What is A Fine Theorem?
A Fine Theorem is a summary of recent economics research written by Kevin Bryan (kevin.bryan AT rotman.utoronto.ca), an Associate Professor of Strategy at the University of Toronto Rotman School of Management. My academic page can be found at http://www.kevinbryanecon.com. I tend to read within my fields of interest – innovation, micro theory, and philosophy/methodology – though posts are not exclusive to those areas. This site at heart is really just a way for me to keep track of articles I might need in my own research, nothing more.
https://afinetheorem.wordpress.com/about/
The frequency of posts has gone down over time on the blog, more’s the pity, but whatever is posted is of remarkably high quality. And if you want to read just one essay about a Nobel Prize in economics, and A Fine Theorem has obliged, well, consider it a match made in heaven. Some of you will have not missed the title of the post celebrating this year’s Nobel, of course.
And that is a good place to begin:
Roth’s work is related to Goldin’s work in the sense that they both study matching markets, which are markets where prices do not determine who gets what, but rather both sides of the market have to agree on a match. For example, Goldin’s work on women’s education and employment involves matching markets, such as college admissions, job applications, and marriage. Roth’s work on market design involves creating mechanisms and algorithms that can produce stable and efficient matches in various contexts, such as medical residency, school choice, and kidney exchange. Roth and Goldin also share some common themes and methods in their research, such as using historical data, applying game theory, and conducting field experiments
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Now, on to A Fine Theorem’s essay on this year’s Nobel Prize winner, Claudia Goldin:
How have women been paid for their work? More broadly, how are different skills in general rewarded in the labor market? The prices of different things are at the core of economics, and wages – that is, the price of labor – are the most important prices. Claudia Goldin, 2023’s Nobel Laureate in Economics, uses cliometrics, the combined tools of economics and history, to understand changes in the wages of women and men, of the less- and more-educated, of the part-time worker and late-night-at-the-office striver. This history is backward-looking in its evidence, but not in its usefulness. Goldin’s work helps us understand whose wages will rise, will fall, will equalize going forward. Not entirely unfairly, she will be described in much of today’s coverage as an economist who studies the gender gap. This description misses two critical pieces. The question of female wages is a direct implication of her earlier work on the return to different skills as the structure of the economy changes, and that structure is the subject of her earliest work on the development of the American economy. Further, her diagnosis of the gender gap is much more optimistic, and more subtle, than the majority of popular discourse on the topic
https://afinetheorem.wordpress.com/2023/10/09/who-got-what-and-why-a-nobel-for-claudia-goldin/
I’ve been “guilty” of this myself – of describing Claudia Goldin’s work as that of an economist who studies the gender gap. That is partly because of the importance of this specific subject, especially in an Indian context, and partly because that has been a primary focus of Goldin’s work in recent years.
But backing up and asking why she got interested in this issue is a worthwhile exercise. And this blogpost, by A Fine Theorem, argues that this is so because of her earlier work on different returns to different skills, given the level of development in an economy.And that work, in turn, is an outcome of her study of the American economy itself.
What kind of study of the American economy? Cliometric studies.
Cliometrics, named after Clio, the muse of history in ancient Greek mythology, is a quantitative and statistical method of studying historical phenomena and economic history. The practice emerged around the 1960s, revolutionizing the field of economic history by applying formal economic theory and statistical methods to the study of history.
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To understand cliometrics better, A Fine Theorem points us to an essay written by Claudia Goldin back in 1993, honoring the work of two other Nobel Prize winners, Robert Fogel and Douglass North. What was their Nobel Prize for?
In October 1993, the Royal Swedish Academy of Sciences awarded the Nobel Prize in Economics to Robert William Fogel and Douglass Cecil North “for having renewed research in economic history.” The Academy noted that “they were pioneers in the branch of economic history that has been called the ‘new economic history,’ or cliometrics.”
https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.2.191
Cliometrics, or the “new” economic history, was quite controversial, and remains so, to some extent. This is true for a variety of reasons, not the least of which is the fact that cliometricians dared to go against received wisdom. And nothing makes people go purple with rage more than folks who dare go up against received wisdom:
Slavery was not naturally dying out due its lack of productivity! Since canals could have been built in the flat midwest, the railroad could not have been fundamental to US prosperity! To give a taste of the outsider nature of cliometrics, that very term was coined by a pure economic theorist, Stanley Reiter, who had no training whatsoever in history. Goldin’s review of the impact of cliometrics following Fogel and North’s Nobel makes clear her sympathies: a critical element in this research was uncovering “the interplay between structural change and technological change”, an interplay we can study with theoretical and empirical rigor. The structure of the economy changes rewards, which changes incentives, which cause us to study, to save, to work long hours or retire early, to benefit from increasing our knowledge or our brawn.
https://afinetheorem.wordpress.com/2023/10/09/who-got-what-and-why-a-nobel-for-claudia-goldin/
Remember, Claudia Goldin’s earlier work was “on different returns to different skills”. Why might there be different returns to different skills? Because the “structure of the economy changes rewards”. But what does that mean, exactly?
Her archaeology dug into urban work in the late 19th century (more daughters to help in the house allowed mothers to work elsewhere). She combined censuses from the early 19th century with a Lewis-type dual economy model to argue that the low relative productivity of women and children in the North (dairy and wheat) versus the south (cotton and tobacco, easier to monitor with piece rates) created a surplus labor that could fill the Lowell mills and, over time, drive up female wages. She found city-level records to look into black and white women’s labor force participation just after emancipation, arguing that norms related to slavery led to higher working rates among black women than could be explained by wages or incomes alone.
https://afinetheorem.wordpress.com/2023/10/09/who-got-what-and-why-a-nobel-for-claudia-goldin/
Let’s take just the first of these – more daughters to help in the house allowed mothers to work elsewhere. You see, it isn’t enough to say that, for example, women’s participation in the labor workforce went up at the turn of the twentieth century. Yes, but for which country, exactly? For all women within that country, or only some women? If only some women, what set of characteristics made these women unique? How can we use the results from that analysis to help us understand women’s participation in the labor workforce today? Or is that not possible?
Claudia Goldin found out, for example, that the higher the wages of the father, the lower the probability of a child (of any gender) entering the labor force in late 19th century Philadelphia. The higher the mother’s wage, the lower the probability of the daughter’s participation in the labor force. The higher the number of daughters in a family, the likelier it was that the mother would participate in the labor force. Read the section beginning pp 124 in this PDF to understand the factors that drove the decision to participate in the labor force at the household level.
And why does this matter? This matters because a simple statistical analysis of how the labor force participation rate changes over time is likely not enough. Economic, demographic and cultural factors can do influence decisions about LFPR. As Claudia Goldin says in the “Implications” section of the paper I’ve linked to above, economists should be interested in the determinants of working wives decision to supply labor. Stopping at simply observing that more labor is being provided isn’t enough, one must ask why.
Why must one ask why? Because if one can understand the determinants for women in America to provide labor 140 years ago, one can then check if the same set of determinants can be a trigger for, say, Indian women to enter the workforce today. And if there are significant cultural differences between the USA of the 1880’s and India today, understanding those cultural differences can help us understand the differential participation of women in these two geographies.
This is only the first part of this very fine essay, of course. But it already helps us better understand the importance, the relevance and the originality of Claudia Goldin’s work. It is not just a statistical investigation of data from the past, but it is also the application of economic theory to the same dataset.
“How did the labor force participation rate change?” is for amateurs.
“How did the labor force participation rate change and why?” is for the pros.
“How did the labor force participation rate change and why, and what can we learn and make applicable from such a study?” is for the legends.
And that is one of many reasons why Claudia Goldin’s work is worthy of a Nobel Prize!
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