Who Got What, and Why? A Nobel for Claudia Goldin

How have women been paid for their work? More broadly, how are different skills in general rewarded in the labor market? The prices of different things are at the core of economics, and wages – that is, the price of labor – are the most important prices. Claudia Goldin, 2023’s Nobel Laureate in Economics, uses cliometrics, the combined tools of economics and history, to understand changes in the wages of women and men, of the less- and more-educated, of the part-time worker and late-night-at-the-office striver. This history is backward-looking in its evidence, but not in its usefulness. Goldin’s work helps us understand whose wages will rise, will fall, will equalize going forward. Not entirely unfairly, she will be described in much of today’s coverage as an economist who studies the gender gap. This description misses two critical pieces. The question of female wages is a direct implication of her earlier work on the return to different skills as the structure of the economy changes, and that structure is the subject of her earliest work on the development of the American economy. Further, her diagnosis of the gender gap is much more optimistic, and more subtle, than the majority of popular discourse on the topic.

Let us then begin at the start of Goldin’s career. She was trained as a cliometrician by fellow Laureate Robert Fogel at the University of Chicago, in the early days of this new field. To say that cliometrics was controversial among historians is a vast understatement. A horde of young brash economists, wielding alien theoretical models and talking about the most forbidden subject in history, the counterfactual (“History only occurs once,” the detractors cried), presumed to overturn some of the most widely-accepted facts in the field. Slavery was not naturally dying out due its lack of productivity! Since canals could have been built in the flat midwest, the railroad could not have been fundamental to US prosperity! To give a taste of the outsider nature of cliometrics, that very term was coined by a pure economic theorist, Stanley Reiter, who had no training whatsoever in history. Goldin’s review of the impact of cliometrics following Fogel and North’s Nobel makes clear her sympathies: a critical element in this research was uncovering “the interplay between structural change and technological change”, an interplay we can study with theoretical and empirical rigor. The structure of the economy changes rewards, which changes incentives, which cause us to study, to save, to work long hours or retire early, to benefit from increasing our knowledge or our brawn.

Chicago in the 1970s was, of course, the center of the field, and is sometimes seen in retrospect as the center of the orthodoxy. Not true at all! Beyond the cliometric revolution, Friedman was questioning the then-dominant belief of the role of the state in policy, Griliches was proving the importance of innovation and R&D for the economy, and Becker was freeing us to study what happens inside the family. If anything, Goldin arrived with an orthodox background – Bronx Science, that cradle of future laureates, then a shift from microbiology to antitrust at Cornell (nb: link is to a .doc file), before Hyde Park broadened the view of what a scientist, an economist, could do.

Goldin’s early work was straight history, though with a Beckerian tinge in its focus on the household. The old saw is that real economic history is dusty. Your hands must dig through archives, long-forgotten boxes with handwritten records that can barely be read, a spider web laced onto the corner of pages protected by neglect and darkness for decades. Her archaeology dug into urban work in the late 19th century (more daughters to help in the house allowed mothers to work elsewhere). She combined censuses from the early 19th century with a Lewis-type dual economy model to argue that the low relative productivity of women and children in the North (dairy and wheat) versus the south (cotton and tobacco, easier to monitor with piece rates) created a surplus labor that could fill the Lowell mills and, over time, drive up female wages. She found city-level records to look into black and white women’s labor force participation just after emancipation, arguing that norms related to slavery led to higher working rates among black women than could be explained by wages or incomes alone. She argues that the indirect economic costs of the Civil War, especially in the South, exceed the direct costs of damaged capital and deaths. It is perhaps unsurprising given this early history work that Goldin is a delightful academic writer, with carefully constructed turns of phrase and straightforward language. The influence of an insistence on clean prose by McCloskey, who was also in the history group at Chicago when Goldin studied there, seems evident.

There should be no surprise that work on the late 19th century, right before the American Century, draws one’s thoughts to how exactly the prosperity of the twentieth century came to be. Why did education soar, first at the high school level and later in universities? Why did women’s wages take so long to catch up (and in what ways have they still not done so)? How did societal changes, like gender norms or family size changes, matter relative to real economic factors like the development of new “second Industrial Revolution” technologies like electricity and modern chemistry?

The economic theory of the early and mid-20th century in America is straightforward. American industry became highly advanced. An increased demand for skill led to widespread schooling, making the US by far the world’s most educated large society. This supply shock combined with assembly line automation, or the incorporation of skilled work into machines, drove down the relative wages of white-collar workers, reducing inequality. Manufacturing work became highly efficient and more complex, requiring more skilled work over time, raising inequality and reducing the share of workers in that sector. Service-sector work grew in relative importance. As “brain” jobs replaced “brawn” jobs, women deciding on how to balance family and career increasingly weighed career more heavily, gaining expensive credentials to advance in the workplace.

But is this theory true? Largely due to the work of Goldin, we know it is. Consider schooling. In 1910, less than 10% of Americans graduated high school, and those that did were generally on a track to attend university. Latin and Greek were on the syllabus. Between 1910 and 1940, high school graduation soared to five times that rate in response to a growing demand for skilled labor, wages for bookkeeping jobs fell in response to this new supply, and the most productive firms began paying a premium for graduates even in blue collar occupations. And perhaps surprisingly, women were more likely to graduate than men throughout this period. This increase in schooling was not seen worldwide. In the United Kingdom, only 15% of 17-year-olds were attending school even in 1960. The decentralized, Republican (in the classic sense), secular United States had a unique source of state capacity to react to the opportunity of increased demand for skill.

World War II greatly increased the demand for less skilled manufacturing labor, and induced the temporary entry of women into the labor force. Inequality remained low, and female labor force participation continued to increase, following the war, even though the war itself was only a temporary event. Could World War II have caused some of these first-order twentieth century labor market patterns? Goldin argues no, returning again to basic economic theory. Inequality remained low in the middle of the century because of a surplus of skilled labor. And when it comes to Rosie the Riveter, Goldin shows no particular break in the entry of women into paid work surrounding the war, nor any important change in discrimination against married women by employers in its aftermath. That said, the middle of the century was taking us to the end of the era of the Steel Belt, the assembly line, and the powerful blue-collar union – even in 1940, Goldin and Katz show that the most technologically advanced manufacturing firms were recruiting higher-skilled workers at higher wages, restarting the skill-technology complementarity that would exacerbate inequality in the later decades of the twentieth century.

It should now be clear how Goldin arrived at the question of the gender gap. Let us begin by positing that workers are paid their marginal productivity – that is, holding all the capital and tasks and other workers constant, if adding you to the firm increases profits $20, then that is your marginal productivity. No one ought to pay you more than that, and competition among employers ought to push your wage to that level, in the standard economic model. Now many quibble with this model, sometimes correctly and sometimes not, but let us return to that complaint later; indeed, Goldin shows using a Women’s Bureau survey during the Great Depression that large firms discriminated wildly by assigning certain jobs only to certain sexes. Nonetheless, taking the standard economic model as a baseline, we can define wage discrimination as “otherwise identical workers are paid different wages”, or alternatively, “controlling for field, experience, education, and other factors which affect productivity, gender should not affect wages.”

Two obvious objections arise. First, why hold all else constant? The structure of work – the type of coworkers one has, the hours the office is open – directly affect a given workers’ marginal productivity. For instance, let there be two types of workers, Early Bird and Night Owl. When workers work at the same time, they produce a combined $10 of profit. If they work at different times, they produce $3 in profit each. If most workers in an industry are Night Owls, Early Bird either earns a lower wage or suffers the disutility of working an uncomfortable shift for which they must be compensated. And likewise, if most are Early Birds, then Night Owl earns less or gets more disutility from their work schedule. Alongside Larry Katz, Goldin gives the canonical example of the pharmacist, whose gender gap is smaller than almost every other high-wage profession. Why? Wages are largely “linear in hours”. Today, though not historically, pharmacists generally work in teams at offices where they can substitute for each other. No one is always “on call”. Hence a pharmacist who wants to work late nights while young, then shorter hours with a young kid at home, then a longer worker day when older can do so. If pharmacies were structured as independent contractors working for themselves, as they were historically, the marginal productivity of a worker who wanted this type of flexibility would be lower. The structure of the profession affects marginal productivity, hence wages and the gender gap, particularly given the different demand for steady and shorter hours among women. Now, not all jobs can be turned from ones with convex wages for long and unsteady hours to ones with linear wages, but as Goldin points out, it’s not at all obvious that academia or law or other high-wage professions can’t make this shift. Where these changes can be made, we all benefit from high-skilled women remaining in high-productivity jobs: Goldin calls this “the last chapter” of gender convergence.

The second objection to the definition of wage discrimination as “identical workers get identical wages” is that education and careers endogenously determine one’s marginal productivity. If women are banned from going to school, then otherwise identical women and men at birth will have different wages at adulthood. Likewise, if “marriage bars” are enacted preventing married women from working in a field, these women will receive less training from their early-career bosses and be put on “dead-end” tracks. And indeed the same is true of policies we may think of as beneficial: the option for young mothers to take temp work or a longer parental leave policy may harm all womens’ careers by changing job tracks and training in exactly the same way as a marriage bar. Goldin refers to a revolution in women’s work from one where women worked out of necessity, or temporarily before marriage, to one where they expected to have a career rather than a job and hence where they made education and career advancement decisions under that assumption, just as men had. Both technological and economic changes led to this revolution. The availability of the pill led to sharp increases in women attending university and professional programs in the 1970s. Women in the office in the early 20th century worked neither the lowest-paid nor the highest-paid jobs, but instead worked the jobs with no probability for advancement, a pattern Goldin credits to an attempt to signal to men that even the “bad jobs” they get still can become a “career”. Yet regardless of birth control and changes in societal norms, women’s investment in career, and the extent to which they are groomed for advancement, still depends on how likely they are to stay in the workforce at long hours. A particularly intriguing followup to Goldin’s evidence has been the “child penalty” literature of Kleven et al, showing a huge fraction of the remaining gender gap in the developed world occurs only after a child is born.

You may notice a wild difference in how Goldin the economic historian discusses the gender gap compared to most other writers. Holding experience, education and field constant, the gender gap has shrunk to the low single digits. But understand what this implies! How women negotiate pay raises, whether bosses discriminate in promotion within a given firm, whether a firm has a really inclusive set of benefits – all of this is absolutely on the margin. What matters for the gender gap in the long run is technology and societal norms, particularly in their interaction with family. If high-productivity jobs require brawn, or require sixty-hour work weeks while society pressures women to raise children at home, then the gender gap will be large. If women can rationally expect to work a longer career due to better birth control or fewer bars (legal or normative) on married women working, or if white-collar jobs become more common relative to manufacturing, women’s wages will rise. That is, the definition of wage discrimination as “identical workers get different pay” is useful for ruling out some of the most common popular explanations for the gender gap. It does not mean that economists like Goldin are unaware that women may disproportionately avoid fields with long hours, or more physical danger, or that women may be put on “mommy tracks” in their career with less training and room for advancement. She is quite aware of this and wants to focus your attention on these concerns!

Economic history helps us understand the past. But just as structural and technological changes in the past affected who got what, similar changes today will affect who gets what tomorrow. Current trends like onshoring, work-from-home, increasing parental leave lengths, flexible work locations, and growing gender gaps in schooling will not have innocuous distributional consequences. There is a lot to consider about how these changes both directly affect marginal productivity as well as indirectly affect societal norms, the expectations of young people, the training decisions of managers, and the speed of skill acquisition. As Goldin has shown, that progress benefits all people equally is not something we should assume. When evaluating her work, I can think of no stronger commendation than that I have no idea what Goldin will show me when I begin reading a paper; rather, she is always thoughtful, follows the data, rectifies what she finds with theory, and feels no compunction about sacrificing some golden goose – again, the legacy of 1970s Chicago rears its head. Especially on a topic as politically loaded as gender, this intellectual honesty is the source of her influence and a delight to the reader trying to understand such an important topic.