The trouble with women - part 2

For background, read part 1.

Now, picture two companies competing with each other. They are identical in every respect, other than the gender of their staff. The first one (Girl Co.) employs only women, while the other prefers men (predictably, the founders went for Guy Co.)

When joining their respective companies' graduate schemes, guys and girls have equivalent levels of IQ, education and charisma. Guy Co. and Girl Co. are reputable, law abiding companies, so they pay the same salary for the same job. Being identical in every respect, they have the same costs of production. Competition is stiff.

A few years pass. The guys get married to the girls and they decide to have children. Guy Co. barely notices: its employees go away for a few weeks after each child is born, and perhaps have the odd day off every once in a while thereafter to cater for measles, chickenpox and the like.

At Girl Co., however, things look decisively bleak. One by one, its employees give birth and go away for months on end, while Girl Co. still has an obligation to pay them a large fraction of their salary. Temporary replacements are hired, causing the company's payroll and training costs to go up dramatically.

But that's the least of Girl Co.'s worries. Many of its star employees never come back, choosing instead to stay at home or look for a less onerous job. Those that do return tend to leave earlier than they used to, and showing up for that crucial meeting depends on whether the antibiotics they gave to their baby the night before proved to be as effective as it said on the package.

To cut a long story short, Girl Co. goes bust while Guy Co. ends up dominating the market. From the point of view of the employer, hiring a girl is that much riskier than getting a guy with similar qualifications, training her or promoting her to a business-critical position that will allow her to eventually reach the top even more so.

The real trouble with women is that they have a visible characteristic (their gender) that is negatively correlated with life-time productivity. It's not that there aren't many women that are as career oriented as the most driven of men. On average, however, women tend to not be as good an investment for an employer as men are - and it's impossible to tell who the 'committed' ones will turn out to be. By the time it all becomes clear, most female high-flyers will have lost valuable time in second-rate jobs, without the experience and contacts that will secure them a job running the world and a fat pay package to go with it. Add to that the calculus of household welfare maximisation, and there you have it.

Unfortunately, the saying that a woman has to be twice as good as a man to succeed is all too true. Blame culture, history and the tax system - but keep in mind that these would account to nothing were it not for your less eager sisters.

Thanks Craig!

Tactless, yes. Ungrateful - never.

Newmark's Door posted a link to this blog yesterday, and bluematter registered 200 visitors in a single day.

Thank you.

Trade and the moral community

Alex Tabarrok has a brilliant post on trade and the moral community - the moral community being the people whose welfare you most care about, or alternatively the people who determine the laws and policies that govern your life.

Define 'moral community' on a continuum and add a dynamic dimension on top, and Alex's model provides a complete theory of the political economy of trade liberalisation. A must read.

Why I'm not allowed to smash plates anymore

This is an issue close to my heart, and a testament to how the rise of 'litigation culture' is threatening to wipe out our civilisation (well, maybe I'm exaggerating here, but fun levels are certainly taking the plunge).

Thanks to the excellent Overlawyered for the pointer. The Daily Telegraph story is here.

The trouble with women - part 1

The Harvard Crimson has an interesting piece on Harvard Prof. Claudia Goldin (thanks to Greg Mankiw for the pointer). Goldin, who has dedicated a significant part of her research career on documenting and explaining gender wage differentials, makes some interesting observations:

Equivalent men and women, who go to the same college, graduate from the same law school, get the same job after graduation—we see them ten years later, the guy’s making a gazillion and the woman is in a small practice making maybe 60 percent as much.

Why is that the case? Most likely, she made a conscious decision to shift into a smaller practice that didn’t have 80-hour work weeks to combine family with career and to do it in a way that was satisfying. Now, why not her husband?

An important factor behind this oft-observed pattern could be path dependence, the same reason we are stuck with the inefficient QWERTY keyboard. There was a time when sheer physical strength was the most important determinant of productivity. In order to maximise household welfare and in line with the principle of comparative advantage, men became the bread-winners: hunting, ploughing the land, trading along dangerous routes. Women adopted the less physically demanding job of raising the children and taking care of the household.

In modern economies, brains have replaced brawn as the primary means towards making a living; the comparative advantage of old has disappeared. Shouldn't then women be equally represented in the workplace and command the same wage for the same job? Note that 'equivalent men and women, who go to the same college, graduate from the same law school, get the same job after graduation' also tend to get married to each other - if my friends and acquaintances are anything to go by, couples almost always share a similar level of education and earning potential.

In such a household, an efficient allocation of resources would be achieved regardless of whether the husband or the wife stayed at home to look after the kids. Enter cultural norms: societal expectations tip the balance in favour of women taking more time off work and suffering the biggest hit on their lifetime earnings. Add to that the poisoned chalice of superior benefits offered to mothers (maternity leave is longer than paternity leave, and less frowned upon by bosses) and labour force participation as well as wage differentials can be fully explained without having to assume women have a stronger preference for taking care of the kids than men do.

Here's Goldin again:

There are still discrimination cases that we find in the newspapers that outrage us. That women working for some accounting firm are doing the same job and being paid less. I think it’s less so now than it was, possibly because we became, as a nation, far more aware that this is not just wrong but it is illegal.

While path dependence is almost certainly part of the answer to the puzzle, I believe the historical development of cultural norms is actually much less important than another, more fundamental economic reason.

Hold on tight, the second part follows after a short break.

Acronym finder

A great resource to help you figure out what an acronym stands for.

Ignorance is bliss

In the spirit of my previous post, the former president of the World Bank James Wolfensohn comments on the 'anti-globalisation' protesters:

When you see someone outside a barricade attacking you vehemently because of something called globalization, you have to wonder what it is they're getting at. It enrages me when you have people who assume they have the moral high ground against a team of people here who are devoting their lives to addressing the very questions that these people claim to be addressing.

The excerpt is from PBS's video documentary Commanding Heights - The Battle for the World Economy (click here to watch the video).

So what are the protestors getting at? Self-righteous anger is beneficial to those in the barricades: they enjoy the 'warm glow' effect from feeling they are helping to make the world a better place, while bearing none of the costs of looking into the issues and trying to make sense of often mundane - but critical - realities.

While there are definitely a multitude of problems with the way the IMF, the World Bank or the G7 operate, the 'anti-globalisation lobby' seems to be protesting at little else than 'the poverty of the human condition' itself. From an individual point of view, this makes perfect sense. From the point of view of society as a whole, it is catastrophic.