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The Sveriges Riksbank Prize in Economic Sciences in honor of Alfred Nobel, known most commonly
as simply the Nobel Prize in Economics, is awarded every year to researchers that have
made outstanding contributions to the field, with a particular emphasis on those who put
forward new economic theories with real-world applications.
Economics was a later subject added in addition to the original Nobel Prize fields of physics,
chemistry, medicine, literature and peace.
The Sveriges Riksbank, Sweden's central bank, pushed for that addition, and they pay
the prize money to the winners in the field of economics, where the winners of all of
the original fields are paid out of the estate of Alfred Nobel, who made his fortune after
inventing dynamite.
This year's winner was Claudia Golden, who is currently an economics professor at Harvard
University who won the prize for her work on mapping out the intricacies of gender pay
inequality.
Golden's work is worth talking about not only because she has now won the most prestigious
prize in all of academic economics for it, but because her work does what most people
fail to do when talking about this subject, which is that it removes a lot of the emotion
from the debate.
Her award-winning papers collect as much data from as many different economies over as many
different time periods as possible to reveal patterns that show the issue of the gender
pay gap is in many ways very misunderstood on both sides of the argument.
So what were the economic discoveries that won Claudia Golden this year's Nobel prize?
What have most people been getting wrong about this very controversial economic issue?
And finally, how could this work influence policies going forward to address these issues?
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Now, before we get into Golden's work, we need to give the big disclaimer.
The gender pay gap is something that, to be honest, we have avoided covering on this channel
for over four years now.
The ratio of strong opinions to lessons that can be learned by looking at this issue as
a case study have always made it just a bit too scary.
Nobody should be taking sides on what is ultimately just labor market dynamics, and this video
will purely be an exploration of the work of this year's Nobel laureate from the perspective
of a macroeconomist with the singular focus on maximizing quality of life for all economic
participants.
With that out of the way, the collective earnings of women is less than the collective earnings
of men in every economy around the world today, and as far as we are aware throughout all
of history.
This by itself is not anything new, nor is it necessarily even a problem.
One of the biggest reasons that women collectively earn less is that less of them work in traditional
paid jobs.
The opening line of the Nobel Foundation's summary of Golden's research recognizes
this much.
Globally, around half of all women are in paid employment, while the equivalent figure
for men is 80%.
The stated goal of Golden's work is not to achieve equality by any means necessary,
it is simply to ensure that an economy is utilizing its labor resources most effectively.
If women do not have the same opportunity to participate in the labor market, or they
participate on unequal terms, then potential labor and expertise are wasted.
So the real question and controversy is in the why, of why do women participate less
and earn less when they do?
Now the proposed answers to this question range anywhere from men choosing to do more
lucrative jobs even if they are less fulfilling, more dangerous, and more stressful at a higher
rate than women, some speculate that the difference is caused by other life choices
like women choosing to leave the workforce to raise a family and therefore missing out
on crucial years of career development, and then of course there is the argument that
women are victims of systemic discrimination.
There is also just pure circumstance, in what is probably some tragic irony, this year was
one out of only three times that the Nobel prize in economics has been awarded to a woman.
But thanks to the declining value of the Swedish krona, the prize money was about 10% less
than it was for the male winners last year.
Now good economists should look at a potential issue like this and first work out if it really
is a problem at all, and then work out what is causing it, because the best solution to
an issue like this is going to depend a lot on that cause.
As golden frequently points out in her work, even policy solutions made with the best intentions
of fixing a complex problem can sometimes have the opposite effect and make things worse
if it doesn't correctly address why that problem exists in the first place.
What made golden's work Nobel prize worthy was above all else her examination of data
from across different economies across different time periods.
In the world today there are genuinely economies that operate where women are at a significant
disadvantage to men in earning power, amongst other things, because of cultural norms or
legal policies that make it harder for women to get an education or pursue a career.
In these instances golden makes the obvious suggestion that the removal of these institutional
barriers and investments into information and education for women will over time help
to close the earnings gap even if it doesn't remove it entirely.
So far not necessarily groundbreaking stuff, but golden also pointed out that in a lot
of modern advanced economies today women already have high levels of employment and in many
cases are even more educated than men with higher attainment rates of university degrees.
The same kind of policies in these instances will be likely to create worse outcomes for
all economic participants in the country, both men and women.
When there are already policies in place that mandate that pay can't be based on gender
and men and women have equal access to democratic representation, education and employment then
pushing policies that give even more resources towards one gender over another would just
be a waste at best or cause misalignments in the labor market at worst.
Again the goal of good policies, at least from a macroeconomics perspective, is to make
sure that everybody can and is incentivized to make their maximum contributions towards
the labor market.
This is all to say that for example a potential nobel prize-winning economist isn't forced
out of academia because they are a woman, and simultaneously a man didn't miss out
on an opportunity to develop some amazing new technology that could benefit humanity
because of something like gender quotas.
Because the consequences of bad policy can be so severe, golden's work also looked
at the non-policy variables that could lead to the labor market outcomes we see today.
And one of the most important places she went to look for that data was history.
She used historical records to create something that radically reshaped most economists'
perception of how labor market participation between genders has evolved over time, the
U-shaped model.
Golden was not the first economist to study the gender pay gap, but she did look a lot
further back than any serious research had before.
Before golden's work most economists only looked at data beginning in the 20th century
because that's when records were most reliable, and because too much further before that economies
didn't really function in the same way they do today.
Golden spent a lot of time finding sources from as far back as the late 1700s and cleaning
up records that worked with modern data sets.
One example was that in old census reports married women's occupation was often just
listed as wife, even if they had other work outside of pure domestic labor.
What golden found after putting all of this data together was a U-shaped curve of women's
involvement in the workforce over time.
Before the widespread adoption of modern industry, women would be involved in agriculture at
rates similar to men as basic or even subsistence farming required the full-time attention of
the whole family.
As farming gave way to modern industry, the participation of women in the workforce started
to fall because of a combination of the fact that they didn't necessarily need to work
thanks to higher individual labor productivity, but also factory work was distinctly separate
from the home so it was harder to balance domestic duties with a traditional job.
Golden's work found that despite the previous assumption that pay equality was only getting
better over time thanks to societal progression like giving women the right to vote and equal
pay laws, gender equality due to discrimination was quite low at this time.
Now to be clear, men still did earn more than women, but the pay difference that could
not be explained by the observed differences in factors such as productivity, education,
and experience were lower because at this time work in most industrializing economies
was paid based on unit output rather than a standard wage based on how many hours someone
worked.
Factories didn't care who produced whatever it is that they were making, men, women, children,
it was all the same and they just paid on how much was made.
At this time, since most work was still pretty physical, men who were generally larger and
stronger could produce more and got paid more, and while that may feel unfair, it was the
outcome that maximized economic utility.
If women, or children, got paid more per unit to make up for the fact that men could produce
more in the same time, then no factory owners would want to hire women, reducing opportunities
on an individual level and overall output on an economy-wide level.
Over time, that is exactly what happened.
The participation of women in the workforce continued to decline as jobs became more formal
affairs where workers would be paid for their time more than their output.
This was especially true of the growing service sector, where people were working more and
more in white-collar roles that required an education as well as a lot of experience.
Golden found that even in the early 20th century, more women than most economists expected still
worked in manufacturing and agriculture, but those industries were becoming a smaller part
of the overall labor force, giving way to a lot of the jobs that we have today.
Now at this time something unusual happened.
Because people were working less in jobs that depended on physical strength, the explained
earning gaps between men and women fell, but the unexplained gap increased.
The reason for this golden found was that pay in these new white-collar jobs was based
mainly on seniority in the business, rather than individual output, which was much harder
to track than it was in a factory production line.
To get paid more, people needed to get promoted, but women who left the workforce to go and
have children found that difficult because that pause in their career would be hard to
catch up from.
Even women that didn't have children still suffered from this problem because businesses
would expect that they might have a child at some point, so they didn't want to put
them in any job that was too important.
Eventually what was arguably just a pragmatic solution to a reality turned into a culture
in most of the early advanced service-based economies where men wore suits and did business
and women working in the service sector could be receptionists or any other role that was
easy to switch out when their time came.
The professional roles where women still maintained a large share of representation were unsurprisingly
ones where they were more hands-on, like nursing and teaching, roles that perhaps because
of these opportunities became known as fields for women rather than the other way around.
Golden found that since then this has been improving as women are now able to move into
advanced professional careers because of changes in family planning and simply the changing
societal expectation that all women are ticking time bombs just waiting to explode with a
baby.
One of the most important policy suggestions that has come from golden's work is that
just like in the transition from industry to services is that if governments push for
equality at all costs it can result in worse outcomes for everybody, men, women and the
businesses they work for.
Something like mandating that a certain percentage of a company's leadership has to be one
gender or another is just reactionary and could result in the same kind of discrimination
that economists are trying to avoid in the labour market.
The solutions that golden proposes are consistently ones that remove structural barriers for women
instead of putting up policy barriers for men.
It's naive and unproductive to think that men and women are going to have identical
problems but things like allowing for more flexible working arrangements for everybody
reduces those barriers for women without denying opportunities to anybody else.
Her final major contribution was the empirical evidence that changes in the labour force
take time and that any change should be slowly and carefully considered because it can often
take decades for their full effects to become obvious.
Nobody can fully predict the effect that new technologies like AI and advanced automation
is going to have on labour force.
Those changes could be easily just as if not more impactful than the switch from agriculture
to industry or industry to services.
And with that there is going to be a new set of challenges that policy makers will need
to work around.
So perhaps more than ever golden's thorough exploration of the past is going to prove
incredibly useful for our future.
Now surprisingly golden's work is probably less controversial than last year's winners
who won the prize for their research on the role of banks in the economy.
The problem was that one of the winners was Ben Bernanke, the former chairman of the fed
during the global financial crisis of 2008.
Despite that minor hiccup his contributions alongside last year's other winners are
worth learning about and you should be able to click to that video on your screen now.
Thanks for watching mate, bye.