Nobel Prize in Economics 2023: How History Pushes Us to Understand the Obvious

Nobel Prize in Economics 2023: How History Pushes Us to Understand the Obvious

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13 October 2023
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This year’s Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (commonly referred to as the Nobel Prize in Economics) was awarded to Professor Claudia Goldin of Harvard University “for having advanced our understanding of women’s labor market outcomes.”

In the modern world, it may seem obvious, ordinary, and “natural” that women pursue education, work, balance social activities with household responsibilities, and care for their families. This appears to be the outcome of socio-economic and political changes over the past few centuries! However, it is not quite that simple in reality. 

Prior to the emergence of the scholar’s findings in the 1990s, the prevailing belief in economic science was that economic growth leads to increased participation of women in the paid labor market. However, it turned out that these conclusions were based on insufficient information, and when a more extensive dataset was considered, the picture changed. Claudia Goldin investigated this broader perspective using data spanning the past two centuries.

The challenge was that the topic of women’s labor was insufficiently or inadequately represented in historical sources. For instance, documents often listed “marriage” in the “occupation” field during a certain period. However, in reality, while married, women not only fulfilled household duties and caretaking work but also worked alongside men in agriculture or cottage industries. This employment was not documented in official sources.

To address this issue, Professor Goldin updated databases by incorporating industrial statistics, population censuses, household composition data (including households led by women), and other sources. She was able to determine that, in reality, the proportion of women in the U.S. labor force was greater than what was recorded in official historical sources. 

Furthermore, the extended period of observation allowed for a retrospective examination of the impact of structural changes on women’s U.S. labor market outcomes from the late 18th century (when the agricultural sector dominated) through industrialization and into the second half of the 20th century (when the service sector dominated). It was revealed that economic growth does not automatically lead to a reduction in gender disparities (Figure 1). This is because, in addition to the demand for women’s labor in the job market, the supply of labor from women is influenced by several factors.

Figure 1. The U-shaped curve

Source: Nobel Committee  

Firstly, marriage. Retrospectively, it was found that with the onset of industrialization, a smaller proportion of women continued working after marriage compared to the pre-industrial era, despite the increased demand for labor. This was because it became more challenging for women to balance work with family life as their workplace shifted from the “household” to the “factory.”

Secondly, expectations. Women pursued education based on their future expectations. In other words, if a woman anticipated that she would not continue her professional career after marriage and having children, she (or her parents) made corresponding decisions regarding her education. These decisions influenced her prospects for re-entering the labor market after her children grew up.

Thirdly, contraceptive. A woman’s ability to delay marriage and childbirth allowed her to have clearer expectations for the future and, thus, make more informed and planned decisions regarding her education and career.

Nevertheless, greater or even equal participation in the labor market does not necessarily imply gender equality. Another issue that remains on the agenda is the gender pay gap.

Turning to historical statistical data, Claudia Goldin examined the earnings gap between men and women and the reasons behind these differences. It was found that wage discrimination, meaning differences that cannot be explained by disparities in education, age, or productivity, increased during the expansion of the service sector in the 20th century (from 20% at the end of the 19th century to 45% in the 1940s in manufacturing). One of the reasons for this was the shift from piece-rate pay to monthly salaries.

Although the wage gap in high-income countries has decreased in recent decades, it still stands at 10-20% today. Why is this the case? According to the researcher, one of the main reasons is the “parenthood effect” (Figure 2). Along with her colleagues, Claudia Goldin presented research results in 2010 that showed the initial wage gap is small. However, with the first child’s arrival, women’s incomes decline and do not increase at the same rate as men’s, as the presence of children is associated with less accumulated work experience and more career interruptions. Women typically take on greater responsibility for childcare than men, which creates challenges in women’s professional advancement.

Figure 2. The Parenthood effect

Source: Nobel Committee

Why is Claudia Goldin’s research important for Ukraine?

Post-war reconstruction in Ukraine will require not only significant capital investments in rebuilding energy infrastructure and housing, addressing the consequences of environmental disasters, and reconstructing industrial facilities but also a substantial workforce. It is important to remember that Ukraine has the lowest birth rate in Europe, and the war, along with the departure of women with children, has exacerbated the demographic crisis.

Therefore, it is necessary not only to acknowledge the limitations imposed by gender segregation and understand the opportunities women’s participation offers but also to implement gender equality policies in practice. This includes increasing opportunities for women to balance employment and child-rearing, such as improving access to daycare facilities and offering flexible work schedules. This responsibility does not fall solely on the government; local authorities also play a crucial role. For instance, making public spaces more accessible is essential not only for people with disabilities but also for parents with young children.

Employers will also need to adapt to changes in the labor market. This includes attracting more women to traditionally male-dominated fields like construction, which may require additional mechanization of processes. Increased female participation in the labor market will contribute not only to gender equality but also to the more efficient utilization of production factors, thus promoting economic growth. 

Instead of an epilogue 

Claudia Goldin became the third woman in history to receive the Nobel Prize in Economics. Since 1969, there have been a total of 93 laureates of this prize. As we can see, the field of science serves as a clear example of an area where there is still work to be done in terms of gender equality.

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