Friday, December 27, 2013

Intensity, continuity and compounding lead to unexpected results

From Super Freakonomics by Steven D. Levitt and Stephen J. Dubner, page 45.

Insight on the continually discussed, but now reasonably well understood, issue of wage-gaps. Based on twenty years worth of replicated studies across the OECD, this is now substantially understood as a consequence of individual choices. Levitt and Dubner summarize one of the building block studies that has shed light on the phenomenon.
The economists Marianne Bertrand, Claudia Goldin, and Lawrence Katz tried to solve this wage-gap puzzle by analyzing the career outcomes of more than 2,000 male and female MBAs from the University of Chicago.

Their conclusion: while gender discrimination may be a minor contributor to the male-female wage differential, it is desire - or the lack thereof - that accounts for most of the wage gap. The economists identified three main factors:
Women have slightly lower GPAs than men and, perhaps more important, they take fewer finance courses. All else being equal, there is a strong correlation between a finance background and career earning.

Over the first fifteen years of their careers, women work fewer hours than men, 52 per week versus 58. Over fifteen years, that six-hour difference adds up to six months' less experience.

Women take more career interruptions than men. After ten years in the workforce, only 10 percent of male MBAs went for six months or more without working, compared with 40 percent of female MBAs.
The big issue seems to be that many women, even those with MBAs, love kids. The average female MBA with no children works only 3 percent fewer hours than the average male MBA. But female MBAs with children work 24 percent less. "The pecuniary penalties from shorter hours and and any job discontinuity among MBAs are enormous," the three economists write. "It appears that many MBA mothers, especially those with well-off spouses, decided to slow down within a few years following their first birth."

This is a strange twist. Many of the best and brightest women in the United States get an MBA so they can earn high wages, but they end up marrying the best and brightest men, who also earn high wages - which affords these women the luxury of not having to work so much.

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