In 2023, the Nobel Prize for Economics was awarded to Claudia Goldin for her research on the gender pay gap. The difference between the average earnings of women and men in the workforce is referred to as “the gender pay gap.”. This is an important and interesting area of research for numerous reasons, and it has all kinds of implications for policymaking and our understanding of labor markets.
The World Economic Forum provides a measure of the gender pay gap for 146 countries. A score of 1 signifies full parity, and the percentage score represents an approximation to full parity. The worldwide indicator is at 68.4% for 2023, with the US ranked 43rd at 74.8% (The US Labor Department measure has it at 84%). Iceland is in first place in the world ranking for the 14th straight year at 91.2%, and Afghanistan is last by a wide margin at 40.5%. Like every other world survey that measures anything of positive and progressive value, the Scandinavian countries do very well. Romania is 88th, at 69.7%. (I will have more about world variation in a later blog.)
We see different temporal patterns across countries. In most cases, the gap has gone down in the last few decades. For example, since the mid-1970s we have seen dramatic improvement in the UK and Japan, less so for places like Australia and Sweden, in part because they already started from a better place and have less room to improve.
The US shows an interesting trend. Women made significant gains from 1980 to 2000, and since 2000 it has been stagnant. This is puzzling because, in the last 40 years, we have seen a significant increase in the educational attainment of women relative to men, one of the primary predictors.
The Evidence and the Puzzle
First, let us look at the gap. Figure 1 from Pew Research presents a measure of the gender pay gap from 1982 to 2022. (There are many different ways to measure this, but most demonstrate similar findings.)
The first Figure presents the gap for all workers, and the second for workers ages 25-34 (labeled in economic theory as “prime-age workers”).
Figure 1. Gender Pay Gap in US
Source: Pew Research Center. https://www.pewresearch.org/short-reads/2023/03/01/gender-pay-gap-facts/
While the scale they choose obscures the pattern a little, the evidence is pretty clear: we see gains for women from around 1980 to 1995 and then a leveling off.
Now let us look at education. Again, from Pew Research.
Figure 2. College Graduation by Gender Over Time
Source: Pew Research Center. https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/
Change in educational attainment starts to happen around 1990. Quoting from their article: “In 1982, 20% of employed women ages 25 and older had a bachelor’s degree or higher level of education, compared with 26% of employed men. By 2022, 48% of employed women had at least a bachelor’s degree, compared with 41% of men.” This is a dramatic shift.
Researchers have modeled the Gender Pay Gap, and they can explain about 75 percent of the variation. Educational attainment is the most important explanatory factor, along with occupational segregation, work experience, and career interruption.
If education carries all this weight, why the stagnation since 2000? I want to focus on two explanations: the Wage Growth Patterns of College Degrees and the participation characteristics of women in the Labor Market.
Wage Growth Patterns of College and Advanced College Degrees
Women have gained and surpassed men in education. The problem, according to Robert Valletta and his colleagues with the NBER (National Bureau of Economic Research) and the San Francisco Fed, is that a college education and an advanced degree do not produce the financial gain they used to.
Figure 3 offers a view of the College Wage Premium since 2000. It is defined as the percentage difference between average wages earned by workers with a four-year college degree and those by workers with a high-school degree.
Figure 3. College Wage Premium
Source: San Francisco Fed. Author Calculations from CPS (Current Population Survey) https://www.frbsf.org/wp-content/uploads/sites/4/el2023-22.pdf
The trends match quite nicely, and there is an intuitive appeal.
The problem we need to be careful about is that when you start talking about wages, there is always a caveat. Nominal wage growth is very dependent on inflation. What may appear to be a positive wage trend in reality is not.
Figure 4 presents the inflation rate since 2013.
Figure 4. Inflation Rate, 2013-2023
Source: Federal Reserve Bank of Cleveland, https://www.clevelandfed.org/center-for-inflation-research/inflation-charting
As you can see, inflation has not been a problem for most of this period. But as you noticed at the supermarket a brief time back, it has been recently. For better or worse, the US Fed has noticed as well and has acted.
Figure 5 presents real median wages (controlling for inflation) from 1979 to 2018 for those with Bachelor’s and Advanced degrees. What is common across both groups is that most of the change occurred in the 1980s and 1990s. Things have slowed or stagnated since 2000. For those with college degrees, 86% of the gain in that period occurred between 1979 and 2000.
Figure 5. College Wage Premium and Advanced Degree Wage Premium, Relative to a High School Education or Less (2018 dollars)
Source: Real Wage Trends. https://www.everycrsreport.com/files/20190723_R45090_4000d000927921a9885fad526a405e39a3f22f51.html
So, even when we control for inflation, the evidence is that women have just not gained on men since about 2000.
What happened when inflation took off? Since December of 2020, we have seen the fastest rising nominal wage growth since 1983. But as Jason Furman, the Former Director of the Economic Council under President Obama, shows in a Peterson Institute article, wage growth did not keep up with inflation. Real wages and compensation fell post COVID-19, and sectors with the highest share of female workers (healthcare and education) were more likely to see inflation outpace wage increases.
Here is another problem. Inflation affects women much more harshly than it affects men. It diminishes their purchasing power, it serves as a barrier to long-term wealth, and we find that single parents are more likely to fall into poverty. In the US, 80% of single parents are women.
The Labor Market
Men and women tend to work in different occupations and wages differ in those occupations. The three most common occupations for women in the US are registered nurses, elementary and middle school teachers, and administrative assistants. There is an easy argument to make here: if women continue to make these occupational choices, there will always be a wage gap.
But life may not be that simple. There is a great article by Maria Canon, Limor Golan, and Cody A. Smith, all at Washington University in St. Louis (they have an interesting theoretical approach, it is longitudinal, they have great data, and they know what to do with it). They start by confirming what is universally known and accepted. Even if women and men start from the same place, women will see a decrease in earnings relative to men over time. Figure 6 is from Pew Research.
Figure 6. Relative Pay of Women to Men at the Same Age
Source: Pew Research Center. https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/
The gap between women and men increases in all three categories. Why is this?
Canon, Golan, and Smith demonstrate that there are two dominant factors at work: one, women will work fewer hours over time; and two, women will accumulate less labor market experience over time.
If we look at hours worked, their argument is that many jobs disproportionately reward long working hours: “In many jobs, the pay is nonlinear in hours worked and penalizes workers who choose to work fewer hours. This reward structure tends to affect women of childbearing years disproportionately and also affects their occupational choices. Furthermore, in most occupations, the representation of women at the top-paying jobs is low—even if at lower levels there are many women.” (Canon et al., 2021, p. 175)
Labor market experience means women are less likely to play the labor market game. As market conditions change, as demand increases or decreases, as wages shift, women are less likely to respond and adapt. This is especially the case for women with college degrees. Women are less likely to transition into other occupations, and the evidence is very strong that a large part of wage growth comes from people changing jobs.
The implication of their research is more important than the surprise of their findings. Look at recent history. Covid was especially harmful for working women as it upended the labor market, and as you can see in Figure 7, women have historically been underrepresented.
Figure 7. Labor Force Participation, 2007-2023
Source: https://www.americanprogress.org/article/fact-sheet-the-state-of-women-in-the-labor-market-in-2023/
Macro-level occupational trends move at a glacial speed, but there are times when the labor market gets very active, and this is happening right now.
When the COVID-19 pandemic hit in 2020, we saw widespread shutdowns in the leisure, hospitality, and childcare industries. In March of that year, the women’s participation rate (working and actively seeking work) was at its lowest since 1985. But this did not last. The recovery from the 2007-2009 recession and the post-COVID-19 recession have been characterized by historically tight labor markets (the demand for labor exceeds supply). Figure 8 is from Jason Furman.
Figure 8. Measures of Labor Market Tightness, 2001-2021
Source: Jason Furman. https://www.piie.com/blogs/realtime-economic-issues-watch/what-best-measure-labor-market-tightness
The COVID-19 context created a strong demand for workers, and women are entering the labor market in large numbers. We can see this in Figure 9.
Figure 9. Labor Force Participation of Women, 1980-2023
Source: Brookings Institution. Bureau of Labor Statistics. https://www.brookings.edu/articles/prime-age-women-labor-market-recovery/
The participation rate for women ages 25-54 was 77.6 percent in May 2023, 0.6 percentage points above what it was in February 2020, before the COVID-19 pandemic began. As you can see from the Figure, women whose youngest child is under the age of five are powering the upward trajectory.
We can make a good guess as to why. In early 2020, the U.S. Congress appropriated funds through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other supplemental legislation. In March of 2021, additional funds were appropriated through the American Rescue Plan Act. These funds provided fast and direct economic assistance for workers and families. It included provisions such as paid sick leave, insurance coverage, and nutrition assistance.
The labor participation rate of women whose youngest child is under 5, which had been mostly flat since 2008, took off. It exceeded anything we saw pre-COVID-19. This is an unprecedented labor market, and it is safe to say that the policy response made the COVID-19 recession the shortest on record. But will it last? Given labor demands, are employers more willing to accommodate workers who need greater flexibility? It is possible, and right now we are seeing some evidence of this, but as the federal subsidies expire the already shortage of child-care workers will be exacerbated.
We see an elastic labor market, but most of the employment movement is taking place for those with small children, a high school education and under the age of 40, not for college-educated women. The labor market movement is in undervalued jobs. This is not going to make a significant dent in the pay gap.
And all of this is temporary. What happens when the market is no longer tight, and employers are no longer willing to accommodate the needs of young mothers? What happens when childcare assistance disappears, and women are required to reduce hours worked? If Canon, Golan, and Smith are right, these are the kinds of policies that have the potential to close the Gender Pay Gap. If the US is serious about this (and that is questionable), women need assistance to be able to work more hours, and women need the chance to maintain their presence in the labor market.
The politics of this is not surprising. Why is it that women cannot maintain their presence in the labor market? What passes for the right claims this is a non-issue as wage disparities merely reflect the preferences and choices of women. Progressives, on the other hand, claim that market inefficiencies are the result of archaic social norms, policy biases, and discriminatory behavior.
In the meantime, we are stuck with this gap. And the reason, according to Claudia Goldin in an IMF Podcast,
“[I]s due to the fact that there is the need for caregiving. And caregiving is for children, and caregiving is for other family members. It can be a parent. It could be a spouse. And women do that more than men do that. Thank goodness we see around as, at least I do in my little bubble here in Cambridge, of more men taking on these activities, but it’s still the case that women do them. And because of that, women tend to take jobs that enable them to do them. We call that the more flexible job. Now, if both men and women both took the flexible job, we wouldn’t have as big a problem. But the problem that we have is that in the universe of jobs, there are jobs that I call greedy jobs. And the greedy jobs pay a lot more.”
