BEAUTIFUL PEOPLE
Labour market experiences differ among people
Once upon a time, when all six Friends were alive and young, I studied labour economics at university. Back then, the most important question being taught was —what explains the persistent high unemployment, and what, if anything, governments could do to bring it down. It made sense. I came into the labour market in the wake of the early 1990s recession, and saw joblessness firsthand. As late as 2004, when I had already been working in the Australian Public Service for several years, the Howard-Costello government celebrated the fact that the unemployment rate was down to, wait for it, 6 percent!
Along with the models of the efficiency wage and job search, we learnt that one one kind of heterogeneity (or diversity, if you will) that really mattered was around whether someone was already working or not.
We also studied whether trade liberalisation and technological changes around the introduction of computers into the workplace had driven wage inequality. In that sense, another kind of diversity we studied was around whether workers were high or low skilled.
Other than some passing reference about a cool paper on the effect of migration on local labour market, we didn’t study any heterogeneity in one’s personal attributes such as gender, sexual preference, ethnicity, or cultural heritage — these were not the stuff of economics, we were implictly taught.
I learnt that discrimination was dumb and costly —firms not hiring qualified women or people of colour would face higher costs and would be priced out. This was taught implicitly, because it was kind of obvious to anyone studying neoclassical microeconomics. Of course, discrimination existed, but this reflected racist, sexist laws rather than anything to do with the labour market as such. Get rid of these laws, and labour market would weed out discrimination. That was taken as the received wisdom.
Okay, I knew there was such a thing as statistical discrimination —people might form a view about you based on your gender or ethnicity because they didn’t know anything else about you: racial profiling at an individual level, if you will. But we didn’t really know how big a deal this was, so it wasn’t really explored in the classroom.
I recently studied labour economics again after a quarter century. By that time, the author of that cool little paper had gotten a Nobel prize (well, Bank of Sweden prize if you want to be pedantic) and there is now a huge literature on the labour market effects of immigration. The literature on the inequality effects of globalisation and technological change is also huge. And we did study seminal papers on both, as well as papers on the effect of minimum wage on employment.
I sort of expected this would be the case. I hadn’t, however, appreciated the literature that had developed around heterogenous, diverse, experiences of labour market participants based on their gender, ethnicity and so on.
Take gender, for example. Over a decade ago, as a mid-level line manager in the APS, I discovered that competent and qualified female staff were less likely to ask for promotion opportunities, whereas their less competent or less qualified male peers did! Around that time, the agency I worked for seriously started looking into the role of unconscious bias in staff management.
Well, there is actually a 20-year-old Quarterly Journal of Economics1 paper by Uri Gneezy (Chicago), Muriel Niederle (Stanford) and Aldo Rustichini (Minnesota) that uses lab experiment to show that men performed better in a competitive environment, all else equal, even though women were no less capable of performing in a competitive environment. In a follow up paper with Lise Vesterlund (Pittsburgh), also in QJE2 and also using lab experiment, Niederle shows that men actually are overconfident in their ability and opt for competition, whereas women shun it even when they are able.
It is not just experimental evidence. Using earnings of Uber drivers in a 2021 Review of Economic Studies paper3, Cody Cook (Stanford), Rebecca Diamond (Stanford), Jonathan V Hall (Uber), John A List (Chicago) and Paul Oyer (Stanford) show that male drivers earn more because they are more likely to speed, and are available to drive at odd hours and in unsafe places.
These results are in line with what I saw as a manager, and what my then employer (a Commonwealth central agency) was grappling with as an organisation. To the extent that a firm would want their workers to perform to the best of their ability, these results suggest that a more enabling environment is in the firm’s interest. This is very much consistent with the workplace cultural changes over the past decade that is making it more conducive for women to compete.
Of course, these preferences regarding competition don’t form in vacuum. In an Econometrica paper from 20094 with Kenneth L Leonard (Maryland) and John A List (Chicago), Gneezy (by then UC - San Diego), performed controlled experiments with participants from two non-Western settings: the Maasai in Tanzania, and the Khasi in northeast India. They use anthropological literature to argue that the former is highly patriarchal society whereas the latter is matrilineal. It turns out that Maasai men, like their western peers, prefer competition, but the outcome is different among the Khasi, where it is the women who are relatively more competitive.
Their key take away would be that the broader social institutions matter.
History matters too, according to a 2021 Journal of Development Economics5 paper by Eleonora Guarnieri (Ifo Institute) and Helmut Rainer (Munich). They look at the legacy of colonial era practices on the lives of women in Cameroon. The country was divided by the British and French without regard for local ethnicity. That is, people of same ethnicity and culture found themselves under two different colonial administrations.
The Europeans had different employment strategies for their African subjects. The French preferred to hire the Cameroonians for infrastructure projects that suited men. The British encouraged sectors where women could participate as well as men. The effects persist decades later. Women in the formerly British Cameroon have greater female participation in the labour market than their sisters in the formerly French Cameroon.
There is, however, a sad twist to this tale. Women in the formerly British Cameroon are, all else equal, more at risk of domestic violence than is the case in the formerly French Cameroon. The authors hypothesise that the violence reflects a form of male backlash against female employment.
The broader implication of this unhappy story is that any policy intervention has to be nuanced, and one-size-fits-all approaches will likely backfire.
History, of course, also matters when it comes to discriminations based on ethnicity. And nowhere is this better documented than in the context of discrimination against African Americans. For example, a 2015 QJE paper6 by David Arnold (Princeton), Will Dobbie (Princeton) and Crystal S Young (Harvard) use bail decisions in Miami and Philadelphia to show that bail judges tend to be racially biased against African American defendants, denying them bail while white defendants are released for similar offences. They also show that the bias is more pronounced among the relatively young and inexperienced judges.
This is an empirical validation of the idea of statistical discrimination —inference of characteristics based on one’s ethnicity or gender stereotypes —in a very high-stake setting in terms of people’s lives!
There is also evidence of differential treatment of Americans along racial line that goes beyond statistical discrimination, as shown in a 2004 American Economic Review paper7 by Marianne Bertrand (Chicago) and Sendhil Mulainathan (MIT).
For this groundbreaking paper, the authors sent out fictious resumes responding to job ads in Boston and Chicago. They found that resumes with ‘blackish’ names like Lakisha and Jamal were less likely to be called back than those with ‘vanilla’ names like Emily and Greg. This differential treatment was uniform across occupation, industry, and employer size. The authors further show that in addition to racial bias, there was an element of snobbery at play here, with putative employers were inferring social class from the names.
Of course, I am simplifying the results of all these papers. For my labour market course, I had to get into the weeds of data, econometric techniques, assumptions underpinning the models and so on. However, these are heavily peer reviewed articles published in some of the top tier journals, documenting different labour market experiences of individuals based on non-economic factors.
It’s not just my labour economics professor who had an interest in this stuff. This literature has just received its first Nobel this year —perhaps I will write about Claudia Goldin (and maybe other Nobel laureates whose work I am familiar with) some other time.
This literature, of course, has relevance for policy, and as it turns out, for the policymakers in Canberra. My former colleague Nu Nu Win, along with David Hansell and Robert Breunig (all Australian National University) explore career progression of APS staff across different non-economic attributes. In a future post, I will discuss their findings and implications.
For now, the point to stress is that this kind of quantitatively grounded work is vital if the beautiful people of Australia are to avoid the politics of cultural identity and theatrical performance that have afflicted other liberal democracies.
The papers discussed
Uri Gneezy, Muriel Niederle, Aldo Rustichini, Performance in Competitive Environments: Gender Differences, The Quarterly Journal of Economics, Volume 118, Issue 3, August 2003, Pages 1049–1074, https://doi.org/10.1162/00335530360698496
Even though the provision of equal opportunities for men and women has been a priority in many countries, large gender differences prevail in competitive high-ranking positions. Suggested explanations include discrimination and differences in preferences and human capital. In this paper we present experimental evidence in support of an additional factor: women may be less effective than men in competitive environments, even if they are able to perform similarly in non-competitive environments. In a laboratory experiment we observe, as we increase the competitiveness of the environment, a significant increase in performance for men, but not for women. This results in a significant gender gap in performance in tournaments, while there is no gap when participants are paid according to piece rate. This effect is stronger when women have to compete against men than in single-sex competitive environments: this suggests that women may be able to perform in competitive environments per se.
Muriel Niederle, Lise Vesterlund, Do Women Shy Away From Competition? Do Men Compete Too Much?, The Quarterly Journal of Economics, Volume 122, Issue 3, August 2007, Pages 1067–1101, https://doi.org/10.1162/qjec.122.3.1067
We examine whether men and women of the same ability differ in their selection into a competitive environment. Participants in a laboratory experiment solve a real task, first under a noncompetitive piece rate and then a competitive tournament incentive scheme. Although there are no gender differences in performance, men select the tournament twice as much as women when choosing their compensation scheme for the next performance. While 73 percent of the men select the tournament, only 35 percent of the women make this choice. This gender gap in tournament entry is not explained by performance, and factors such as risk and feedback aversion only playa negligible role. Instead, the tournament-entry gap is driven by men being more overconfident and by gender differences in preferences for performing in a competition. The result is that women shy away from competition and men embrace it.
Cody Cook, Rebecca Diamond, Jonathan V Hall, John A List, Paul Oyer, The Gender Earnings Gap in the Gig Economy: Evidence from over a Million Rideshare Drivers, The Review of Economic Studies, Volume 88, Issue 5, October 2021, Pages 2210–2238, https://doi.org/10.1093/restud/rdaa081
The growth of the “gig” economy generates worker flexibility that, some have speculated, will favour women. We explore this by examining labour supply choices and earnings among more than a million rideshare drivers on Uber in the U.S. We document a roughly 7% gender earnings gap amongst drivers. We show that this gap can be entirely attributed to three factors: experience on the platform (learning-by-doing), preferences and constraints over where to work (driven largely by where drivers live and, to a lesser extent, safety), and preferences for driving speed. We do not find that men and women are differentially affected by a taste for specific hours, a return to within-week work intensity, or customer discrimination. Our results suggest that, in a “gig” economy setting with no gender discrimination and highly flexible labour markets, women’s relatively high opportunity cost of non-paid-work time and gender-based differences in preferences and constraints can sustain a gender pay gap.
Gneezy, Uri, et al. “Gender Differences in Competition: Evidence from a Matrilineal and a Patriarchal Society.” Econometrica, vol. 77, no. 5, 2009, pp. 1637–64. JSTOR, http://www.jstor.org/stable/25621372. Accessed 21 Nov. 2023.
We use a controlled experiment to explore whether there are gender differences in selecting into competitive environments across two distinct societies: the Maasai in Tanzania and the Khasi in India. One unique aspect of these societies is that the Maasai represent a textbook example of a patriarchal society, whereas the Khasi are matrilineal. Similar to the extant evidence drawn from experiments executed in Western cultures, Maasai men opt to compete at roughly twice the rate as Maasai women. Interestingly, this result is reversed among the Khasi, where women choose the competitive environment more often than Khasi men, and even choose to compete weakly more often than Maasai men. These results provide insights into the underpinnings of the factors hypothesized to be determinants of the observed gender differences in selecting into competitive environments.
leonora Guarnieri, Helmut Rainer, Colonialism and female empowerment: A two-sided legacy, Journal of Development Economics, Volume 151,
2021, 102666, ISSN 0304-3878, https://doi.org/10.1016/j.jdeveco.2021.102666.
This paper studies the long-term effects of colonialism on women by utilizing a historical natural experiment: the partition of Cameroon into a British and a French colony between 1919 and 1961. The two colonial regimes opened up divergent economic opportunities for women in an otherwise culturally and geographically homogeneous setting. Women in British territories gained opportunities to earn cash wages under the same conditions as their male counterparts, while the French colonial practice invested in the male employment dominated infrastructure sector. We use the former Anglo-French border within today's Cameroon in a geographical regression discontinuity design. Our main finding shows that the British colonial rule had a two-sided legacy for women that is still visible today. On the one hand, it empowered women economically in terms of access to employment and being paid in cash wages. On the other hand, it made women highly vulnerable to domestic violence. These results are incompatible with household bargaining models that incorporate domestic violence. Supplementary analyses suggest our findings can be accommodated by theories of male backlash.
David Arnold, Will Dobbie, Crystal S Yang, Racial Bias in Bail Decisions, The Quarterly Journal of Economics, Volume 133, Issue 4, November 2018, Pages 1885–1932, https://doi.org/10.1093/qje/qjy012
This article develops a new test for identifying racial bias in the context of bail decisions—a high-stakes setting with large disparities between white and black defendants. We motivate our analysis using Becker’s model of racial bias, which predicts that rates of pretrial misconduct will be identical for marginal white and marginal black defendants if bail judges are racially unbiased. In contrast, marginal white defendants will have higher rates of misconduct than marginal black defendants if bail judges are racially biased, whether that bias is driven by racial animus, inaccurate racial stereotypes, or any other form of bias. To test the model, we use the release tendencies of quasi-randomly assigned bail judges to identify the relevant race-specific misconduct rates. Estimates from Miami and Philadelphia show that bail judges are racially biased against black defendants, with substantially more racial bias among both inexperienced and part-time judges. We find suggestive evidence that this racial bias is driven by bail judges relying on inaccurate stereotypes that exaggerate the relative danger of releasing black defendants.
Bertrand, Marianne, and Sendhil Mullainathan. 2004. "Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination." American Economic Review, 94 (4): 991-1013.DOI: 10.1257/0002828042002561
We study race in the labor market by sending fictitious resumes to help-wanted ads in Boston and Chicago newspapers. To manipulate perceived race, resumes are randomly assigned African-American- or White-sounding names. White names receive 50 percent more callbacks for interviews. Callbacks are also more responsive to resume quality for White names than for African-American ones. The racial gap is uniform across occupation, industry, and employer size. We also find little evidence that employers are inferring social class from the names. Differential treatment by race still appears to still be prominent in the U. S. labor market.
Further reading
Australia’s colonial names are being replaced by Aboriginal ones
Not everyone is happy about the changes
The Economist, 24 April 2021
Perceptions of racial gaps, their causes, and ways to reduce them
Stefanie Stantcheva, Alice Lapeyre, Camille Landais,
Giulia Giupponi, Matteo Ferroni and Alberto Alesina,
12 Nov 2021
Can Discrimination Thrive in a Free Market?
Trevor D Logan, 8 Feb 2023
A new wave of mass migration has begun
What does it mean for rich-world economies?
The Economist, 28 Mar 2023
Dystopia and the mainstreaming of anti-Asian racism, part 2
What do the Chinese Exclusion Act, Jack London and Buck Rogers have in common?
JM Berger, 28 May 2023
The Unstoppability Of Mass Migration
And the dangers of a reactionary revolt.
Andrew Sullivan, 3 June 2023
Minouche Shafik: the everywhere economist
Columbia’s Minouche Shafik, whose career spans international development, central banking, and writing on the social contract
Nicholas Owen, 1 September 2023
What to read (and watch) about indigenous Australians
Four books and a film that show why they want recognition of rights in the constitution
The Economist, 12 Oct 2023
Alice Evans, 12 Oct 2023
Why are some jobs so ‘greedy’?
Economist Claudia Goldin has helped narrow the gender pay gap. But working practices are still an obstacle to progress
Tim Harford, 20 Oct 2023
Claudia Goldin, Nobel laureate: Gender gaps and the broader agenda on inequality
Leah Boustan and Ilyana Kuziemko, 24 Oct 2023
Christine Lagarde: ‘I should have been bolder’
The ECB head on steep learning curves, managing shocks — and taking deep breaths
Martin Arnold, 27 Oct 2023