November 1999, Vol. 122, No. 11
the age gap
The new global economy
Book reviews from past issues
Narrowing the wage gap
Unequal Pay for Women and Men: Evidence from the British Birth Cohort Studies. By Heather Joshi and Pierella Paci. Cambridge, MA, the MIT Press, 1998, 180 pp. $30.
Citing the opportunity provided by the current boom, the Clinton Administration has recently proposed an initiative to help narrow the wage gap between men and women. This in turn has renewed policy debates about this issue and has put in the news some of the work of labor economists who have researched and written on the various forces that create the gender wage gap.
While most of the research cited is by Americans, a 1998 book by British labor economists Heather Joshi and Pierella Paci, titled Unequal Pay for Women and Men: Evidence from British Birth Cohort Studies, makes an important and timely contribution to the discussion. This is largely due to the good use they put to a lucky find of two comparable data sets that prove well suited for the study of the gender wage gap. Labor economics is one of the most data dependent endeavors in economic research, and much of the progress made in the discipline depends on data finds of the sort that Joshi and Paci make use of.
Both data sets come from very large and detailed British longitudinal studies. One, conducted in 1978, surveyed British women and men who were born in 1946, and therefore were about 32 years of age at the time of the study. The other comes from a 1991 study of people born in 1958, who were 33 when surveyed.
Having data from two groups of roughly the same age and at the same stage in life is only part of what makes the data so rich for the mining. In 1978, many of Britain’s equal pay, sex discrimination, and employment protection laws had only recently been implemented, and therefore had yet to take effect. By 1991, they had been in force for almost a decade and a half. The existence of two highly comparable cohort studies so conveniently spaced provided the authors with the opportunity to help answer, among other questions, what impact legislative actions have on increasing pay equality between men and women.
Joshi and Paci found measurable improvement in the wage gap for women in the later cohort. The wage differential between British men and women born in 1946 was around 60 percent in 1978. By the time the 1958 cohort was surveyed in 1991, it had dropped to somewhere between 37 percent and 40 percent.
The authors control for various factors and are able to determine how much of the convergence of men’s and women’s wages reflected an improvement in the treatment of working women and how much resulted from a convergence of productive endowments, such as work experience, service with the same employer, schooling, ability, and aspirations. What they find bears on the current debate in America.
By separating out full-time workers from part-time workers, who as a group have comparatively fewer productive endowments, the authors show that equal pay and opportunity legislation has had a great effect for an elite of well-educated women. Their pay differential with men was cut by more than half over the period. However, for part-time female workers, those already in low wage occupations, the legislation seems to have had little or no impact. Factors outside the reach of antidiscrimination laws such as social influences, educational opportunities, and attitudes in the home seem to thwart the economic progress among lower wage women. Therefore, their policy recommendations include proposals to help promote gender equality in the home and schools, as well as job training for women in nontraditional areas. They also stress the need for policies that better facilitate the combining of employment and family life, including better maternity and paternity leave programs, and initiatives to improve the accessibility of affordable daycare.
The point is that raising the pay of women as a group may be more about addressing disparity of opportunities for the elite of well-educated women and their lower wage sisters, than addressing the unequal treatment of men and women. It is an interesting argument and one that should be of keen interest to all people involved in the debate.
Quality Management Staff
Bureau of Labor Statistics
The new global economy
The New Global Economy and Developing Countries: Making Openess Work. By Dani Rodrik. Washington, Overseas Development Council,1999. Distributed by the Johns Hopkins University Press, 167 pp. $13.95.
Like clothes, economic development policies are subject to changing fashions. This book analyzes today’s predominant theory of development, "openness"—meaning the free market in goods, services, and capital across borders—and finds it a flawed formula for poor countries. The author, Dani Rodrik, a professor of international political economy at Harvard University’s Kennedy School of Government, recognizes the benefits that can flow from openness, but contends, as the main theme of his book, that "these are only potential benefits, to be realized in full when the complementary policies and institutions are in place domestically." Besides, the free market gains claimed "by the boosters of international integration…are frequently inflated or downright false."
Too many governments and international institutions, he writes, are fixated on openness as an end in itself. This approach, he warns, has three basic flaws for countries in the process of integrating into the world economy:
• By itself, openness is an unreliable mechanism for generating sustained economic growth. He provides data showing that countries with rapid economic growth "typically also become more open; but the converse progression—from increased openness to faster growth—is much less apparent."
• Openness tends to widen income and wealth inequalities within both developed and developing countries.
• Openness exposes countries to periodic external shocks that can trigger domestic conflicts and political unrest. Oil crises, sudden reversals in capital flows, and other stocks "will always be part of the global landscape." Economic policies fixated on openness leaves a country especially vulnerable to such shocks.
"Hence, openness is a mixed blessing, one that needs to be nurtured if it is to be a positive force for economic development." An important strategy in making openness work, he writes, is for a country to develop its own internal "complementary policies and institutions": for example, a regulatory apparatus for capital flows, transparency for trade rules, civil and political liberties, free labor unions, non-corrupt bureaucracies, independent judiciaries, and social safety nets. He provides specifics on how such institutions and policies help developing countries cope with turbulence in the world economy and with the widening inequalities that openness often brings.
Reversing the usual development advice emphasizing growth through exports, Rodrik argues that the benefits of free trade lie on the import side—specifically, importing ideas, investment goods, capital, and institutions. He frowns on development thinking that "puts the cart before the horse by vastly overstating the role of exports." He also criticizes national policies catering to foreign investment to the point of subsidizing and otherwise favoring it over domestic investment. He backs up these and other points with case studies and extensive statistical analysis of data from the World Bank’s files, the Penn World Tables, and other sources.
In making his case, Rodrik takes passing swipes at "free market religion" and "knee-jerk globalizers." But this book is not an attack on globalization or capitalism. Instead, here, as in other writings, he advocates letting countries develop their own form of national capitalism, rather than trying to impose a universal model on all. He cites the United States, Sweden, Germany, and Japan as examples of market-based economies that have important differences (for example, in their style of corporate governance, regulatory framework for product and labor markets, and extent of social insurance). In the book’s final sentence, Rodrik writes: "A suitable international economic system is one that allows different styles of national capitalism to coexist with each other—not one that imposes a uniform model of economic governance."
Although Rodrik slips into undefined economic jargon from time to time, you don’t need a degree in economics to get his message. Unfortunately, the book has no index.
Robert A. Senser
Human Rights for Workers
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