapidly becoming the more highly educated sex, making up the majority of university students in all 38 OECD countries. Women perform a huge amount of care work around the world. And fertility rates are largely driven by women.

Regular readers of this blog will recognize these themes from previous posts discussing Goldin’s work (e.g., here, here, here, and here). For example, there is a well-known pattern that women’s paid labor force participation first declines and then expands as the economy grows. This illustration, taken from his Nobel lecture, shows the pattern of married U.S. women working outside the home over time:

But here I want to focus on more recent patterns: the gender wage gap over the past 60 years or so. As the chart shows, the ratio of women’s earnings to men’s earnings didn’t change much between 1960 and 1980. At that point, the ratio rose sharply, though not all the way to 1. Also, the earnings share of college-educated women leveled off around 1995. So what’s going on here?

A common economic theory to explain why this ratio did not change in the 1960s and 1970s is that this was a time when women entered the paid labor force in particularly large numbers. Many of these women were older and had little experience of paid work. As such, the entry of this group into the labor market tended to keep women’s wages low. Goldin writes about this period:

The persistence of the gender wage gap was largely due to, not in spite of, the increasing participation of women in the labor market. As participation rates rose, women with somewhat more distant and shorter work experience were drawn into the labor force, which put downward pressure on the wages of the average working woman compared to the average working man. The stability of the gender wage gap, taking into account the rise in female labor force participation rates, was a source of great frustration for those involved in the rekindled U.S. women’s movement in the late 1960s and early 1970s. Rally banners denounced the fact that women worked more than men but were not paid more than men. Most who interpreted aggregate statistics as revealing discriminatory processes did not realize that the entry of less experienced, typically older, women was lowering the average work experience of working women.

However, by about 1980, this earlier process had come full circle: the share of women in the labour market was growing, with higher levels of education and paid work experience, and wage ratios began to rise.

The question now is, what explains the remaining wage gap, especially the larger one for college-educated women? Goldin asks: “This question is particularly puzzling because today many of the determinants of earnings are roughly the same for men and women, and some actually favor women. If earnings in a competitive labor market are determined by pre-entry characteristics (such as education and training) and pre-employment characteristics (such as prior work experience), and if these characteristics are roughly the same by gender and some favor women, then what remains?”

Goldin presents additional evidence pertinent to this question. One fact is that the average ratio of female to male earnings declines with age: “The ratio of female to male earnings initially approaches parity (nearly 0.95 for the youngest age groups of the most recent birth cohort), but this ratio declines with age and therefore with many other life cycle transitions. By the late 30s, the ratio shown for the most recent cohort is 0.8. The expansion of the gender earnings ratio with years since graduation is even steeper in higher-paying occupations such as the corporate and financial sectors…

A big reason for the decline is that for women, having children is associated with a significant reduction in work hours and income. Goldin writes:[T]”The weight of evidence is that women’s earnings fall sharply after childbirth and do not recover. Moreover, most of the change is due to declines in work hours and participation, not declines in hourly earnings, although that factor also contributes somewhat.”

A final factual clue is that the difference in female/male earnings ratios has more to do with within-occupation differences than with men and women ending up in different occupations: “It is important to recognize that the majority of occupational earnings differences are within occupations, not between occupations (assuming about 500 occupations and a sufficiently large data set).”

The past few decades in the US economy have been a period of growing income inequality at the very top of the income distribution. These jobs at the very top of the income distribution often involve extraordinary time commitments, so not only do people in these jobs work longer hours, but their total pay also represents a much higher hourly wage rate. In other words, there is a “part-time earnings penalty,” where people who work part-time not only work fewer hours, but also earn less per hour. As an example, consider a man and a woman who go to the same law school and get similar grades. For a few years, they earn very similar salaries. However, once the woman has a child, her hours are reduced considerably, and she is no longer on track to be one of the highest paid partners working the longest hours.

The part-time earnings penalty doesn’t apply to all jobs. Goldin writes:

How can we reduce the earnings gap between men and women? One solution is to lower the cost of flexibility. The easiest way is to create virtual substitutes among employees. This is done in many professions that use IT to effectively communicate information and take over for customers. You can also create substitute teams, as is done in pediatrics, anesthesiology, veterinary medicine, personal banking, many technical professions, primary care medicine, pharmacy, etc.

The example of pharmacy is instructive. Today in the United States, the profession of pharmacy has almost no part-time earnings penalty and the earnings gap between male and female pharmacists is small. But this was not always the case. In the 1970s, a significant proportion of male pharmacists owned pharmacies and many employed female pharmacists. The earnings gap between men and women was large. Several changes have occurred in pharmacy that have significantly reduced the gender wage gap, but they were not related to gender issues at all. Technological changes have increased substitutability among pharmacists, leading to an increase in pharmacist employment in retail chains and hospitals and a decrease in independently owned pharmacies (Goldin and Katz 2016). Changes in other professions, such as pediatrics, have arisen from the demands of professionals who want to spend more time with their own children, forming group practices that promote substitutability.

At least in the United States, the persistence of the earnings gap between women and men seems to be related to a mix of the motherhood penalty and the part-time income penalty. Changing the motherhood penalty would require redesigning family interactions, which seems difficult, whereas changing the part-time income penalty, while perhaps more difficult, also seems doable.

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