Must-Read: Fred Clark: That Time I Was the Evil Opposite of Neoliberalism

Posted on by Brad DeLong

Must-Read: Fred Clark: That Time I Was the Evil Opposite of Neoliberalism: “Bill Clinton was a Neoliberal. No, no, no…

…Bill Clinton was a betrayal of Neoliberalism. Or neither. Or both. For some the ‘Neo’ just meant ‘I’m a liberal who wants our agenda to carry more states than Mondale and Dukakis’… a semantic way of avoiding the negative associations the right had worked so hard to affix to the word liberal…. For others, the term ‘Neo-liberal’ was a way of avoiding the ethical and economic baggage of their own anti-liberal legacy…. The word was contested, with competing meanings by competing claimants for ownership of it. Neoliberalism was large, it encompassed multitudes. And it still does, which is why George Monbiot can write this: ‘Neoliberalism: The ideology at the root of all our problems.’ That’s a fascinating, but muddling essay. He sometimes focuses the meaning of this word, ‘Neoliberalism,’ to mean basically what we used to call laissez-faire capitalism–unfettered free markets, Voodoo economics, the 1980s writ large, etc. But he also uses the term to refer to something more vast and expansive. That headline is really his definition of ‘Neoliberalism’–it is the word he uses to refer to ‘the ideology at the root of all our problems,’ a general name for Everything Bad. The vague generality of that fuzzes up the diagnostic usefulness of Monbiot’s essay. It’s like a doctor saying, ‘You’re unwell.’ That may be true enough, but it’s not particularly helpful.

Back in the ’90s, ownership of the term ‘Neoliberal’ was in many ways a tug of war between proponents of laissez-faire capitalism and, well, just plain liberals. Liberals embraced the term as a way of avoiding the negative connotations of being called liberals. And laissez-faire capitalists sought to claim the term as a way of avoiding the negative connotations of admitting that they were laissez-faire capitalists. My sense is the LFCs probably won that battle. (That’s bad news for many of the liberals who tried to claim the term ‘Neoliberal’ in the late 20th century, because they’re now stuck with a label retroactively defined by their primary opponents and critics.)… Now… the word is contested in pretty much the opposite way…. It used to be laissez-faire capitalist ‘Neoliberals’ attacking liberals because, in their view, anything short of pure free-market ideology was indistinguishable from a ‘statist model.’ Now those same liberals are accused of being ‘Neoliberals’ by those who say that anything short of statist models is indistinguishable from laissez-faire capitalism. Neither of those accusations strikes me as helpful.

And but so, my point here actually is this: You should read the 1977 original edition of Rich Christians in an Age of Hunger and not the later editions in which the publisher sought to appease that book’s “Neoliberal” critics by revising the policy discussions in its final section.

And also too: Share your cookies.

Must-Reads: June 1, 2016

Posted on by Brad DeLong

Should Reads:

Must-Read: Simon Wren-Lewis: Greece Under Troika Rule

Posted on by Brad DeLong

Must-Read: Simon Wren-Lewis: Greece Under Troika Rule: “‘The repayment of foreign loans and the return to stable currencies…

…were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty was considered too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfilment of the requirements of sound budgets and sound currencies, these a priori of economic liberalism. — Karl Polanyi (1944), ‘The Great Transformation’ (p142)

This quote (HT Jeremy Smith) could almost be written today about Greece. I had once thought that the lessons of the interwar period and Great Depression had been well learnt, but 2010 austerity showed that was wrong…. The Greek government borrowed too much… the scale… meant default was pretty inevitable. But Eurozone leaders, worried about their banking system (which held a lot of Greek debt), first postponed default and then made it partial. The real ‘bailing out’ was for the European banks and others who had lent to the Greek government…. Nothing… obliged Eurozone leaders to lend their voters money to bail out these creditors…. If European leaders felt their banking systems needed support, they could have done this directly….

They convinced themselves that Greece could pay them back. It was a mistake they will do anything to avoid admitting. To try and ensure they got their money back, they along with the IMF effectively took over the running of the Greek economy. The result has been a complete disaster. The amount of austerity imposed caused great hardship, and crashed the economy…. The Troika wants 3.5% primary surpluses by 2018… to start getting their money back sooner… an absurd demand…. Right now Greece needs more aggregate demand not structural reform, yet the Troika insists on taking more demand out of the economy….

Despite Martin Sandbu’s optimism, the recent deal is essentially more of the same. The IMF, which knows it makes no sense to ‘extend and pretend’, has again capitulated. The reaction to the IMF’s paper on neoliberalism has generally missed the key point. It is not fanciful to believe that the paper is directed at those within the IMF like Poul Thomsen, the head of their European department. Falling GDP will continue to be blamed on the Greek government, even without its former finance minister. Of course one day the Greek economy will recover, just as the Irish famine came to an end. But history, as taught in Britain as well as Ireland, does not remember the British troops guarding the shipments of grain leaving Ireland during the famine as heroic upholders of the rules of law and contract. Nor will it do the same for the members of the Troika that keep Greece in poverty.

Investing in early childhood education is good for children and good for the economy

Posted on by Nick Bunker
There is a consensus among researchers that early childhood matter quite a bit for a child’s future outcomes.

Over this past holiday weekend, Ross Douthat used his New York Times column to express frustration that hoping for a “substantive debate about domestic policy” in this presidential election year is “delusional.” He imagines a scene from a future debate between the two presumed contestants, former Secretary of State Hillary Clinton and businessman Donald Trump, in which at one point in the fantasy dialogue the two tangle over the benefits of early childhood education. Douthat even added several hyperlinks in the imagined Trump tirade—links that alas fall short on revealing where the evidence actually stands today.

It is now well-accepted among economists that pre-school matters, especially for low-income and disadvantaged children. Even former Chairman of the Federal Reserve Ben Bernanke and the U.S. Chamber of Commerce agree that this evidence is quite conclusive. A joint report by Chamber and the Institute for a Competitive Workforce stated that investment in early childhood education could benefit the business community as a “smart investment with positive returns, but [also] is the right thing to do.”

There is consensus because of the findings of a number of studies based on randomized control trials that follow children from pre-school through adulthood. Researchers have found that children who participate in these programs do better in school, are more likely to attend and graduate college, and are less likely to smoke, use drugs, be on welfare, or become teenage mothers. One major case in point is the Carolina Abecedarian Study, an experiment begun in 1972 that assigned 112 “at-risk” children six-to-12 weeks of age to enter pre-school or a control group when they reached age three and then followed the children to age 21. Researchers found that children in the program group had higher IQ and test scores and were more likely to attend a four-year college than control group children. In another study, the Milwaukee Project, researchers assigned six-month-old children and their mothers to either an educational program, or a control group. Investigators found that at grade eight children in the program had higher IQs than those assigned to the control group.

Much of this research on early interventions focuses specifically on low-income, minority, or “high-risk” children, but research that includes children up and down the income ladder also finds persistence of skills learned early in life. In Project STAR, an experiment implemented across 79 schools in Tennessee from 1985 to 1989, 11,571 students and their teachers were randomly assigned to classrooms of differing sizes within their schools from kindergarten to third grade, and followed through age 27. Based on analysis of this experiment, Stanford University economist Raj Chetty and his co-authors find that kindergarten test scores are highly correlated with outcomes at age 27, such as college attendance, home ownership, and retirement savings. Like in the Perry Preschool/High Scope study, in Project STAR, researchers found that while the cognitive effects on test scores fade as a child ages, the non-cognitive effects did not.

Of course, not every study found such results, In the 1960s, the Early Training Project assigned African American, low-income children, ages four and five, to two separate groups. One group consisted of weekly meetings and pre-school program, while the control group did not. Researchers found that the children in the experimental groups outperformed children in the control group on various cognitive assessment tests administered during the intervention, yet these differences faded in later follow-ups three years after the intervention ended.

Overall, though, the evidence points to the conclusion that investing in early childhood is important for future outcomes both for the children themselves and our economy more generally. If columnists provide hyperlinks to real-life academic studies to buttress fantasy debates between the two presidential candidates, they should at least point to the best studies available. In this case, the preponderance of evidence shows that early childhood education works for the children, their families, and the broader U.S. economy.

Live at Project Syndicate: Uncertainty at the Federal Reserve

Posted on by Brad DeLong

Live at Project Syndicate: Uncertainty at the Federal Reserve: I find myself increasingly believing that the side of the scale that says the Federal Reserve is in the process of losing its credibility is the heavier. And this past week added another weight to that side of the scale. Over at Bloomberg View the very sharp Narayana Kocherlakota, former President of the Federal Reserve Bank of Minneapolis, writes:

Narayana Kocherlakota: Ending an Unhealthy Obsession With the Fed: “The obsession with the Fed…

…Outsiders are seeking clues to the central bank’s broader goals…. The Fed’s stated aim… [is] inflation at 2 percent… but its actions send a different signal… [they] removed stimulus… even as inflation and inflation expectations have slipped downward… [their] economic projections… suggest that they don’t see getting inflation back up to target quickly as a primary determinant of monetary policy…. The Fed is balancing the pursuit of its inflation target with other objectives… [that they fear] low interest rates are causing risks and distortions… [that they] don’t want the unemployment rate to fall to an unsustainably low level… [that] raising rates at every meeting… could be too much of a shock…. It’s hard to know which objectives will dominate policy in the longer run. Hence, markets are parsing the June decision for whatever information they can get. This kind of uncertainty… is not healthy…

Narayana is correct. But I think he leaves unstated a good deal of the problem, for we face more than simply uncertainty about Federal Reserve policy objectives. Read MOAR at Project Syndicate:

Must-Read: John Quiggin: Look What They’ve Done to My Song, Ma

Posted on by Brad DeLong

Must-Read: John Quiggin: Look what they’ve done to my song, Ma: “My discussion of intellectual property inevitably raised questions about my argument that property rights are not natural rights…

…The ‘moral rights’ of artists over their creative works has been raised as a suggested counterexample. In fact, this example reinforces my original argument…. In France and other European countries, artists have inalienable moral rights over their work… not a property right, but a constraint on property rights…. [If] recognised after the fact, they constitute a taking from the purchaser…. [If] recognised when artists sell rights… they (like any restriction on alienation of property) represent a constraint on the property rights of the artist…. Property rights and (perceived/socially accepted) natural rights… coincide in some ways and conflict in others… both [are] associated with the general feeling of rightful possession, so that a system of property rights is more stable when it coincides with natural rights. On the other hand, natural rights are mostly perceived as inalienable and indivisible…

Manu Saadia’s Trekonomics Is Out!

Posted on by Brad DeLong
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“Live Long and Prosper” Blogging…: Manu Saadia: Trekonomics http://amzn.to/20ZqMdG (San Francisco: Piper Text: 941758754): Forward by J. Bradford DeLong:

‘Live long and prosper.’

‘The needs of the many outweigh the needs of the few, or the one.’

‘Fascinating.’

‘Make it so.’

‘Logic is the beginning of wisdom, not the end.’

‘I’m a doctor, not a bricklayer.’

‘Highly illogical.’

‘You can stop it!’ ‘Stop it? I’m counting on it!’

Over the past century Star Trek has woven itself into our socio-cultural DNA. It provides a set of cultural reference points to powerful ideas, striking ideas, beneficial ideas that help us here in our civilization think better–even those of us who are economists.

Why should the imaginary dreams of science fiction help us think better? Let me get at this by telling you some very short stories–some true, some false. True: Back in 1759 when the man who was to be the first economist, young Adam Smith, Scottish moral philosopher on the make, told his readers something false: of:

a stranger to human nature [seeing] the indifference of men about the misery of their inferiors… [concludes that] pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than to those of meaner stations…

You see what he did there?

There is no–not that we know of–such alien stranger.

Smith is telling us a very short science-fiction story.

Why? Because we love to tell one another false stories–to incessantly gossip about our imaginary friends. It is, like saving 15% or more on car insurance, what we do. If an alien intellect, vast and cool and unsympathetic (or vast and warm and sympathetic), were to scrutinize us from afar it would inevitably conclude that telling each other false stories is a major part of what we are, and it would wonder why we communicate–or miscommunicate–in this way.

You see what I did there?

The next Sigmund Freud–not an individual but a social psychologist–will say that our fictions are, collectively, the dream-work of the reasoning by the organism that is the anthology intelligence that is humanity. Everyone gossips about their imaginary friends. And we dream these dreams to amuse ourselves, but also so that we will be more sane when we awake.

The Prime Directive of ‘Star Trek: TOS’ is primarily a way to process America’s 1960s misadventure in Vietnam. Would that more generals and chickenhawks dreamed dreams that taught them of the limits of foresight and calculation, the surprising nature of war, and the unlikelihood of success if you start by breaking things! I first recognized that ‘Star Trek’ was a very different kind of show back in the 1960s when, at the end of the episode ‘Arena’, Kirk neither kills nor civilizes the Gorn, but lets him go to make his own destiny.

Gene Roddenberry mostly wanted to find a way to get people to pay him to make up stories, so that we wouldn’t have to take a job that required a lot of heavy lifting. But he also wanted to tell particular stories. The stories he wanted to tell were those that would be the dreamwork for a better future:

  • He wanted to tell stories of a progressive humanity.
  • He wanted to tell stories about people in a better future in which governmental institutions were smart enough to stay out of Vietnam and people weren’t obsessed with leaky roofs and food shortages.
  • He wanted to tell stories in which racial prejudice was as silly and stupid as it, in fact, is.
  • He wanted to tell stories in which it would be normal for a woman to be if not #1 at least #2 as first officer of a starship.
  • He wanted to tell stories in which everyone–even the Red Shirts–was an officer, a trained and well-educated professional treated with dignity and respect by their peers and superiors.

And Gene Roddenberry’s successors as showrunners, writers, actors, set designers, and all the rest took on the same project: do the dreamwork of a better future. North Atlantic civilization bobbled the historical opportunity that was the collapse of the Soviet Empire. Star Trek VI: The Undiscovered Country and Deep Space 9 point to better directions. Gene Roddenberry put into Star Trek DNA making it, in large part, a collective dreaming about a better future, and not just a western or a medieval romance with spectacular elements in the form of whooshing spaceships and exploding planets bolted onto it.

But ‘economics’?

Today in our restricted bubble the public health problems related to food are no longer predominantly problems of malnutrition and calorie-scarcity but of overabundance: dealing with salt, triglycerides, and carbohydrate overload. This is a new thing for humanity. 400 years ago, in almost all human societies, if you weren’t rich you were malnourished: not getting the nutrients for your immune system to function well, or the calories to reliably ovulate, probably losing a tooth with every baby. 400 years ago, in almost all human societies, if you weren’t rich you were short. The orphans sent to sea by the charity that was the Marine Society were seven inches shorter than the aristocrats’ sons sent to Sandhurst to become army officers. And it is not just in food that those of us in the bubble have abundance: we look around and want, not more stuff, but rather less stuff that is the right particular stuff for us. The dreams that are Roddenberry’s ‘Star Trek’ are part of thinking through what it would be like to have a society of abundance, of logic and reason, and of inclusion–one in which the Gorn might really be the good guy from his perspective, and in which, as Ayelborne forecasts in ‘Errand of Mercy’: ‘You and the Klingons will become fast friends. You will work together…’

For those of us who are fans, it has been and is a wild nearly fifty-year ride. And even those of us who are dedicated fans need, by now, a road map.

So with enthusiasm and admiration, I present to you Manu Saadia, and Trekonomics.

Must-Reads: May 31, 2016

Posted on by Brad DeLong

Should Reads:

Must-Read: Michael Woodford: Quantitative Easing and Financial Stability

Posted on by Brad DeLong

Must-Read: The extremely sharp Michael Woodford makes the obvious point about quantitative easing and financial stability: by increasing the supply and thus reducing the premium on safe liquid assets, it should–if demand and supply curves slope the normal way–not increase but reduce the risks of the banking sector.

It is very, very nice indeed to see Mike doing the work to demonstrate that I was not stupid when I made this argument in partial equilibrium:

J. Bradford DeLong (January 17, 2014): “Beer Goggles”, Forward Guidance, Quantitative Easing, and the Risks from Expansionary Monetary Policy: When the Federal Reserve undertakes quantitative easing, it enters the market and takes some risk off the table, buying up some of the risky assets issued by the U.S. government and its tame mortgage GSEs and selling safe assets in exchange. The demand curve for risk-bearing capacity seen by the private market thus shifts inward, to the left: a bunch of risky Treasuries and GSEs are no longer out there, as the government is no longer in the business of soaking-up as much of the private-sector’s risk-bearing capacity:

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And this leftward shift in the net demand to the rest of the market for risk-bearing capacity causes the price of risk to fall, and the quantity of risk-bearing capacity supplied to fall as well. Yes, financial intermediaries that had held Treasuries and thus carried duration risk take some of the cash they received by selling their risky long-term Treasuries to the Fed and go out and buy other risky stuff. But the net effect of quantitative easing is to leave investors and financial intermediaries holding less risky portfolios because they are supplying less risk-bearing capacity…

It is reassuring that I was not stupid–that there is nothing important in general equilibrium that I had missed:

Michael Woodford: Quantitative Easing and Financial Stability: “Conventional interest-rate policy, increases in the central bank’s supply of safe (monetary) liabilities, and macroprudential policy…

…are logically independent dimensions of variation in policy… [that] jointly determine financial conditions, aggregate demand, and the severity of the risks associated with a funding crisis in the banking sector…. If one thinks that the [risk] premia that exist when market pricing is not “distorted” by the central bank’s intervention provide an important signal of the degree of risk that exists in the marketplace, one might fear that central-bank actions that suppress this signal–not by actually reducing the underlying risks, but only by preventing them from being reflected so fully in market prices–run the danger of distorting perceptions of risk in a way that will encourage excessive risk-taking. The present paper… argues… that the concerns just raised are of little merit….

Quantitative easing policies can indeed effectively relax financial conditions…. Risks to financial stability are an appropriate concern of monetary policy deliberations…. Nonetheless… quantitative easing policies should not increase risks to financial stability, and should instead tend to reduce them…. Investors are attracted to the short-term safe liabilities created by banks or other financial intermediaries because assets with a value that is completely certain are more widely accepted as a means of payment. If an insufficient quantity of such safe assets are supplied by the government (through means that we discuss further below), investors will pay a “money premium” for privately-issued short-term safe instruments with this feature, as documented by Greenwood et al. (2010), Krishnamurthy and Vissing-Jorgensen (2012), and Carlson et al. (2014). This provides banks with an incentive to obtain a larger fraction of their financing in this way… choose an excessive amount of this kind of financing… because each individual bank fails to internalize the effects of their collective financing decisions on the degree to which asset prices will be depressed in the event of a “fire sale.” This gives rise to a pecuniary externality, as a result of which excessive risk is taken in equilibrium (Lorenzoni, 2008; Jeanne and Korinek, 2010; Stein, 2012)….

Cut[ting] short-term nominal interest rates in response to an aggregate demand shortfall can arguably exacerbate this problem, as low market yields on short-term safe instruments will further increase the incentive for private issuance of liabilities of this kind (Adrian and Shin, 2010; Giavazzi and Giovannini, 2012)…. Quantitative easing policies lower the equilibrium real yield on longer-term and risky government liabilities, just as a cut in the central bank’s target for the short-term riskless rate will, and this relaxation of financial conditions has a similar expansionary effect on aggregate demand in both cases. Nonetheless, the consequences for financial stability are not the same…. Conventional monetary policy[‘s] reduction in the riskless rate lowers the equilibrium yield on risky assets… [by] provid[ing] an increased incentive for maturity and liquidity transformation on the part of banks…. In the case of quantitative easing, instead, the equilibrium return on risky assets is reduced… through a reduction rather than an increase in the spread…. The idea that quantitative easing policies, when pursued as an additional means of stimulus when the risk-free rate is at the zero lower bound, should increase risks to financial stability because they are analogous to an expansionary policy that relaxes reserve requirements on private issuers of money-like liabilities is also based on a flawed analogy…. In the model presented here, quantitative easing is effective at the zero lower bound… because an increase in the supply of safe assets… reduces the equilibrium “money premium”… [which reduces] banks’ issuance of short-term safe liabilities… so that financial stability risk should if anything be reduced….

[This] paper develops these points in the context of an explicit intertemporal monetary equilibrium model, in which it is possible to clearly trace the general-equilibrium determinants of risk premia, the way in which they are affected by both interest-rate policy and the central bank’s balance sheet, and the consequences for the endogenous capital structure decisions of banks…

Equitable Growth in Conversation: An interview with Claudia Goldin

Posted on by Nick Bunker

“Equitable Growth in Conversation” is a recurring series where we talk with economists and other social scientists to help us better understand whether and how economic inequality affects economic growth and stability.

In this installment, Equitable Growth’s Executive Director and Chief Economist Heather Boushey talks with economist Claudia Goldin about the gender wage gap and some of its implications. Read their conversation below.

Heather Boushey: I want to focus on your work on the gender wage gap. Lots of us have been thinking about this for a long time and noticed that you have gotten a lot of attention in the press for your recent research on this, so I wanted to ask you some questions teasing out both what it is and what some of the implications are.

In your paper, “A Grand Gender Convergence: Its Last Chapter“—and I love the title of that—you argue that the gender wage gap cannot be explained by differences in productivity between men and women. Instead, when we look at occupations, we see that there is a price paid for flexibility in the workplace. And given what people are thinking about in terms of policy, that seemed like a really good place to start our conversation today. Can you tell me a little bit more about this result?

Claudia Goldin: So the key finding is that there is a gender wage gap. But the question is why? We know from lots of people’s work that we used to be able to squeeze a lot of the gap away due to differences in education—differences in your college major, whether you went to college or not, whether you have a Ph.D., an M.D., whatever. We were also able to squeeze a lot away on the basis of whether you had continuous work experience or not.

Today, we are not able to squeeze much away. In fact, women on average have more education than men. The quantities [of women with college degrees] are higher, and even the qualities [of degrees] aren’t that much different anymore. And the extent of past labor force participation is pretty high. Lifecycle labor force participation for women is very, very high. So we can’t squeeze that much away anymore.

What’s also really striking is that, given lots of factors such as an individual’s education level, many occupations have very large gender gaps and some occupations have very small gender gaps. Looking at occupations at the higher part of the income spectrum, which is also the higher part of the education spectrum — so occupations where about 50 or 60 percent of all college graduates are—we see that the biggest gaps are in occupations in the corporate and finance field, in law, and in health occupations that have high amounts of self-employment. And the smallest gaps are found in occupations in technology, in science, and in lots of the health occupations where there is a very low level of self-employment.

That’s sort of a striking finding.

Then when we dig deeper and look at particular occupations—in law, for example, and in the corporate and finance field—we see a couple of things. We see that differences in hours have very high penalties even on a per hour basis. Differences in short amounts of time off have very high penalties, unlike in other fields. And many of the differences occur at the event of or just after the event of first birth. So there is something that looks like women disproportionately, relative to men, are doing something different after they have kids.

When we look at men and women in the finance and corporate fields who haven’t taken any time off and among the women who don’t have kids, we find that the differences are really tiny. So those are the differences that are coming about, not surprisingly, from the fact that women are valuing predictability, and flexibility, and many other aspects of the job that many men are not valuing.

So, looking at data for the United States, we find that this change from being an employee, a worker, and a professional, to being an employee, a worker, a professional, and a parent has a disproportionate impact on women.

Now one might say, isn’t that because the United States has really lousy coverage in terms of parental leave policy, and in terms of subsidized daycare? Well, there are two very interesting papers, one for Sweden and one for Denmark. Both countries have policies that are just about the best in the world, and these studies, using these extraordinary cradle-to-grave data that they have, look at the widening in the — what men are getting versus women is occurring at — they can do an event study at that [having a child].

And women are moving into occupations that have more flexibility, but they are working fewer hours and getting less per hour. And the same sorts of things are going on even in countries that have incredibly good parental leave policies, subsidized daycare, schools that appear to us to be better, and what we think of as social norms that are better.

Boushey: One of the things that you found in your research that you haven’t mentioned yet is this idea that some workers are more substitutable—this idea that the industries with a high level of self-employment play some role in the gender pay gap. Could you explain that a little bit?

Goldin: Well, it would be very nice for us to go to each one of these occupations and take part in each one of these occupations and learn something about them. We can’t do that so instead we use the O*NET database, which gives us a lot of information about what goes on in these occupations.

And in O*NET, there are certain characteristics of the occupations that seem to map very nicely into aspects that would appear to be important, such as how predictable the job is, what the time demands are, whether you have to deal with clients, or whether work relationships are important.

And much of that is related to the issue about whether if an individual wants to leave work at 11 o’clock in the morning but do the same task at 11 o’clock at night, whether that’s severely penalized. That would be penalized if the individual can’t easily hand off work to someone else if it is needed at 11 a.m. That would be important if the fidelity of the information would be altered, if the client would feel that the individual wasn’t a very good substitute, and so on.

So using this information from O*NET, I find that the occupations that have the largest gender gaps are those that have the least predictability and the greatest time demands. And the occupations that have the smallest gender gaps are on the other side. It’s not necessarily causal, but it’s pretty good evidence that there is something going on.

And then I drill down deeper into particular occupations, such as the work that I have done on MBAs in the corporate and finance sector, and the longitudinal information that exists on lawyers. And finally, there’s a very interesting occupation that went through tremendous change during the 20th century and into the 21st century, and that’s pharmacy.

Pharmacists used to own their own businesses by and large, and they hired other pharmacists to work with them, often part-time. Many of these part-time workers were women, but there were few women who were owners. Well, ownership involves lots of responsibility, and as the owner, you are the residual claimant [the person with the last claim to the firm’s assets]. So in 1970 or so, women got about 66 cents on the male dollar in terms of pharmacy. Today, women working full-time full-year get 92 cents on the male dollar, uncorrected for any other differences and a lot more adding other relevant factors.

There are three things going on here. One is that there is no longer a lot of self-employment. Pharmacists by and large are not working for independent pharmacies anymore. They are working for big chains, national chains, regional chains, world chains. So the residual claimant now is the owner of the stock. There is professional management, and then there are just people who work there who are pharmacists.

The second thing is that there is very good use of IT. Every pharmacist now knows all the prescriptions that you have under your health plan, not just the ones that were filled in that pharmacy. And the third thing is that the drugs themselves are highly standardized by and large, so it isn’t that you are very attached to a particular pharmacist because they fill your prescriptions better or because they know you better. Pharmacists are highly paid professionals, but they are very good substitutes for each other.

Boushey: I’m glad you brought that study up, because I was going to ask you about it. My great uncle was a pharmacist, so I also just find it personally a fascinating example.

If you look at O*NET and the kinds of things that you are measuring, it seems like there are some cases where it seems very logical—especially in the case of pharmacists—that the substitutability is related to the profitability of the firm. It seems like a real strong business case.

Have you found in your research examples where perhaps not the substitutability but the job requirements around predictability or schedules may be more about keeping some workers out than they are about what’s good for the firm?

Goldin: Well, I’m all ears. (Laughter.)

Boushey: Yeah, I don’t know that I have answers there. I just think it begs the question. And I don’t know if you have thought about how to discern that difference in terms of —

Goldin: It’s that firms are leaving very large amounts of money on the ground. And so, if they are able to do that, they are able to pay for their taste for discrimination, then they can [discriminate]. And so that’s what one would look for, whether there are invaders standing at the gates. And if there aren’t, then they can do that and get away with it.

But the question is, where are the invaders that should be standing at the gates?

Boushey: And if part of what you have found is that a lot of this happens right after a child, that’s an invader of a different kind, perhaps.

Goldin: What’s interesting in the case of the MBAs is that it’s not right after the kid. It’s like two years later.

Babies are easier to take care of than 2-year-olds, and so it’s not that the firm then says, “Aha, we have one of those that has kids. We’ll just make certain that she doesn’t get the clients.” And one hears a lot of those stories, and those are the ones that the HR people are always talking about and making certain that people in their firm don’t do that—don’t have sexist paternalism, as it’s called.

But that doesn’t seem to be what is going on. I’m not doubting that there isn’t some of that, but what seems to be going on is that the individual tries and tries—in our data at least, in the Chicago Booth [School of Business] data—and eventually it’s just too much. There are too many demands, so they decide to scale back somewhat.

Boushey: Then I guess there are two questions. It sounds like it is that scaling back that causes the gender pay gap, right?. And what can we do about it?

Goldin: If a firm somehow believes, or it’s the case that right now, its production function is such that working 80 hours a week is worth a lot more than having two workers work 40 hours a week, then that produces non-linearities in pay and it leads to exactly what we are seeing. End of story.

Boushey: And on the policy side, it sounds like there isn’t a lot of incentive from the firm’s side to fix that –

Goldin: No, there’s a lot of incentive on the firm’s side. If I’m paying someone more than twice as much to work 80 hours a week than I’m paying two people to work 80 hours a week, then I should think about ways of reducing my costs.

And if I am working people 80 hours a week and that leads people with skills, very expensive skills, to leave, then I should want to do something to keep them there and to figure out how to make certain that they aren’t working 80 hours a week.

I often hear how the CEO of a company has said, “We really want to keep our talent—women as well as men who don’t want to work 80 hours a week, who don’t want the pressure of being called up when they are at a soccer game with their kids, on a Sunday or a Saturday or an evening, or whatever.” The CEO will set down a policy to ensure that doesn’t happen, but then there are a lot of managers who don’t hear that or who claim they don’t hear that. So lots of firms hire HR people to go around and make certain that this is policed.

And these issues are present even in the military. Some time ago at a conference on workplace flexibility, Adm. Mike Mullen, former Chairman of the Joint Chiefs of Staff, essentially said “I’m having trouble doing it, and I’m the head of the entire military.”

So there are principal-agent problems that firms would like to rein in. So they are losing money.

Boushey: Yeah. Well, the federal government implemented a “right to request” policy in one of the agencies—I believe it was OPM, the Office of Personnel Management. I talked to them when they were starting to implement that and the folks we were talking to were super excited, and then they told me, “Oh, yeah, we had some problems with middle management actually implementing it.” And then they stopped the experimenting and I never heard about it again.

Goldin: Yeah.

Boushey: And I think it’s a real challenge how firms are making that connection between that profit motive that the big guys are thinking about and what’s actually happening.

Goldin: Right. But there are lots of firms that have what they call work-life balance, or work-family balance; where, if you work at 11 at night versus 11 in the morning, that’s perfectly fine with them.

I was talking with a very senior partner at a well-known consulting firm once and I asked, “Well, what do you do when clients [call people up at 11 p.m.]?” And she said, “I call up the clients and I say, I have staff and they are not your slaves.” Well. (Laughter.)

Boushey: Good for her.

Goldin: Good for her, and right. But let’s just say that there are cases in which we don’t want someone to have a perfect substitute. I do not want my president, for example, to turn around and say, “oh, by the way, I really don’t like this unpredictability business. You know? That little red button on the phone—every now and again, I say, you know, I’m really not here right now.” (Laughter.)

Because there are cases in which that person better be on 24/7 and that’s it. And we know that in the world of work, those people get higher pay—or, in the case of our president, just get better ratings.

So there are going to be cases in which individuals who are willing to work long hours, work unpredictable hours, be on call, whatever we want to call it, are going to get more. And they are not going to be substitutable. And information is not going to flow perfectly, with total high fidelity.

The question is, what fraction of the occupations in the economy are like that? And I think you and I would agree that the fraction is probably a lot lower than appears to be the case right now.

Boushey: So what should folks who are thinking about policy do about this? Is there a role for us, or is this just a business case? Do they all have to learn this lesson on their own, or is there something policymakers can do?

Goldin: Yeah, we have a policy. It’s called public schools. We’ve had it for a very, very long time. We have public schools that get out nationwide at about 2:30 or 3:00, that end sometime in June, that begin school at 5 years old or 6 years old. None of that was ever discussed as being the optimal way to run schools.

It is suboptimal with respect to individuals who have kids, because kids are not one- or two-year capital goods. Family leave policy is not the only thing that’s going to help families with kids, because the kids live, I hope, for many, many years after they are 2 years old. That’s the policy.

Boushey: I love it. That’s a fantastic way to end this interview, and something I will take with me in my travels here in Washington. Thank you so much, Claudia.

Goldin: Thank you.

This interview has been edited for length and clarity.