Bluematter.

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.