On Sunday, December 12, Claudia Goldin was awarded the Nobel Prize in Economic Sciences for her work on women’s progress in the workforce. In this piece, Farzana Afridi reflects on the significance of Goldin’s win and the contribution of her research to understanding the gender dynamics of labour markets. She also delves into the implications of this research for developing countries like India, where female labour force participation has remained low despite economic growth, and why this matters for economic growth.
Claudia Goldin's Nobel Prize award is significant for two reasons. One, this is the first time that a sole woman economist has won the Nobel Prize in Economics (1), and two, it brings a gender lens to understanding individuals’ labour market participation and occupational choice. Although there exists a large body of economic research on the determinants of labour supply and labour market discrimination, Goldin’s work stands apart in highlighting women’s experiences with and in the labour market.
In her early work, Goldin aimed to understand the factors that determine women's participation in the labour force – the decision to enter or exit the labour market – in a historical context. A priori, one would expect a linear relationship between countries’ GDP per capita and women’s labour force participation (that is, richer countries typically have a higher proportion of adult women who work relative to lower income countries). However, Goldin put together data within the US as well as across countries over time, to show that in fact there is a U-shaped relationship between the GDP per capita and women’s labour force participation – countries which are poor as well as countries which are rich exhibit high labour force participation of women, but middle-income countries have low participation of women in the labour market. This generates a U-shape, indicating that with economic growth, women's labour force participation declines initially, but as per capita incomes increase further there is an increase in women’s labour force participation.
Why doesn’t women's labour force participation increase as an economy grows initially? Goldin highlights two factors – on the one hand, incomes increase with the structural transformation from agriculture to manufacturing, but with manufacturing firms offering higher wages, the need for women to work declines (this is the income effect). On the other hand, cultural and social norms hold women back, and keep them within their homes, because of the social stigma attached to women engaging in manual labour or blue-collar work in factories (the stigma effect). But as the structural change deepens with a shift from manufacturing to the formal services sector, white collar jobs such as secretarial work, office, and desk jobs become available to women. Therefore, the social stigma attached to women working becomes weaker and the opportunity cost of not working rises due to the higher wages offered by the service sector. Thus, women’s labour force participation increases when the economy further transitions from manufacturing to the services sector and higher labour demand pulls them out of their homes.
The structural shift towards the service sector does not, however, completely ameliorate the biological and social constraints that women face in engaging with the economy during their life cycle. In particular, Goldin’s work highlights the fact that women tend to drop-out of the labour force due to childbirth, and getting back to the labour market is often a challenge. Hence, when the birth control pill became widely available in the US, it allowed women to control the timing of marriage and childbirth. According to Goldin (and co-author Larry Katz), this was critical because it meant that women could delay childbirth and invest in professional careers, such as medicine, business and law, which require longer-term, higher investment. She found that the proportion of women enrolled in such professional courses, for careers where the returns (wage earnings) are also higher, increased dramatically in the US, from being almost negligible in the 1960s and 1970s to nearly 50% of all enrollments by the turn of the century. As a result, the gender gap in earnings as well as the occupational segregation of women, declined significantly.
Goldin’s research, more recently, focuses on the remaining gender gap in earnings in developed countries and how the ongoing transformation of the workplace can affect women. While occupational segregation of women in the West has declined considerably, there is a persistence of the gender pay gap within occupations. According to Goldin, it is important not to regulate pay as a solution to reducing the gender pay gap, but rather change the nature of work itself. “Greedy jobs”, which reward long hours of work by employees by offering higher wage rates for higher work hours, disadvantage women who often prefer more flexible work schedules and/or have childcare responsibilities. She hypothesises that the post-pandemic shift towards work from home, which allows women to balance domestic and market work, is a potential boon for women’s engagement with the economy and could further reduce gender pay gaps.
How is Goldin's research relevant for women in a developing country like India?
The transformation that Goldin documents in women's labour force participation in the US happened fairly quickly – the 45 percentage point gender gap in labour force participation in the 1970s fell to 15 percentage points in a span of about 40 years, impacting both the level and the nature of women’s labour force participation. In India, there has been a decline in the women’s labour force participation in the last few decades with economic growth, in line with Goldin’s U-shape hypothesis. But in contrast to the western experience, while the gender gap in educational attainment in India has declined dramatically, we don’t observe women participating concomitantly in the labour market. It is worthwhile to point out that Goldin’s theoretical model underlines the need for increasing women’s educational attainment while simultaneously making better work opportunities available to women. As the agricultural sector has shrunk in India, the share of the labour employed in the informal services sector has grown dramatically. This means that the social stigma attached to women working may remain, given the absence of higher ‘status’ and higher wage jobs in the Indian context. Not surprisingly therefore, despite continued economic growth, low labour force participation of women, gender-based occupational segregation and consequently a large gender pay gap persist in India. In short, raising the demand for women’s labour in the formal sector in India may be the missing piece in transforming women’s economic engagement in India.
Goldin’s research is unique in analysing the microeconomics of women’s engagement in the labour market within the context of the macroeconomic, structural transformations an economy undergoes over time. This year’s Nobel Prize draws our attention to the importance of understanding gender dynamics in labour markets cohesively, as an issue central to economic growth, rather than in isolation.
Note:
1. Elinor Ostrom, the first woman recipient of the Nobel Prize in Economics, was a political scientist. Esther Duflo is the first woman economist to receive the prize. Both shared the Nobel Prize with male colleagues.
Reprinted with permission from Ideas for India