Saturday, August 20, 2011

Female Labor Force Participation

Keith Chen and Judith Chevalier have a provocative paper on value of education to women:

We examine whether investing in becoming a physician is a positive net present value project for women who do so. We sidestep some selection issues associated with measuring the returns to education by comparing physicians to physician assistants, a similar profession with lower wages but much lower up front training costs. We find that the median female (but not male) primary-care physician would have been financially better off becoming a physician assistant in a primary-care field. This is partially due to a gender wage gap in medicine. However, our result is mostly driven by the fact that the median female physician simply doesn’t work enough hours to amortize her up-front investment in medical school. In contrast, male physicians work substantially more hours on average and the median male physician easily works enough hours to amortize his up-front investment. [emphasis added]

Once you account for the fact that women will generally spend less time in the workforce than men due to time spent childrearing, all sorts of puzzles come up. For instance — how is is that women now outnumber men in a variety of education outcome measures — such as graduating College — and are at parity with men in others — like Medical School attendance? Again, from Chen and Chavalier, we have that women’s lesser time in the workforce lowers the financial return to education -- to the point that med school seems a bad deal in financial terms on average for women.

It would seem likely that non-monetary returns play a large role. What is the relative premium that higher education brings men and women in the marriage market? In the past, higher education was if anything a liability for women’s marriage prospects. This seems less likely to be the case today. As Betsey Stevenson and Justin Wolfers have argued, marriage has gone from an institution encouraging complementarity in production to one of complementarity in consumption. This has encouraged levels of similarity between men and women along a number of different criteria in marriage.

That generates a number of positive spillovers from education for women, which are especially stark when considering the number of co-movements in social and economic trends over the years. For instance, women’s education is hugely predictive of future children’s success — in several studies, I believe, more important than the father’s education. College-educated and above households are substantially less likely to divorce or face other negative events than even high school-educated households — and that divergence is growing. High school-educated families increasingly resemble high school dropouts rather than College educated families. Divergences in job markets — in which College-educated jobs receive high and growing premiums, while jobs requiring a high school degree see stagnating incomes — encourage these trends.

So while Chen and Chevalier phrase their paper through the question, “Are women over-educating themselves?” I’d instead look at the empirical evidence that people are pursuing more education, and then think about what sort of incentives drive them to do that. The financial incentives are only a part of the picture. The non-financial incentives — marriage on average with a more stable, higher educated person, kids that will be better off as well, general transformations of life views — may be substantial.

There are all sorts of other social consequences resulting from a lower female workforce rate. For instance, Social Security and pension plans are typically gender-neutral in the sense that they require equal savings per dollar earned from men and women. This may make sense for families that do not anticipate divorce, in which total earnings are pooled and split to finance joint consumption. It doesn’t necessarily make sense for divorced families or single women. Given that women can also expect a greater life expectancy, the average women can anticipate lower savings to finance a longer retirement period. That doesn’t seem right. Women should probably be saving at far higher rates than men.

This also means that it doesn’t make too much sense to put men and women in a lab, observe that women take fewer risks than women, and then conclude that we need to put women in charge of banks because they're safer people. Laboratory experiments on men and women may reflect nature/nurture effects on fundamental risk preferences. But as long as men and women specialize differently in child rearing/time in the workforce/occupational structure; there’s no good reason to expect them to have identical risk preferences. In fact it would be nonsense to expect them to have identical risk preferences — yet that’s what pension plans do.

You also have the usual taxation questions. Marginal tax rates carry far higher deadweight losses on women than men, because women are more often on the margin between working or not. Progressive taxation produces additional burdens, as the wives of high-earning men can expect to keep much less of their earned income, and so more often choose to opt-out of the workforce entirely. The obvious solution would be to handle child subsidies in the form of reducing the entire marginal tax rate schedule for families with children; and tax households as two single individuals. If feminists got together with the tea party to make this happen, it would probably do more to encourage female labor force participation than any other act of public policy in fifty years. India already has a different tax rate system for men and women, so don't tell me this is impossible to think about.

There are also thorny issues related to admissions policy — as raised for instance by Posner on his blog. If Universities are aiming to maximize the success and income of future graduates to raise their own prestige; they will not be indifferent to the amount they want their graduates to work, and they will not be indifferent in choosing between two applicants, one of which plans on working much less in the future than another. Taxpayers, in general, will also not be indifferent between subsidizing the education of two people, one of whom plans on spending much less time in the job market than another (though that taxpayer might also be concerned about the human capital of others children as well). This presents obvious issues that I’ll leave to Posner to discuss.

There’s also a medicine-specific issue relating to this study. The authors mention that women represent 24% of first year medical students in 1976, but 48% in 2006. What does that imply in terms of the labor supply of doctor? The authors write:

Specifically, the median male doctor in our data has accumulated 37,594 hours of experience by 15 years post-residency, while the female doctor does not achieve that number of cumulative hours until year 19.

Roughly, that suggests that female doctor labor supply is 75% that of male doctors. The cumulative impact of achieving gender parity in medical school has reduced doctor supply by something like 6% since 1976 — or roughly 12-13% since women began attending medical schools in any numbers. That estimate could be higher if women also tend to retire earlier than men. And it doesn’t take into account any “learning-by-doing” effects that might leave women less qualified than an otherwise identical man due to their less time in the workforce.

In most other fields, this wouldn’t be a huge issue. The fact that women work less than men would be balanced by the fact that they’re entering the workforce to begin with.

But medicine is different given that the AMA operates a cartel regulating tightly the number of medical school seats. The role of this cartel in limiting the supply of doctors and raising medical costs is strongly under-covered.

And has the AMA thought about this issue? One imagines that they have not. If we assume that the AMA was optimizing medical school seats so as to maximize monopoly profits but didn’t consider the impact of greater female participation on overall doctor labor supply — than we have too few doctors relative to the optimal number doctors a monopoly would prefer. I can’t think of another case where a monopoly has irrationally undersupplied its product. Ironically, alleviating gender inequality in medical school admissions may have inadvertently raised income inequality, assuming I’m right in thinking that medical school slots are indeed fixed in this manner, given that the resulting lower supply of doctors surely raised medical costs on everyone, hurting proportionally more the poor.

To clarify — I’m not taking any stances on the desirability of greater female employment, or the labor decisions within households, or anything like that. One can draw many conclusions from this depending on ideological proclivities. For instance, one could say that the real problem is that men spend too much time in the workforce, and should spend equal time in home production. Or the real problem might be the cartel powers of the AMA. But certainly this is a real issue deserving greater attention.

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