‘Women’s economics’ goes mainstream

Claudia Goldin’s Nobel prize puts women’s labour-force participation and the gender pay gap at the centre of economics.

William Shakespeare’s 1597 comedy Love’s Labour’s Lost tells the story of four Frenchmen as they navigate the tension between commitment to intellectual development and the quest for domestic bliss. Some four centuries later, the Harvard economist Claudia Goldin reimagined the tale from the vantage point of American women balancing career and family. Now, Goldin’s profound insights into women’s labour-market outcomes have won her a Nobel prize in economics.

Goldin’s achievement is notable not only because she works in an overwhelmingly male-dominated discipline—she is only the third woman in history to win the economics Nobel, and the first to win it solo—but also because her scholarship focuses squarely on gender. The issues Goldin researches—women’s labour-force participation and, specifically, the gender pay gap—are typically siloed within feminist economics and marginalised in the field.

Goldin, who positions herself as an ‘economist-detective’, has cracked a number of cases but, as the Nobel committee noted, three stand out.

Balancing childcare

First, most theories of economic development assumed that, as economies grew, women would automatically and frictionlessly be pulled into the workforce. But Goldin’s research shows that female labour-force participation over time follows a U-shaped curve.

Meticulously combing 200 years’ worth of data, Goldin observed that as the locus of economic activity moves from agriculture to industry, female labour-force participation falls, owing largely to the challenge of balancing childcare with factory work, especially for married women. But once the service sector gains dominance, women join the workforce at much higher rates.

Secondly, the gender pay gap—in the United States women on average make 77 US cents for every dollar earned by men—has traditionally been attributed to myriad factors, from educational attainment to differences in ambition. Some claim that it is a matter of aptitude: the former US Treasury Secretary Lawrence Summers, for example, argued in 2005 that men were biologically better suited to maths and science.

But, by examining differences in pay within the same occupation, Goldin showed that the actual explanation is much simpler. As it turns out, the lag cannot be attributed to educational attainment: in rich countries, women have overtaken men on this front. And since the pay gap exists within professions, it cannot be attributed to women’s higher representation in less lucrative fields. Nor can cognitive ability be the problem, given that pay for men and women is almost identical at university graduation.

Rather, women earn less than men due to the brute biological fact of childbirth. The pay gap starts to emerge a year or two after the birth of a woman’s first child. By age 45, women in the US earn 55 per cent of what men do, owing to childbirth-related factors such as career interruptions and reductions in working hours.

‘Demonstration effect’

Thirdly, Goldin’s research establishes that women’s expectations of their prospects matter. Because of the ‘demonstration effect’—that is, the example set by their mothers and grandmothers—they long sold themselves short professionally. This began to change in the US in the 1970s, with rising investment in female education and delays in marriage and childbirth.

In a working paper published on the morning of her Nobel win, Goldin highlights a series of developments between 1963 and 1973 that laid the groundwork for this shift. These include the passage of the Equal Pay Act, Roe versus Wade (when the US Supreme Court recognised a constitutional right to abortion), an increase in Ivy League university admissions for women and, especially, access to oral contraceptives.

Goldin’s scholarship holds important lessons for economics. It illustrates the centrality of history to understanding today’s economic realities (a fitting tribute to Goldin’s mentor and fellow Nobel laureate Robert Fogel). There are persistent problems and inefficiencies that markets have failed to solve, even over the course of centuries. Why are women still paying such a high price for providing children, a public good par excellence?

Goldin’s scholarship also demonstrates the need to disaggregate economic agents, because outcomes often reflect self-fulfilling prophecies based on identity, social structures and subjective perceptions. For example, as Goldin explains, most similarly-educated heterosexual couples do not split domestic duties evenly, because the male partner typically earns more. But this reinforces the pay differential.

Reimagining the economy

Most radically, Goldin’s work shows that economics inhabits not only formal institutional spaces but also intimate ones. The discipline should be as concerned with marriage markets as it is with financial markets. The bedroom is no less relevant than the boardroom. Ideas that have long been addressed in women’s magazines belong in economic journals.

Goldin’s work underscores a point that feminists have long emphasised: women do not have the luxury of separating the personal from the professional. Economics cannot afford to ignore the reality that for women, domestic bliss comes with a price tag attached, in terms of both income and independence.

From a policy perspective, we have two options. We can reimagine marriage and child-rearing to ensure that women can compete in an economic system built for men, such as by introducing workplace childcare and making use of tax incentives. Or, as Goldin advocates, we can reimagine the economy so that it works for women, making it more flexible, less ‘greedy’ and more focused on empathy. If we do nothing, however, love’s labour will continue to be women’s loss.

Republication forbidden—copyright Project Syndicate 2023, ‘“Women’s economics” goes mainstream’