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NRO’s domestic-policy blog, by Reihan Salam.

Arpit Gupta on Chen-Chevalier’s Research on Female Labor Force Participation



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Arpit Gupta has a fascinating post that begins by summarizing new research from economists Keith Chen and Judith Chevalier and goes on raise a number of interesting question. The following is from the Chen-Chevalier abstract:

We examine whether investing in becoming a physician is a positive net present value project for women who do so. We sidestep some selection issues associated with measuring the returns to education by comparing physicians to physician assistants, a similar profession with lower wages but much lower up front training costs. We find that the median female (but not male) primary-care physician would have been financially better off becoming a physician assistant in a primary-care field. This is partially due to a gender wage gap in medicine. However, our result is mostly driven by the fact that the median female physician simply doesn’t work enough hours to amortize her up-front investment in medical school. In contrast, male physicians work substantially more hours on average and the median male physician easily works enough hours to amortize his up-front investment. [emphasis added]

I first heard about this line of research some years ago, and it was of particular interest to me because I’ve known many physician assistants who struck me as quite capable of being physicians, yet who for a number of reasons chose not to undertake the extremely expensive and grueling training process required of physicians. 

Arpit’s discussion of the issues is illuminating:

Once you account for the fact that women will generally spend less time in the workforce than men due to time spent childrearing, all sorts of puzzles come up. For instance — how is is that women now outnumber men in a variety of education outcome measures — such as graduating College — and are at parity with men in others — like Medical School attendance? Again, from Chen and Chavalier, we have that women’s lesser time in the workforce lowers the financial return to education — to the point that med school seems a bad deal in financial terms on average for women.

It would seem likely that non-monetary returns play a large role. What is the relative premium that higher education brings men and women in the marriage market? In the past, higher education was if anything a liability for women’s marriage prospects. This seems less likely to be the case today. As Betsey Stevenson and Justin Wolfers have argued, marriage has gone from an institution encouraging complementarity in production to one of complementarity in consumption. This has encouraged levels of similarity between men and women along a number of different criteria in marriage.

That generates a number of positive spillovers from education for women, which are especially stark when considering the number of co-movements in social and economic trends over the years. For instance, women’s education is hugely predictive of future children’s success — in several studies, I believe, more important than the father’s education. College-educated and above households are substantially less likely to divorce or face other negative events than even high school-educated households — and that divergence is growing. High school-educated familiesincreasingly resemble high school dropouts rather than College educated families. Divergences in job markets — in which College-educated jobs receive high and growing premiums, while jobs requiring a high school degree see stagnating incomes — encourage these trends.

Another way of putting this is that many people place a very high value on the prestige associated with being a physician as opposed to being a physician assistant. And perhaps physicians have greater access to desirable marriage partners (along certain dimensions) than physician assistants, which might also prove valuable in light of the social trends Arpit describes. 

So while Chen and Chevalier phrase their paper through the question, “Are women over-educating themselves?” I’d instead look at the empirical evidence that people are pursuing more education, and then think about what sort of incentives drive them to do that. The financial incentives are only a part of the picture. The non-financial incentives — marriage on average with a more stable, higher educated person, kids that will be better off as well, general transformations of life views — may be substantial.

Arpit also offers a rough guide to the policy implications of durable gender differences in patterns of labor force attachment:

For instance, Social Security and pension plans are typically gender-neutral in the sense that they require equal savings per dollar earned from men and women. This may make sense for families that do not anticipate divorce, in which total earnings are pooled and split to finance joint consumption. It doesn’t necessarily make sense for divorced families or single women. Given that women can also expect a greater life expectancy, the average women can anticipate lower savings to finance a longer retirement period. That doesn’t seem right. Women should probably be saving at far higher rates than men.

The risks married women face are one reason a growing number of married individuals maintain separate checking accounts. It might also be a reason to strengthen the savings component of the American safety net. 

This also means that it doesn’t make too much sense to put men and women in a lab, observe that women take fewer risks than men, and then conclude that we need to put women in charge of banks because they’re safer people. Laboratory experiments on men and women may reflect nature/nurture effects on fundamental risk preferences. But as long as men and women specialize differently in child rearing/time in the workforce/occupational structure; there’s no good reason to expect them to have identical risk preferences. In fact it would be nonsense to expect them to have identical risk preferences — yet that’s what pension plans do.

Arpit then gets to an issue of great interest to me, namely gender-based labor taxation. In the past, I’ve advocated age-dependent labor taxation, per Matthew Weinzierl’s work on the subject. I’ve shied away from gender-based labor taxation, though I was very impressed by a proposal from Alberto Alesina and Andrea Ichino that began as follows:

Normally, free marketeers and those who are especially worried about the efficiency costs of taxation are on opposite camps from those social activists that believe that government intervention is needed to achieve a host of social goals.

Here is a policy proposal that should make the two camps agree: reduce income taxes on women and increase, by less, income taxes on men in a way that holds total tax revenue constant. This policy would simultaneously reduce overall tax distortions and increase women’s participation in the labour force, thus achieving the goals of quotas and affirmative action but in a more efficient way. While quotas impose quantitative constraints that prevent agents from equalizing costs and benefits at the margin, gender-based taxation changes relative prices but lets agents free to optimize at the margin. For those who believe that women should not face discrimination gender-based taxation should be attractive; it is “fair” to compensate women for the fact they bear the brunt of maternity and early child care costs and this harms their career prospects. Gender based taxation offers a form of compensation that helps redress these inequalities in a less distortionary, more transparent and simpler way that affirmative action quotas.

Arpit writes in a similar vein:

You also have the usual taxation questions. Marginal tax rates carry far higher deadweight losses on women than men, because women are more often on the margin between working or not. Progressive taxation produces additional burdens, as the wives of high-earning men can expect to keep much less of their earned income, and so more often choose to opt-out of the workforce entirely. The obvious solution would be to handle child subsidies in the form of reducing the entire marginal tax rate schedule for families with children; and tax households as two single individuals. If feminists got together with the tea party to make this happen, it would probably do more to encourage female labor force participation than any other act of public policy in fifty years. India already has a different tax rate system for men and women, so don’t tell me this is impossible to think about.

Income-splitting is a fairly familiar idea that has been advocated by a number of conservatives, including former Senator Connie Mack of Florida. David Blankenhorn and Allan Carlson described the concept in the pages of the Weekly Standard in 1997:

 

Under income splitting, a married couple at tax time would add up their income and divide by two, so that effectively each spouse would be taxed on half. This would apply to both two-earner and single-earner couples. Thus, if one spouse earned $20,000 and the other $30,000, each would report a taxable income of $50,000 “split” in two, or $25,000, to be taxed at the basic rate. And if one spouse earned $50,000 and the other nothing, the tax result would be the same.

This may sound like a mere technical matter, but it’s not. Permitting married couples to split their income would amount to a far-reaching reform in favor of marriage, family time, and community life. It would replace the marriage penalty with a financial incentive for marriage and an equally clear disincentive for divorce. And it would be just.

Perhaps the time has come to revive this idea, which is far less exotic and hard-to-sell than the Alesina-Ichino approach. 

Towards the end of the post, Arpit touches on what is sure to be a more controversial proposal:

There are also thorny issues related to admissions policy — as raised for instance by Posner on his blog. If Universities are aiming to maximize the success and income of future graduates to raise their own prestige; they will not be indifferent to the amount they want their graduates to work, and they will not be indifferent in choosing between two applicants, one of which plans on working much less in the future than another. Taxpayers, in general, will also not be indifferent between subsidizing the education of two people, one of whom plans on spending much less time in the job market than another (though that taxpayer might also be concerned about the human capital of others children as well). This presents obvious issues that I’ll leave to Posner to discuss.

To be earnest for a moment, and to anticipate an obvious objection, we can’t assume that even very durable gender-based patterns of labor force attachment will endure forever. Perhaps there is a better way to identify whether or not a potential student will remain attached to the labor force for a long period of time than to rely on gender as a ridiculously crude proxy. We might, for example, restructure the financial incentives so that those who’ve benefited from an expensive subsidized education yet who do not remain attached to the labor force have to incur a financial penalty.

The underlying problem is that psychic income can’t be taxed. The pleasure one derives from leisure or from household as opposed to market production has undeniable value, yet that value is hard for statisticians to capture. 

I have to say, Arpit has given us a lot to think about in this short post. 



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