Bryan Caplan  

Why Are Women Doing So Well in the Labor Market?

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Profit-maximizing employers should be gender-blind, right? Well, not quite. If, given all other information, women are less profitable to employ at a given wage than men, then profit-maximizing employers can't afford be gender-blind. That's the great lesson of the theory of statistical discrimination.

So why would women be less profitable to employ? For starters, we need look no further than basic biology: Women can get pregnant, and pregnancy is a burden on employers. If you hire a women of child-bearing age, there is a good chance that you will pay a high price. On top of this, we can add that many men, but few women, remain as focused on their careers after they become parents.

From this standpoint, even I'm surprised that women are doing so well in the labor market. Young single women are actually out-earning young single men in a lot of major cities. You could credit (blame?) discrimination laws. But if these laws successfully forced employers to pay equal wages to unequally profitable workers, you'd expect women to have extra trouble finding a job in the first place. (That's price controls 101).

Is there another explanation? Perhaps female employees have inobvious advantages that counter-balance their obvious disadvantages. There are many possibilities, but here's one that seems promising: For employers, a major plus of female employees is that they are easy bargainers. As Babcock and Laschever explain in Women Don't Ask, women are substantially less likely than men to aggressively negotiate with their employers.

Now Babcock and Laschever take this finding and argue that women should start acting more like men. I see things differently. What Babcock and Laschever have really discovered is a reason why employers should, all else equal, prefer to hire women. No matter what industry you're in, Entertainment Weekly's lesson holds true: "[W]ho wants to work with a troublemaker always looking for a bigger payday?"

Is this one effect big enough to counteract the other drawbacks of female employees? Probably not - which suggests that there are other inobvious benefits of hiring female employees. Anyone got some more candidates? I'd like to hear them. But remember - to solve this puzzle, they have to be financial benefits to employers.

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COMMENTS (30 to date)
Telnar writes:

Most employers are probably unable to effectively monitor the extent to which employees are willing to prioritize helping their colleagues over work for which they are going to be personally evaluated (and relying too heavily on colleagues complaints can turn "teamwork" into a proxy for popularity).

If women tend to be inclined to put higher average priority on their colleagues needs (all other things being equal), then their true performance will, on average, exceed their directly measured performance.

Dennis Mangan writes:

Young single women are actually out-earning young single men in a lot of major cities.

Most employers probably would rather look at young single women than men, and that's got to be worth something. Also, hiring more women probably helps keep the EEOC away, and that's worth a lot.

Troy Camplin writes:

Now, are we looking at all women vs. all men? If so, the simple answer is that more women now are getting college degrees than are men. Further, they are getting their degrees in social fields that are becoming increasingly in demand. The latter will result, in the long run, in women earning less than men, since women are more likely to work for non-profits, which pay less than the private sector, than are men.

Acad Ronin writes:

My impression is that women are more conscientious, careful, disciplined and responsible than men, especially young men (age 25 or younger).

TGGP writes:

How about the Larry Summers difference-in-variance explanation: the young earn less than the old and women are doing better in younger age cohorts where there are a lot of loser males who can't get anywhere but the high-earning outliers haven't been working long enough to really shoot ahead.

R Phillips writes:

What about the evidence showing that a higher proportion girls in a given class raise the productivity of male colleagues in school? Could the same effect carry over to adults?

Jason Malloy writes:

The more interesting unexplained fact in this is why women are out-earning men in many of the stereotypical male systemizing positions and men are out-earning women in many of the stereotypical female empathizing positions:

"Young men in the city still make more than young women in a number of jobs, including psychologist, registered nurse, high school teacher, bank teller and bartender...

And women in their 20s now make more than men in a wide variety of other jobs: as doctors, personnel managers, architects, economists, lawyers, stock clerks, customer service representatives, editors and reporters."

Daniel Lurker writes:

A) I agree with Acad and would go even further. Males are worse on a lot of dimmensions, especially in youth. They are more prone to violence, and more likely to find themselves in jail. Given that employers are liable for the actions of their employees on the job, it's understandable that they'd prefer the group with fewer firebrands. Even if not all male violence occurs at work, employers prefer not to have convicts on their staffs (because that could be construed as evidence of failure to do due dilligance if they later do something at work).

B) Health. There is at least some evidence that women call in sick less often: Granted, this might not have a huge R^2, and might be offset by pregnancy. On the otherhand, males are much more likely to kill themsleves and each other than females, and such events, while still rare relative to pregrnancy might hamper productivity more than complying with the Family Medical Leave Act and other silly legislation. I'd love to know what the extant literature on the overall difference is.

C) Women can sometimes be attractive. This matters not just because men often are the ones making hiring decisions and get to reap non pecuniary benefits from oggling at them, but some jobs require persuading outsiders to do something. At least one area consulting firm has a de facto policy of hiring only attractive young women.

Daniel Lurker writes:

Link to support my claim in "B". Didn't post in original for some reason.

[I fixed it for you. The link was there, but there was no visible text between the html codes.--Econlib Ed.]

Jason Malloy writes:

Women can sometimes be attractive. This matters not just because men often are the ones making hiring decisions and get to reap non pecuniary benefits from oggling at them

This theory is not consistent with the data. Men are both punished and rewarded for looks more often in the labor market than women. (PDF)

Health. There is at least some evidence that women call in sick less often:

Economists Andrea Ichino and Enrico Moretti calculated that some 12% of the earnings gap between men and women can be explained by differential female absenteeism related to menstruation.

Josh writes:

Hard to tell if they controlled for education. But if they didn't, I'd suspect that's the culprit. Women are getting more degrees than men these days. That wasn't the case just a decade ago (or so), which would explain why women over 30 are NOT doing better. It would also explain why women in cities are doing so well compared to the country since I would guess the overwhelming majority of high-paying jobs are in cities.

Tyler Cowen writes:

If (for independent dynamic reasons) jobs evolve into shorter tenures, the costs of eventual pregnancy matter less.

ndsnow writes:

This could simply be managers buying perks instead of profitability per the principle-agent problem.
If you're the manager and you can either hire the young pretty thing or the young competitor for young pretty things, and the stockholders are no the wiser, then the young pretty thing may get the job. This of course, assumes the manager prefers women.

Troy Camplin writes:

Studies have shown that attractiveness does play a role, but you can neither be too unattractive nor too attractive. Why the latter? Nobody takes you seriously. That's why most successful businesswomen are as attractive as Martha Stewart and Hillary Clinton, but no more, and no less. This seems to be true of the CEO giving out the raises is male or female.

maejones writes:

My guess is that Tyler Cowen hit the nail on the head. Young college graduates will likely work a number of jobs before turning thirty. This coupled with delayed fertility means that the actual probability that an employer will face the costs of a child bearing employer are rather less than formerly.

It is also likely that employers have a very good idea about the fertility statistics of women in different careers, enabling them to more accurately assess the comparative payoff of hiring young men vs young women. In light of this, the fact that male nurses out earn female nurses is much more reasonable.

dearieme writes:

Lurker, do you mean that the consulting firm will hire women only if they are attractive, or that its hires are all attractive young women?

Kimmitt writes:

Are more women the exclusive wage-earners for their households? That might push them to a higher reservation wage.

Separately, if women are making more in elite professions, there's a simple explanation, and it's the same reason why ceteris paribus I always pick a female doc or lawyer. A woman still has to be more talented than a man to get anywhere useful.

Lord writes:

Easier bargaining would tend towards lower wages. Increased pay for whatever is in shorter supply seems likely as Jason pointed out. Employers want to establish their nondiscriminatory status and have to do it by competing with other employers for the scarcer workers. This suggests the financial benefits are avoidance of discrimination lawsuits and that can occur on hiring as well as employment and scarcer workers are probably better ones as they chose fields dominated by the opposite sex.

Nathan Whitehead writes:

A possible second-order effect: the higher the proportion of female employees, the less likely other employees are to quit. The idea is that conflict arises between employees, then the higher the proportion of females in the workplace the greater the chance for mediation and reconciliation as opposed to someone leaving (and costing the company money). This fits with traditional gender stereotypes, I don't know if it is true or not.

LemmusLemmus writes:

Customer demand.

Bars are the obvious example, but it goes further. I used to work for a German consultancy company that catered mainly to the public sector, and it was a strong priority to bring more women in. Presumably this was because most customers were strongly concerned with equal rights (always include something about gender mainstreaming in your proposal).

Rimfax writes:

I recall a US DoD study (can't find a link) that found that women, even considering pregnancy, were less expensive to employ than men. They were more punctual, consistent, and reliable than men, on average. This more than offset time lost to pregnancy and higher medical costs.

Also, since corporate tenure has plummeted in the past two decades, the loss of a woman to professional motherhood would be easily lost in the noise of normal turnover to other employers.

v writes:

Jason Malloy has a good point: "The more interesting unexplained fact in this is why women are out-earning men in many of the stereotypical male systemizing positions and men are out-earning women in many of the stereotypical female empathizing positions." Having colleagues of the opposite sex brings more perspective to the job--like having colleagues of different religious, ethnic, and educational backgrounds. Imagine if there were no women in medicine or economics, both of those disciplines would be very different. Having a male nanny or elementary teacher is probably good for a well rounded childhood development--positive externalities. It also gives the clients/customers/patients/students more choice if they feel uncomfortable with just 1 gender to interact with.

8 writes:

Why do there have to be financial benefits to employers? Our society increasingly resembles a martriarchal society.

cm writes:

In my personal opinion i believe that young women tend to mature faster than young men. Therefore, women mature faster than men do. This fact help women in their professional lives because they tend to be more responsible and determined for the business. Business look for caring and responsible people to work for them and this is what they see on women.

Holly writes:

Being a young woman in college seeking to earn my degree, I have realized that more and more young women are doing this as well. My Mom never received a degree and she is not bringing in quite as much income as my Dad is. However, times have changed and more women are beginning to go to college therefore, they are obtaining better jobs with larger incomes. I also believe that young women are receiving better jobs at this age becuase women at this age are more mature, organized and easier to rely on than young men are.

Conley6267 writes:

Since June 10, 1963, the Equal Pay Act makes it illegal for employers to pay a woman less than what a man would receive for the same job. The following year, Title VII of the Civil Rights Act bars discrimination in employment on the basis of race and sex and established the Equal Employment Opportunity Commission (EEOC) to investigate complaints and impose penalties.
But somehow 45 years later we are still discussing how women should be less profitable than men. Real equality. But we seem to always use these laws as an excuse.

Basic biology is now a burden and discrimination laws should be credited for young single women out-earning young single men. So obviously women should be less profitable to employers.

First of all, I haven’t heard in a long time that women are not as profit-maximizing because God gave us an amazing gift of bearing a child also referred to as “basic biology”. Yes, some women decide after having a child to quit working or reduce their hours to part-time. Women take pride in what they do whether they are a homemaker, secretary, or CEO. But before you stereotype a whole group as not being a financial benefit for an employer, remember that a woman with the same educational level as a man can build relationships with clients, execute strategies, produce results, and give something extra that is missing. She is clearly a better candidate than her counterpart but one day she might decide to have children so therefore she will diminish profits. But we seem to that her counterpart could one day accept a higher paying job and take with him years of experience to the new employer and leave the old one out to dry.

My question is why can’t men just be happy that women are succeeding in this male-dominant world? Like the saying goes, “Behind every good man is an even better woman.”

920222421 writes:

I read this from the female perspective. I'm a second year Construction Management student so I'm already trying to familiarize myself with situations like these.

The business of Construction Management is all about negotiating, and I've heard that this is why they want women in these positions. They say that women are better with people skills on average, and they are more organized. A more social yet organized individual is going to make a better employee--gaining more revenue for their employer. They will become popular by demand, and if a client is demanding your employee, they're demanding you!


fanthonyb87 writes:

More and more women are going to college and obtaining degrees. Women are outweighing the ratio of females to males at colleges. Women are also obtaining degrees in high demanding fields and employers are hiring more and more women. In all honesty, I am pretty sure employers like to look at women a lot more than they like to look at men.
Women are more conscientious than men because they put a lot more thought into a situation than most men would. They think about the long-run benefits versus the short-run. Men are more applicable to make a decision that will benefit them in the short-run for example, a man trying to obtain an administrative position. If anyone makes too many short-run decisions the company will surely plummet versus making decisions for the long-run. I believe that if you keep a good balance between the two that one can achieve a lot in the market.

Ballard5969 writes:

It is extremely outrageous that the issue of women doing so well in the labor market is even being addressed in this blog. A more appropriate issue would involve exploring why it has taken this long for women to achieve in the labor market.
This is one of the most stereotypical blogs that I have ever encountered on the internet. Its views like these that account for the continued gender discrimination towards women today. Women, both ethically and lawfully, deserve the same wages and stature in the workplace, as their male counterparts.
I wasn't aware that possessing the ability to bear children and raise a family was a disadvantage to a woman and her career. If children were being raised in a proper manner, both the mother and father would be equally as focused on playing the role of a parent. And what about fathers that retain sole custody of their children? Are they at a less profitable disadvantage as well?
The fact that women are doing so well in the labor market can not be attributed to the fact that they may possess some sort of "advantage", but rather to the fact that employers are finally practicing equal rights and rewarding based on competence and knowledge of skill instead of on the basis of gender.
Women are no less profitable than men. One should be hired and earn wages based on their qualities for a specific job, not because of their gender. And as far as women succeeding so well in the labor market; credit is finally being given where credit has long been due.

Rahnjan Shetti writes:

The reason more women are being admitted into the work place and earning more temporarily is due to three factors.

The first: is that years worth of teaching boys as if they are girls has taken its toll.

The second: families in lower income homes penalize boys giving them less help with college tuition. Many with the attitude - he's a man, he'll need less help and he can tough it out. Girls are worried over and given every advantage.

The third: in an information technology age women have superior memory and multi-tasking skills - they also are willing to accept less money and negotiate poorly and therefore are perfect candidates. Once they have a child it ends.

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