Claudia Goldin this year became the first woman to win the Nobel Prize in Economics as an individual (rather than as part of a group of academics). The week she received the award, Goldin also published a working paper, entitled “Why Women Won.” The paper, encompassing many of the themes that Goldin has focused on over the course of an illustrious career — she is, among other accomplishments, the first woman professor to achieve tenure in economics at Harvard University — examines the social movements, legislation, and shifting public opinion that brought women into parity with men, at least under the eyes of United States law.
She focuses in particular on the flowering of women’s rights legislation in the late 1960s and early 1970s, writing, “Many women, today, remember the moment in 1974 when they could get a credit card in their own name or in the early 1970s when, as teachers, they were allowed to keep their jobs when pregnant.” But the title of the paper is also a misnomer: If Goldin finds that women’s legal rights today are largely equivalent to men’s, she also notes how far we still have to go in practice, finding that this “flood of legislation” had very little impact on women’s earnings. The pay gap remains one of the most stubborn and persistent challenges to gender parity in the workforce today.
Why the Pay Gap Persists
The pay gap in the U.S. — the differential between men’s and women’s average earnings — has closed very slowly, at a rate of about .5% a year, since the Equal Pay Act (EPA) was passed in 1962, according to the National Committee on Pay Equity. (It’s worth noting that these broad strokes data don’t capture more nuanced data about earnings for people outside of the gender binary.) In 2019, women earned, on average, 77 cents on the dollar when compared to men.
Even before the EPA was passed, 90% of men and 92% of women agreed that men and women should be paid the same amount for the same work. So why, sixty years later, aren’t they?
In the Nobel Committee’s statement announcing Goldin’s award, they note her instrumental role in helping illuminate why pay parity remains so elusive: several decades ago, women’s earning potential was limited mostly by their educational opportunities and societal expectations. Today, as women have met and surpassed men in educational attainment and qualifications, “the bulk of this earnings difference is now between men and women in the same occupation, and [it] largely arises with the birth of the first child.”
That trend, part of a broader group of behaviors often called the “motherhood penalty,” was one of the major focuses of a paper on the career trajectories of MBA earners published by Goldin and co-authors Lawrence Katz and Marianne Bertrand in 2010. In it, they find that male and female MBA graduates have almost equivalent career and earnings prospects immediately after graduation. But women MBAs who become mothers experience a sharp drop-off.
Fifteen years after completing their undergraduate degree, just 30% of women MBAs they studied were both employed full-time and had children. Even more stark was the wage differential. Immediately after graduating, they found, the average woman with an MBA earns $115k and the average man with an MBA earns $130k. Nine years later, women earn an average $250k, while the men earn an average $400k. Most of the cumulative shortfall can be explained by women taking time out of the labor force, usually to raise children.
What Will It Take To Close the Pay Gap?
Just a few years ago, it seemed that the pay gap would continue to defy solutions, as women with families were forced to either choose lower-paying jobs with less room for growth, work less, or drop out of the workforce entirely in order to accommodate childcare.
Goldin had studied pharmacists — a remunerative, family-friend profession with a small wage gap — and discovered that the rise of large national pharmacies with uniform policies and technologies made it flexible and easy for pharmacists to trade shifts. Flexible hours seemed like a promising avenue towards pay parity, but one that would require an unlikely confluence of structural and technological changes to appeal to most employers. What, she wondered, “happens when there is a technological change that reduces the costs of providing such flexibility?”
More than three years after the onset of the Covid-19 pandemic, the data on that question has started to come in. At the 2023 Remote Work Conference, Emma Harrington, a professor of economics at the University of Virginia and an expert in remote work, shared early findings about the impact of work-from-home on the motherhood penalty during the pandemic. She and colleague Matthew E. Khan found that, before and during the pandemic, technological advances increased work from home for workers with college degrees in areas like finance and marketing that map to careers that are highly “remotable.”
For mothers in particular, Harrington says, “In fields where WFH increased, motherhood gaps in employment narrowed.” Harrington found that a 10% increase in work-from-home was correlated with a nearly 1% increase in mothers’ employment. She notes, “These trends suggest that the rise of WFH made a broader set of jobs family-friendly,” but adds that, while her findings suggest more flexible ways of work will improve mothers’ employment outcomes longer term, “these gains have not yet been realized in the data,” likely because of complicating factors like loss of childcare early in the pandemic.
Other early data appear to support these findings. Right now, participation by women in the workforce is at an all-time high of 77.8%, and women with young children (ages 0-4) are a driving force with a participation rate more than 1.4% higher than the pre-pandemic peak.
The 2023 Women in the Workplace report from McKinsey and LeanIn found that both women and men consider the flexibility to work where they want and the flexibility to work when they want to be the top two and three benefits they want from an employer, right under health insurance — and it may have a powerful impact on future earning potential.
Even as labor force participation by women has grown, women remain starkly underrepresented at the top of organizations due to the “broken” rung, the tendency for women to miss out on key promotions earlier in their careers, due in part to career disruption during the key years for both career advancement and starting a family. Just as Goldin found in her study of MBAs, women today are still losing out on higher pay and bigger titles. But maybe not for long.
The report finds, “One in 5 women say flexibility has helped them stay at their organization or avoid reducing their hours,” and notes that women who work flexibly in 2023 are just as ambitious in their careers as peers and are three times more likely than they were in 2021 to say that flexible work sets them up for success in their careers.
In other words, flexible work has not yet made a measurable impact on the pay gap, but it’s early days yet and there are promising signals in the data available to us. Claudia Goldin has spent more than four decades mapping how structural forces have shaped, helped, and hampered women’s workforce participation and earnings potential. Perhaps it will fall to her intellectual heirs in the economics of gender and labor to see out her predictions and track what happens to women’s careers when the structure of the workplace changes, and make new space for women, particularly mothers, to participate, advance, and lead.
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