Thursday, August 03, 2006

Women and productivity

Amendment: I noticed that I butchered my last effort on this I'm going to try this one more time...

Popular literature tells us that when women are discriminated against in the labour market, it's often for one reason: the potential for interruption in a woman's career (for child-rearing etc.). This morning I heard a good reason to believe that this sort of discrimination can cost a firm in productivity.

The premise of the lecture I attended was this:

Assume that men and women are homogenous but the firm doesn't treat them so. Policy dictates that women should receive the wage that men receive, therefore men and women are both paid 'W'; however, the employer acts as if he is paying women too much. He does this by hiring less women then he otherwise would if he believed that the marginal revenue product of men and women were equal.

As a result, there is a potential for loss of productivity by the firm. Female workers can offer more than the employer is gaining. The cost of discrimination is therefore the productivity gained by the firm's competition if females are hired elsewhere. In sum, if a firm behaved discriminatorily against women, it will not maximize its productivity as long as this is a competitive market.

The question I asked is: Are you aware of any studies that show that the benefit of hiring women offsets the cost that a firm faces when women's work time is interrupted for such things as maternity leave?

Lecturer's response: Yes. There have been studies which show that the benefit of hiring is greater, holding constant age, education, location, marital status and wages.
The way I see it, this implies that we spend too much time saying: “See, look, maternity leave costs our firm.” Or, “See, menstruation explains the gender gap.” (Sadly, I'm not even making that last one up. Excerpt is here). The point we're missing is that discrimination causes hidden productivity. The benefits of hiring women are being lost by society in order to avoid the costs, which may be lesser. If a firm can tap into the benefits, they'll be ahead of the competition.

In my view, however, even if the study I heard about this morning is conclusive, there still remains a problem: How do you convince an employer that he/she is better off hiring talented women over less talented men when his/her utility was seriously diminished when the last woman hired took maternity leave? In this case statistical discrimination might continue to exist, if for no other reason but ignorance.

Addendum: A related note from The Economist (April 12, 2006), A guide to womenomics:

Making better use of women's skills is not just a matter of fairness. Plenty of studies suggest that it is good for business, too. Women account for only 7% of directors on the world's corporate boards—15% in America, but less than 1% in Japan. Yet a study by Catalyst, a consultancy, found that American companies with more women in senior management jobs earned a higher return on equity than those with fewer women at the top. This might be because mixed teams of men and women are better than single-sex groups at solving problems and spotting external threats. Studies have also suggested that women are often better than men at building teams and communicating.
To make men feel even worse, researchers have also concluded that women make better investors than they do. A survey by Digital Look, a British financial website, found that women consistently earn higher returns than men. A survey of American investors by Merrill Lynch examined why women were better at investing. Women were less likely to “churn” their investments; and men tended to commit too much money to single, risky ideas. Overconfidence and overtrading are a recipe for poor investment returns.

Despite their gains, women remain perhaps the world's most under-utilised resource. Many are still excluded from paid work; many do not make best use of their skills. Take Japan, where only 57% of women work, against 65% in America. Greater participation by women in the labour market could help to offset the effects of an ageing, shrinking population and hence support growth. Ms Matsui reckons that if Japan raised the share of working women to American levels, it would boost annual growth by 0.3 percentage points over 20 years.


happyjuggler0 said...

Assume men and women are equal in ability.

Assume also that women are no more likely to go on maternity leave than men are likely to go on paternity leave, with equal amounts of "down time" for both groups.

Now assume there are two companies that need to hire 10 people each from a pool of 50 men and 50 women, and that their price of labor is fixed identically. Also assume that each company picks one person to hire, then the other company picks two, the the first company picks two etc.

Company A looks to hire from the entire pool of 100, 50M and 50W. Company B looks to hire only from amongst the 50M and refuses to hire those from the 50W.

Company B picks first and picks the best M (M1). Company A picks M2 and M3. Company B picks M4 and M5. Company A picks M6 and M7. Company B picks M8 and M9. Company picks W1 and W2 and makes the rest of their picks as W's while company B makes the rest of their picks from the M's.

Company A gets from pool M the number 2,3,6, and 7 best possible hires, as well as the 6 best possible hires from pool W.

Company B gets from pool M 1,4,5,8,9,10,11,12,13, and 14.

Company A gets by far the better quality hires, while company B is likely to perform far worse than company A in their future competition for customers.

In the real world, Company A also ought to be able pay their W's more cheaply than their M's because of simple supply/demand factors. Thus they get more of the best workers and also pay them less.

It ought not to shock anyone that companies that hire more women for meritocratic reasons, as opposed to affirmative action reasons, will outperform those companies that for whatever reason effectively choose to limit their hires to half (or 60%, or 30% or whatever, after also taking into account non-hires on account of race, religion, nose piercings, etc.) of the labor pool.

Thus, in a discriminatory world it is more profitable as a generalization to hire those who belong to discriminated groups. It also follows that if your discriminatory competition doesn't have affirmative action then all such people they have working for them who belong to such discriminated groups are much more likely to be on the far right side of the skills bell curve. If they got hired in the first place they likely had to show much more promise than a preferred group member would, and to advance at all, let alone not get fired, the same applies, i.e. they have to notably superior to the others merely to have the same chances. As such, they would make wonderful group of potential hires to poach from your competition. Especially if your company has a meritocratic attitude towards promotion, on-the-job training etc.

Finally, you are more likely to get loyalty from your female, colored etc. hires than from white males (or whatever) simply because they know they simply have fewer good choices amongst potential employers.

happyjuggler0 said...

Oh yeah, I forgot an important inference. If most companies discriminate, then your labor pool ought to be much better than the competition's is than my two company model suggests.

For example, assume a 1000 person labor pool, with 500M and 500W. Assume 10 companies are picking and take turns as above. Company A is the only one of the ten companies willing to hire from pool W. Company A picks 5th, and picks M5, and then picks W1 through W9, winding up with 10 of the best 20 hires from a pool of 1000. The other nine companies each get only 1 of the top 20 hires, excepting one company whichs gets 2 of them. Their mean average hire is about 100th best (probably closer to 95th, but I am too lazy to get the math right)amongst the 1000 person pool (remember they are bypassing half of the top 200), while your mean average hire is the approximately the 10th best hire amongst the 1000 person pool.

true dough said...

I see what you mean. But, is your model really a reflection of what's happening in gender discrimination? Perhaps if we went a step further than the initial hiring we could better explain the heart of the matter: gender discrimination in N. America exists primarily when employers don't invest capital in female employees out of concern that women will have work experience gaps. The earnings differential between men and women is relatively minimal at the entry-level hiring point but grows at an increasing rate over time before leveling off. This is in part because the merit of women slips behind the merit of men as AN EFFECT of the decisions made by firms!

Round II:
Where your model left off, two firms were hiring. Firm B discriminates against women, Firm A does not.
Allow for one adjustment: Firm B hires a few females: W1, W2 and W3 (even the booboisie have a reputation, you know).

Firm B is looking to supply on-the-job training for career advancement. It chooses males because it attaches a lower weight (where the weight is, say, a function of the probability of transfer/promotion) to women. It fears that women's work experience will be interrupted X many times by maternity leave and females may seek part-time employment at some point to care for their children. Investment in females is a risk, says Firm B.

The W's become W1(.5), W2(.5), W3(.5). This implies that the merit of these W's is lower as an EFFECT of the decisions of the employer! (ie – It is not that the W's were refused a job because of lack of merit; rather, they find themselves in a job that diminishes their ability to competitively increase their merit!)

And, Round III:
Later Firm A is looking to hire experienced staff. W1(.5) from Firm B applies and is refused. Instead, M1 is hired from Firm B. Is this discrimination? Of course not. M1 is now worth more! So the story continues...

Now, a reality check: Studies have shown that this trend is true even in occupations where the male/female ratio is balanced (ie. In occupations where discrepancies in character traits of men and women should hold little significance, and other variables are held constant) and receive less on-the-job training. Men's age/earnings profiles increase at a faster rate and reach higher levels, while women's age/earnings profiles are relatively flat. In other words, beginning from entry in the workforce, the differential between wages of men and women grows at an increasing rate (until men reach 45 to 54 years of age and they're no longer worth investing in either).

In the end, being a chick is not like having an extra hole in your nose. Ha! But jest aside, we may be on the same page. Or, no?

true dough said...

One more thing, I should have acknowledged that I'm obviously breaking your assumption (“...women are no more likely to go on maternity leave than men are likely to go on paternity leave, with equal amounts of "down time" for both groups.”). Therefore it's not that I disagree. But your assumption rips out the essence of gender discrimination so as to make it irrelevant. To be fair, you likely did so to offer a general case of discrimination. Or at least I found it very helpful in that sense.

happyjuggler0 said...


It was not my intent to dismiss the negative effects on those who are being discriminated against.

My posts main point was the effect of discrimation on businesses. You discriminate, you hurt yourself. By definition actually.

Alternatively, if you choose not to discriminate your business will actually perform better than if the competition hadn't discriminated.

The more businesses that there are that try to be "A's", the closer to parity for hiring and promotion it gets overall for women and others, while the wage gap closes towards $0.99+ per the male's dollar.

Instead of appealing to business to "do the right thing", appealing to their self interest would likely have better effect for alleviating discrimination.

Finally, I agree with your points of the ill effects of lesser training that W's will receive. However in many cases there is an "effort effect", and this is what I was talking about in terms of poaching. To get ahead women have to perform better than men would have had to with the same tasks. Thus when you see a woman relatively high placed in a company that discriminates against women, it is highly likely she is a superior employee, almost by definition, whereas the men who are her equals on the company ladder may have coasted there (relatively speaking) or had some connections to get that far. Thus she is likely to be a superior steal than a man from the same company in her position.

Now granted, with the same effort that that superior woman showed to get that far, a man would've likely advanced yet farther. Again, I don't want to imply that there isn't a terrible cost being paid by the employees in question.

true dough said...

happyjuggler0 (if you just happen to still be around!), thank you kindly for straightening me out and I'm sorry to have misrepresented you. I realized later that I may have come off brash – totally unintentional.