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Everything to Know about: Economics Nobel Prize-2023- Understanding of women’s labour market outcome

Nobel Prize 2023 for Economics is awarded to Claudia Goldin for having advanced the understanding of women’s labour market outcomes.

Women are severely underrepresented in the global labor market: around 50% of women work or actively seek work for income, compared to 80% for men.

When women work, they usually earn less than Men.

It is economically inefficient for jobs not to go to the most qualified person and, if pay differs for performing the same work, women may be disincentivised to work and have a career.

Her research reveals the causes of change, as well as the main sources of the remaining gender gap. She has analysed 200 Years of Data from USA.

Key points that emerge from Research work of Nobel Laureate

Goldin’s curve (as shown in image above) demonstrated that there is no historically consistent association between women’s participation in the labour market and economic growth as perceived generally.

Female participation in the labour market did not have an upward trend over this entire period, but instead forms a U-shaped curve.

The participation of married women decreased with the transition from an agrarian to an industrial society in the early nineteenth century, but then started to increase with the growth of the service sector in the early twentieth century.

One reason for this was that industrialisation made it harder for many married women to work from home and so combine work and family. This pattern shows the result of structural change including technological advancements and evolving social norms regarding women’s responsibilities for home and family.

Reason for upward Participation

In most high-income countries Education Level of Women is substantially higher than for men due to change in Expectations about career over period of time.

Access to the contraceptive pill played an important role in accelerating this revolutionary change by offering new opportunities for career planning.

However, still Earning Gaps between Men and Women persists.

Reason for Earning Gaps between women and Men

Much of the gender gap in earnings could be explained by differences in education and occupational choices as was perceived.

However, Goldin has shown that the bulk of this earnings difference is now between men and women in the same occupation, and that it largely arises with the birth of the first child. (Impact of Parenthood).

Further, cohort of Expectation has also played very important role in Gap of Participation of Women and Men in Labour Force.

Impact of Marriage

Most women were only expected to work for a few years prior to marriage and then to exit the labour market upon marriage, which influenced their educational choices.

However, invention of Pill has played a positive Role in Expectation of mothers towards their careers.

Goldin showed that in association with the introduction of modern pay systems, employers tended to benefit employees with long and uninterrupted careers. Expectations thus played a role not just for potential female employees but also their potential employers.

Details of All Key Points

The parenthood effect

We can now see that the earnings gap between women and men in high-income countries is somewhere between ten and twenty per cent, even though many of these countries have equal pay legislation and women are often more educated than men. Why is this? Goldin attempts to answer precisely this question and, among other things, succeeds in identifying one key explanation: parenthood.

By studying how differences in income between men and women changed over time, Goldin and her co-authors, Marianne Bertrand and Lawrence Katz, demonstrated in an article from 2010 that initial earnings differences are small. However, as soon as the first child arrives, the trend changes; earnings immediately fall and do not increase at the same rate for women who have a child as they do for men, even if they have the same education and profession. Studies from other countries have confirmed Goldin’s conclusion and parenthood can now almost entirely explain the income differences between women and men in high-income countries.

Goldin showed that this motherhood effect can partly be explained by the nature of contemporary labour markets, where many sectors expect employees to be constantly available and flexible in the face of the employer’s demands. Because women often take greater responsibility than men for childcare, for example, this makes career progression and earnings increases more difficult. Tasks that are hard to combine with part-time work also make it more challenging to maintain a career for the person in the household, usually the woman, who chooses to reduce their working hours. All these factors have far-reaching consequences for women’s earnings.

The importance of expectations

In the early twentieth century, for example, most women were only expected to work for a few years prior to marriage and then to exit the labour market upon marriage, which influenced their educational choices. Goldin showed that in periods of rapid development, women may make decisions based on expectations that later do not come to fruition.

In the second half of the twentieth century, societal changes meant that married women often returned to the labour force once their children were older. The job opportunities they then had were based on educational choices made perhaps twenty-five years previously, at a time when they, according to contemporary social norms, were not expected to have a career. Many women who were young in the 1950s had mothers who were housewives and, when their mothers returned to the labour market, the daughters had already chosen their educational paths. In other words, the daughters did not expect to have a career when they planned their future, and it only became apparent much later that they could have one that was long and active. For much of the twentieth century, women underestimated how much they would work; expectations and outcomes did not start to converge until the 1970s.

Consequently, women who were young in that period invested more in their education.

In recent decades, women have become increasingly likely to study and, in high-income countries, women generally have a higher level of education than men.

The power of the pill

Women’s labour market expectations changed at the end of the 1960s, when the pill was introduced – an easy-to-use family planning and contraceptive method women could independently control.

By utilising the fact that young women could access the pill in different years in different US states, Goldin and her co-author Lawrence Katz, demonstrated the power of the pill. Goldin found that the pill resulted in women delaying marriage and childbirth. They also made other career choices, and an increasing proportion of women started to study economics, law and medicine. The affected groups were those born in the 1950s, who thus had access to the pill when they were young. In other words, the pill meant that women could better plan their future and thus also be clearer about what they expected, giving them entirely new incentives to invest in their education and careers.

Even if the pill influenced both educational and career choices, this did not mean that the earnings gap between women and men completely disappeared, though it has become significantly smaller since the 1970s.

Historical earnings gaps

Goldin began by compiling statistics from a range of sources, producing the first long series on the pay gap between men and women. Using materials that covered two hundred years, she was able to demonstrate that many historically important structural changes in the labour market actually benefitted women, long before the issue of equality was a priority.

The gender earnings gap lessened significantly during the industrial revolution (1820–1850) and when demand for administrative and clerical services increased (1890–1930). However, despite economic growth, increasing education levels among women and a doubling in the proportion of women working for pay, the earnings gap essentially stayed the same between 1930 and 1980.

Using these statistics, Goldin was also able to show that the pay discrimination (the pay differences that cannot be explained by observed differences in factors such as productivity, education and age) that affected women increased significantly with the growth of the service sector in the twentieth century. Prior to this, women usually worked in sectors where pay was based on piecework; workers in these types of industries, whether male or female, were paid in relation to their productivity. Between the end of the nineteenth century and 1940, the pay difference between men and women that can be attributed to discrimination increased from twenty to fifty-five per cent in the manufacturing industry.

In other words, pay discrimination increased, somewhat surprisingly, at the same time as the earnings gap between men and women decreased. One reason for this was that piecework contracts were increasingly abandoned in favour of pay systems based on a monthly wage. Goldin showed that in association with the introduction of modern pay systems, employers tended to benefit employees with long and uninterrupted careers. Expectations thus played a role not just for potential female employees but also their potential employers.

A glimpse of the future

Goldin’s research shows that the differences between women and men in the labour market are determined by diverse factors during the various periods of societal development. Policymakers who want to affect these differences must first understand why they exist. Investments in information and education, or legislation that removes institutional barriers, may have a significant effect for a certain time, particularly if women’s career expectations and educational levels lag behind those of men.

However, the same investments probably have a limited effect in societies where women already have high levels of employment and are perhaps more highly educated than men. For example, we know that it is not enough for women to be educated on the same terms as men; the earnings gap between men and women remains.

The opportunity to plan and finance a return to the labour force after having children, or to work more flexibly, may be of greater importance. Goldin’s studies have also taught us that change takes time, because choices that affect entire careers are based on expectations that may later prove to be false.

US history and similar developments in many other high-income countries show that change can be hidden for decades in the aggregated statistics, because a new behaviour does not initially have a significant overall impact. Major changes in the labour force can only occur over relatively short periods of time when groups that adopted the new behaviour in the labour market start to reach middle age and affect the career choices of younger women.

Happy Reading !!! Happy Learning !!!

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