Quartz's Noah Smith looks at how Gary Becker, the Chicago School economist who died last weekend, viewed workplace discrimination. Becker argued that the free market was good for gender equality and that deregulation would truly spur women and minority gains in the workplace.
One trade-off Becker thought a lot about was workplace discrimination. Suppose that managers and executives are racist or sexist—for whatever reason, they just don't want to hire women and minorities, or to pay them what they're worth (pretty realistic, if you ask me). But this discrimination doesn't come without a cost. If one company pays women and minorities less than they produce, they could jump ship. With a highly productive and relatively cheap workforce of women and minorities, a fair-minded company could out-compete a discriminatory company and drive it out of business.
Unless, of course, it can't. Becker theorized that regulation and other government protections can shield discriminatory companies against attack. That would protect the jobs of the people who worked at those old-line companies, but would perpetuate workplace unfairness in the process.
Regulation, Becker argued, propped up discriminatory companies that would otherwise suffer in a more open and competitive marketplace. "According to Becker's famous theory on discrimination," wrote economics professors Andrea Weber and Christine Zulehner in a recent Journal of the European Economic Association article, "entrepreneurs with a strong prejudice against female workers forgo profits by submitting to their tastes. In a competitive market their firms lack efficiency and are therefore forced to leave."
In a study of start-up firms, Weber and Zulehner found that "firms with strong preferences for discrimination, approximated by a low share of female employees relative to the industry average, have significantly shorter survival rates … We also find evidence for employer learning as highly discriminatory start-up firms that manage to survive submit to market powers and increase their female workforce over time."
At Quartz, Smith points out that it wasn't until the early 1980s that women really started to close workplace gender gaps, despite the fact that female labor force participation had been rising since the '40s. The gender wage gap barely budged between the 1950s and the early '80s, with women making about 60 percent of what men made. But between 1980 and 1994, women's earnings rose from this 60 percent to about 74 percent of what men made. According to economists June O'Neill and Solomon Polachek, the 1980s closing of the gender wage gap could be seen at virtually all ages, education levels, and work experience levels.
"We should never discount the importance of the feminist movement, which at the very least prepared society to accept rapid changes in gender roles," Smith writes. But neither should we ignore the contributions of capitalism.
What happened in the early '80s? Laws mandating "equal pay for equal work" had been around since the early 1960s, but the gap hadn't budged. The feminist movement had been shifting cultural norms for decades, but why should it suddenly score big economic breakthroughs in the relatively conservative 1980s after years of frustration?
One explanation for women's sudden success is that Becker was right. The early '80s saw a wave of deregulation, and the start of a steady increase in trade as a percent of GDP. It also saw the advent of new forms of finance, designed to take power out of the hands of managers and put it in the hands of shareholders.
[…] if Becker was right, then the unrestrained capitalism unleashed in the 1980s had another unexpected benefit—increased gender equality.
Smith notes that countries such as Japan that have avoided deregulation, shareholder capitalism, and open markets tend to lag in both productivity and workplace gender equality. "When it comes to gender equality in the workplace, Japan scrapes the bottom of the barrel," he writes.
Just as minimally restrained capitalism can be good for workplace gender equality, workplace gender equality can be good for the economy. Earlier this week, Goldman Sachs Group released a report saying that Japan's economic output would soar if more women participated in the labor market. "Japan can no longer afford not to leverage half its population," the "Womenomics 4.0" report stated.
Closing the gender employment gap could boost the country's gross domestic product by 13 percent, according to Goldman Sachs Chief Japan Strategist Kathy Matsui and her team of analysts. But implementing this change can't done through regulation, they said. Instead the report suggests approaches such as deregulating Japan's daycare and the nursing care industries, reforming immigration laws, making tax and social security regulations gender neutral, encouraging the private sector to embrace flexible work arrangements, and working on campaigns to dispel gender myths in Japanese society in general.