The current issue of the Economist recognizes that the dramatic change in labor force participation of women is one of the most important transformations in the economic and social worlds during the past generation. I will discuss the main forces behind this change, and also consider whether the United States needs additional public policies to accommodate women at work.
Several crucial changes have contributed to transforming the position of women. Perhaps the most fundamental during the past half century were technological advances, such as the computer, and the shift in richer countries away from manufacturing and toward services. These developments put much greater emphasis on knowledge and information as opposed to physical strength and heavy work, which in turn greatly increased the importance of higher education.
Women have shown a greater capacity than men in completing universities and four-year colleges, largely because women have greater and less variable non-cognitive skills, such as study habits. While the fraction of men with four-year college degrees in the United States has stagnated since 1970, the fraction of women with these degrees has exploded, so that now women receive almost 60% of the four-year degrees in the United States compared to only 40% in 1970. Similar shifts in higher education toward women have taken place in European countries. Related trends are occurring also in developing countries, even in fundamentalist Iran.
The increased importance of skills and knowledge has greatly affected parental fertility and investment decision. As parents have recognized the importance of a good education and other training to succeed in the modern world, they have opted for fewer children since giving extensive education to many children would be too expensive. Therefore, modern parents have lower birth rates than parents did in the past, and instead invest much more in each child. This has produced sharply declining birth rates almost everywhere, and below replacement fertility rates in about 90 countries that include all European nations, much of Asia, including China, Japan, and South Korea, and even a few mainly Moslem nations.
The declines in fertility and shift toward greater investment in children have been accelerated by the growing education of women, who tend to be particularly concerned about providing a good education to their children. This helps explain why educated women have relatively few children and invest more in the schooling of each child. In addition, the time spent by educated mothers in child rearing is more expensive since they can earn more in the labor force. This too helps explain why women who graduate from college have always tended to have fewer children than other women did.
These trends toward greater emphasis on knowledge and information, low fertility, and much greater education of women, have all contributed to the large growth in the labor force participation of women during the past several decades. For example, about 80% of American women with a college education are in the labor force compared to less than 50% for female high school dropouts. Although women are more likely to work part time than men, the gap in their labor force participation rates has greatly narrowed.
The recession affected men much harder than women since men are more likely to work in construction and manufacturing, two sectors especially hit hard. As a result, in recent months women have made up about half the labor force in the United States. This fraction will fall as the economy recovers, but the trend is still strongly toward gender equality in labor force participation, and perhaps even toward a majority of participants being women. This is partly because low skilled men have been withdrawing from the labor force.
Although women still lag by a lot in their representation in the top managerial positions, they have greatly narrowed the gap between their full time earnings and that of men. Wives earn more than their husbands in perhaps 30% of all American families with two earners, and that percentage continues to grow. American women are starting new businesses at a much faster rate than they did in the past, and the number of female heads of large companies, although small in number, has been growing.
Although the United States has instituted various policies to help working women, unlike Sweden and other Scandinavian countries it does not provide extensive public subsidies to childcare, does not have a system of legislated paid leaves to women that allow them to care for newborn children, and does not guarantee that they can get their jobs back when they return to work. Yet, contrary to many claims, I believe that the less interventionist American approach may not have impeded, and may even have encouraged, women’s’ progress in the labor force.
Despite all the subsidies to childcare in Scandinavian countries, the US still has higher fertility rates than Sweden, Norway, or Denmark, and also than other European countries. Moreover, the labor force participation rates of women in the US are not much below those in Scandinavian countries, especially after considering that American birth rates are higher, and that some women in Scandinavian countries are counted as having jobs even when they are on paid child care leaves.
Married women in the United States with at least a high school education can “afford” to pay for childcare, and forego employment for months or even years after having children, since they are usually married to husbands who have decent to high earnings. Many of these women do leave work for a while to care for their children, even when that means they reduce their opportunities to advance when they return to work. I do not believe there is much of a case for the government to pay these married women to take leaves from work when they have children, or guarantee them their jobs when they return to work. Government policies should be rather neutral about whether women leave work to care for children or continue to work.
On the other hand, public policies to help children of poorer women, including children of many unmarried women, may be justified since these women tend to under invest in their children because they have limited incomes and often low education levels. Childcare assistance and other subsidies to investments in the young children of these women could well have a high social return. The US does subsidize childcare programs for low-income families, and could increase the subsidies to various head start programs.
But such interventions would not justify the Scandinavian approach of generously subsidizing all women, including well off women, to take paid leaves when they have children. Despite all their job guarantees after they return to work from childcare leaves, private sector opportunities for Scandinavian women, and women in several other European countries, are limited. For example, about three-quarters of employed women in Sweden work for the government compared to one-quarter of employed men, and women comprise a much larger fraction of senior managers of American companies than of Swedish companies.