Claudia Goldin on the gender pay gap

by on January 4, 2014 at 2:57 am in Economics, Uncategorized | Permalink

The pdf of her Philadelphia paper is here.  This is from the concluding section:

The reasoning of this essay is as follows. A gender gap in earnings exists today that greatly expands with age, to some point, and differs significantly by occupation. The gap is much lower than it had once been and the decline has been largely due to an increase in the productive human capital of women relative to men. Education at all levels increased for women relative to men and the fields that women pursue in college and beyond shifted to the more remunerative and career-oriented ones. Job experience of women also expanded with increased labor force participation. The portion of the difference in earnings by gender that was once due to differences in productive characteristics has largely been eliminated.

What, then, is the cause of the remaining pay gap? Quite simply the gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule comes at a high price, particularly in the corporate, finance and legal worlds.

A compensating differentials model explains wage differences by the costs of flexibility. The framework developed here shows why there are higher or lower costs of time flexibility and the underlying causes of nonlinearity of earnings with respect to time worked. Much has to do with the presence of good substitutes for individual workers when there are sufficiently low transactions costs of relaying information. Evidence from O*Net on occupational characteristics demonstrates that certain features of occupations that create time demands and reduce the degree of substitution across workers are associated with larger gender gaps.

Data for MBAs and JDs shows large increases in gender pay gaps with time since degree and also reveals the relationship between the increasing gender pay gap and the desire for time flexibility due to the arrival of children. Lower hours mean lower earnings in a nonlinear fashion. Lower potential earnings, particularly among those with higher-earning spouses, often means lower labor force participation. Pharmacists, on the other hand, have pay that is more linear with respect to hours of work. Female pharmacists with children often work part-time and remain in the labor force rather than exiting.

The paper is interesting throughout.

Addendum: Mary Ann Bronson, a job candidate from UCLA, has a new and interesting paper (pdf) on the gender gap across college majors and related issues.  Here is another UCLA job market paper, by Gabriela Rubio, on why arranged marriages decline in frequency.  This year, at Duke University, there are more female entering students in the Ph.d. program than male.

prior_approval January 4, 2014 at 3:39 am

So, an unequal burden in time associated with bearing and raising children leads to women being paid less? And this is a new discovery how?

Should be interesting to see other patterns – such as ‘forced’ baby leave for fathers. But then, maybe it will be just another one of those things that the rest of the world, using different models, will develop on its own. Much like universal health care, one of those things that Americans simply cannot imagine working.

‘Countries like Sweden and Norway have recently introduced a quota of paid parental leave available only to fathers. If dads don’t take it, they’re leaving money on the table. In Germany and Portugal, moms get bonus weeks of maternity leave if their husbands take a minimum amount of paternity leave.

And the upshot: These countries are seeing “gigantic increases in the share of fathers who go on leave,” says the NYT. More significant, traditional gender roles are changing as a result.

Citing a new Cornell University study about the long-term effect of Quebec’s paid paternity policies on gender patterns, the NYT reports:

Several years after being exposed to the reform, fathers spent more time in child care and domestic work—particularly “time-inflexible” chores, like cooking, that cut into working hours—than fathers who weren’t exposed to the reform. More important, mothers spent considerably more time at work growing their careers and contributing more to the economy, all without any public mandates or shaming.

Will American firms and corporations follow suit? Don’t hold your breath. (Remember, only 16 percent of employers in the United States offer paid maternity leave. So in that context, big-firm lawyers are the fortunate ones.)’ http://thecareerist.typepad.com/thecareerist/2013/04/paternity-leave.html

Keith January 4, 2014 at 7:54 am

Is your point that men need to do more of the cooking and that is somehow the responsibility of the state to promote? What Sweden and Norway are doing is interesting but silly too. Both countries have a total fertility rate that is below replacement level. I am not that comfortable with much social engineering on the part of the state but I would accept it more if it were successful at preventing the collapse of the population and it’s ability to support the aged through the pension system.
In short, social engineering is unsettling to me and if a government is going to do it, they should focus on the most important things.

anonymous January 4, 2014 at 11:37 am

The Swedish workforce is much more gender segregated, both horizontally (male and female dominated jobs) and vertically (proportion of males and females in senior/managerial positions), than the American workforce — which is exactly what you expect to see according to Goldin’s analysis.

Long paid parental leave, subsidized day care, and the right to part-time work (as well as very high taxes) mean that Swedish women are more likely than American women to participate in the workforce. But it also means that but they are also less likely to have a full-time position and are much less likely than American women to hold senior or managerial positions. Especially in professional jobs, women are overwhelmingly employed in the government/public sector (which does not have competitiveness/profitability constraints) rather than the private sector.

Women take the overwhelming proportion of parental leave because they choose (or are constrained) to work in jobs where it is actually feasible (or expected) to take the better part of a year off when the baby is born.

Men are more likely to choose (or have) to take parental leave strategically: working one day a week (focus on highly visible activities and networking, colleagues do actual work) then perhaps taking off one day or a half-day a week (minimal impact on work). Strangely, because of the push to encourage men to take parental leave, men have much more freedom for “flexible” use of parental leave than women. (Stories about fathers using parental leave to launch a start-up are probably mostly just that. More plausibly, urban legend has it that rate of paternal leave increases significantly during World Cup years :-)

chuck martel January 5, 2014 at 12:47 am

“I would accept it more if it were successful at preventing the collapse of the population and it’s ability to support the aged through the pension system.”

What’s the deal? If parents are responsible for their children for at least the first 18 years of their life, do children have zero responsibility for their aged parents? Where did this “forget about mommy and daddy, at least financially” syndrome originate? Supposedly the higher the level of education people have, the lower their reproductive rate, so then they have to worry about smaller succeeding generations not being able to subsidize their retirement through a state pension system? How about this: if you don’t want children, don’t want to put forth the effort to raise the next generation and teach them to adore their own elders, then you get to expire in unfed loneliness.

msgkings January 6, 2014 at 12:11 pm

Actually the fewer children you have, the more money you’ll have to retire on.

Alan January 4, 2014 at 8:03 am

Aren’t those fathers “leaving money on the table” that they would otherwise receive later in a nonlinear fashion?

CC January 4, 2014 at 8:32 am

“Aren’t those fathers “leaving money on the table” that they would otherwise receive later in a nonlinear fashion?”

Now that’s a sentence you could only read on MR!!

derek January 4, 2014 at 9:38 am

Did the NYT use the term ‘leaving money on the table’? When I go to work and don’t take welfare, I’m leaving money on the table as well.

Careless January 4, 2014 at 12:51 pm

You make less from your job than you would on welfare?

AndrewL January 4, 2014 at 3:46 pm
Careless January 4, 2014 at 3:59 pm

I’m operating on the assumption that very few MR commenters are making minimum wage.

ANdrewL January 4, 2014 at 4:05 pm

60k (29$/hr) is alot of money to leave on the tabe. DC and MA welfare is valued at 50k+ New York is at 43.7k (21$/hr), and it’s all tax free, that’s a significant income compared to federal min wage (7.50$/hr).

brickbats and adiabats January 6, 2014 at 10:55 am

That article gets the incentives wrong; all transfer payments do not cease if you begin working. The Tanner and Hughes study ignores that. Working is still strictly beneficial.

Also screw Forbes.

Dick King January 4, 2014 at 4:07 pm

Would the Swedes who take don’t take paternal leave and therefore “leave money on the table” have made more from the leave than from their jobs? Or is it the case that the money they are leaving on the table is less than the money they get from their jobs, but they don’t have to work for it?

-dk

John Thacker January 4, 2014 at 10:25 am

Perhaps these new policies of specifically encouraging paternal leave more will reduce the increased gender pay gap (though increased women’s labor supply) that their previous parental leave policies (both maternal and facially neutral) have been causing:

Interestingly, longer periods of maternity and parental leave are associated with a wider wage gap between men and women.

Maternal leave, or even facially neutral parental leave, tends to both increase the workforce participation of women and the gender gap. Without such leave, some women will choose to exit the labor market entire, while others will work full time, not take much leave, and use childcare. Flex time and leave friendly policies cause more women to opt for part time and longer leave that increases the gap but still allows them to work some.

Policies like the ones you mention contain strong incentives to penalize families that plan to do a division of labor along traditional gender roles, while rewarding those who change traditional gender roles. Perhaps indeed in the long run it will change the culture.

John Thacker January 4, 2014 at 10:28 am

I think you miss the point that if the claim in the paper holds, and there is a nonlinear relationship of firm value (and worker pay) to hours, then it doesn’t make sense for a couple to both take equal amounts of leave rather than specialize. Though I grant that many people will be willing to leave money on the table on a societal level via economic inefficiency in the name of equality.

prior_approval January 4, 2014 at 12:31 pm

So, to sum up – men are less concerned with raising children than women, and thus more willing to do ‘whatever it takes’ for their own economic success. Including taking advantage of the fact that only women bear children, by creating expectations in terms of work dedication that punishes women for bearing children.

To repeat, this is a new discovery how?

Tarrou January 4, 2014 at 8:35 am

So in other words, the “pay gap” is entirely within the purview of women to eliminate or even reverse, were they to fully leverage their greater education levels. Why do I suspect the “solution” will be a combination of government pork and man-bashing?

Brian Donohue January 4, 2014 at 10:07 am

Worker flexibility is a constraint to firms. Those workers who can offer an open-ended “whatever it takes” will be more than proportionately valuable to the firm. This is a simple fact.

Slocum January 4, 2014 at 10:30 am

In some cases, flexibility is costly and in others it is not. It is relatively easy, for example, to bring in a new elementary school teacher to replace one going on a maternity leave. But it is much, much harder to replace an engineer who has developed years of domain-specific, firm-specific, or and/or project-specific knowledge. Organizations offer flexibility where it is not very costly, and women gravitate toward these occupations (teaching, pharmacy, nursing and other health occupations, etc) for exactly that reason.

Rahul January 4, 2014 at 10:43 am

Agreed. But a lot of this assumes hiring decisions in firms are aligned with what’s best for the firm. In the traditional, big, corporates that’s a very questionable assumption IMO.

Often, managers & HR hire on attributes that overemphasize certain attributes that are often not so relevant to what’s best for the firm. In this strait-laced outlook I think women, or pretty much anyone demanding flexibility or non-conformism suffers.

derek January 4, 2014 at 11:17 am

Are firms with large HR departments hiring? I agree that in such situations reality rarely intrudes. And in most cases individuals are replaceable since the firm is the face, not the individual. Is the wage differential in those situations wide?

In this economy, high wages come with high demands. Either specific skills, or some relationship based added value. Or some narrow specialization that is in high demand. If you are out for a year, the added value that you bring is lost in some cases.

What this tells me is that people matter and good people that are there, can get things done in a timely way at the behest of those paying are worth more than otherwise. No matter what, that places women of childbearing age at a disadvantage.

mike January 4, 2014 at 12:22 pm

“managers & HR hire on attributes that overemphasize certain attributes that are often not so relevant to what’s best for the firm”

That favors women, though, because as noted above women fare better in environments where productivity does not matter such as government jobs and indistinguishable-from-government megacorps. Megacorps are also most likely to have dedicated HR departments staffed with diversitymongering bean counters, and therefore will hire women just to make quota.

celestus January 4, 2014 at 10:49 am

Yes. Real option theory FTW.

A Berman January 4, 2014 at 11:16 am

While it’s good that quality analysis is being done on wage/gender gaps, the most interesting aspect of this article is the ‘Last Chapter’ triumphalism.

Others have mentioned the whole ‘declining fertility’ aspect, let me generalize that as follows: Academics would benefit from reading a few Systems Architecture books.

mike January 4, 2014 at 11:40 am

When the teams of web developers were fixing the Obamacare glitch, I’m thinking they were looking for the “whatever it takes” types over the “it’s 5:15 and little Jasmine’s first grade play is tonight, see ya” types. Both are valid choices in life. But it’s not surprising that at certain times, one has a higher market value, and there’s no need to impose a “solution” for it.

zbicyclist January 4, 2014 at 2:17 pm

The Obamacare developers certainly weren’t thinking of children much at all.

They seem to have skipped right over the need to be able to add newborns easily.
http://www.cnbc.com/id/101308589?__source=xfinity|mod&par=xfinity

Dan Weber January 4, 2014 at 3:34 pm

You can pay me to miss my kid’s play, but you will be paying me for that.

Bill January 4, 2014 at 12:50 pm

Could the period that a mother takes off to rear children become a period that actually enhances future value upon re-entering the workforce?

One of the deficiencies of a 35-45 year old white collar worker is that they may not have kept up with their field. College was 15-20 years ago. But, a mother taking care of kids at home could take online college classes in specialized areas, return to work, and be a more productive worker with different skills.

Time is a commodity which can be spent on many things.

anne January 4, 2014 at 1:01 pm

Or change fields, for that matter. This is a great suggestion. For moms (or dads) who stay home with the kiddos, it can be a great opportunity to retool and reboot.

Dan Weber January 4, 2014 at 3:35 pm

Except IQ drops about 30 points during maternity/paternity leave. It usually comes back after the leave ends.

uffs January 4, 2014 at 3:51 pm

Nope. Just an opportunity to earn less despite need to have more to spend.

zbicyclist January 4, 2014 at 9:09 pm

It could, but that’s not what generally happens. Women disproportionately are in fields which have relatively short asymptotes in skill. You are a better grade school teacher after 5 years than in year 1, but not necessarily that much better after 25 years. Nursing, dental hygiene, retail, maybe residential real estate selling have similar profiles.

See the paper by Mary Ann Bronson linked above for how this plays out in college.

Urso January 6, 2014 at 12:50 pm

“But, a mother taking care of kids at home could take online college classes in specialized areas, return to work, and be a more productive worker with different skills.”
Based on the the stay at home moms I know, the idea that they have all this free time to take online specialized college classes is just laughably optimistic. It’s like a modern version to “all they do all day is sit and home to watch soaps and eat bon bons.”

Steve Sailer January 4, 2014 at 5:50 pm

It’s almost as if women sometimes have babies.

Another factor is that women with MBAs and JDs often marry men with MBAs and JDs and thus can often afford to more or less retire young. This fact is tied into a huge whoop-tee-do at Harvard Business School in recent years in which a lesbian dean became all worked up over the fact that women students at HBS were doing less homework than men students and thus getting fewer academic honors. Why? In large part because they had a lot of hot dates with future captains of industry that was cutting into their homework time:

http://takimag.com/article/thats_frances_with_an_e_steve_sailer#axzz2eTe5AR3T

libert January 5, 2014 at 12:03 am

The Wall Street Journal is wrong (surprise, surprise). First, it’s obviously wrong because it makes claims about this coming fall’s entering class, while it is still early in the Ph.D. application process, before anyone has even been accepted yet.

Second, this past year, Duke’s entering Econ PhD class had entering classes with more women than men (see http://econ.duke.edu/people?subpage=unit&Gurl=%2Faas%2FEconomics&cname=PhD+Students).

libert January 5, 2014 at 12:04 am

Edit: that should read, “Duke’s entering Econ PhD class had more women than men”

DINKy January 5, 2014 at 1:45 pm

So the gender gap is actually not a gender gap, but a “natalists who happen to be female vs everyone else” gap? Does this mean childfree (don’t have children, never will have children) women fare better / are at pay parity?

As an aside, all the childfree people, mostly women I’ve worked with have resented the fact that they pick up the slack for others who have children and have to leave early and such. If they are getting paid less because companies are “afraid” they might run off and have kids (even though they won’t, because they are committed childfree), that should definitely be corrected.

Andreas Moser January 5, 2014 at 5:09 pm

The main reason for the gender pay gap still lies in different expectations in the mating process: http://andreasmoser.wordpress.com/2011/02/19/gender-pay-gap/ Women tend to prefer professionally successful men, while men tend to look at other qualities (cuteness, sexiness and others) first. Women thus have less of an incentive to work on their career, and more incentives to work on their tan or their body shape.

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