Women in Business
This year INSEAD celebrates 50 years since we had our first MBA participant. INSEAD is celebrating women in business, showcasing its research on topics related to gender, and organizing multiple events that bring together faculty, alumni and students. And rightfully so. But then I look at the data and weep. I recall my Robert Frost “But we have promises to keep, and miles to go before we sleep.”
Data
How does INSEAD rank compared to peer schools? Luckily, the FT provides this data underlying its annual ranking, which I downloaded and analyzed. Here is how INSEAD looks: for percentage of female faculty we rank 93/100;
Maybe this is not an apples-to-apples comparison since there is vast heterogeneity across the 100 schools. If I restrict the sample just to the top 20 schools, the closest peers, then we rank 19/20 for percentage of female faculty (only Booth School at Chicago does worse) and 18/20 for percentage of female students (only HKUST and IESE rank below INSEAD). For the # 1 business school, these are not good numbers. More must be done. In fact, our recent EMBA ranking took a hit because of our low ranking on gender representation among EMBA students and faculty.
But it not about rankings. INSEAD prides itself on diversity, and national diversity is only one element. Classroom discussions benefit from a diversity of perspective. We don’t do so well along dimensions of gender and even economic or class status. In many programs at INSEAD, participants can cruise through without encountering a single female faculty member. MBAs can go through 6 months of core courses without encountering a single woman faculty. These reflect not explicit choices within the organization but heuristics, incentives, attitudes towards risk, and various implicit choices that result in fewer female faculty in the classroom. But they are insidious nonetheless.
Stepping Bravely into the New/Old World
Improvements on this dimension is only one aspect of the challenge. An immediate follow-up question is what does life look like for a fresh female MBA graduate?
In 1970, only 4% of MBA graduates in the US were women. By 2016, this number had increased by nearly a factor of 10 to 34%. This remarkable narrowing of the gender gap among MBAs is at first blush great news. But these are just the gender differences at graduation. What matters is the entire career trajectory and here the gender gap re-emerges. We see this happening along two dimensions – a declining participation in the labor force by women over time, and more importantly, a rising gender gap in earnings.
All numbers from now on are based on surveys of Chicago MBAs who graduated between 1990 and 2006, in a paper published by Bertrand, Goldin and Katz. They find that at the start of MBA careers, earnings by gender are almost identical. This is the good news. But five years out of the business school, women’s annual earnings are 70% of that of men (30% lower). 10 years out the gender gap in earnings grows further – women earn only 55% what men do. Essentially, the gender gap reemerges with a vengeance and fairly quickly. This is accompanied by a rising gender differences in labor participation rates over time – a decade after graduation, 13% of women stop working compared to only 1% of the men. Equally prevalent is part-time work amongst women MBAs – 10 years after graduation another 18% are working part-time, most of which is self-employment.
Labor economists have identified three reasons for this large and rising gender wage gap over time after completion of the MBA: differences in choices and outcomes while in the business school (e.g., number of finance courses taken or GPA at graduation); career interruptions; and differences in work experience and weekly hours. These three reasons account for almost all of the gender gap in earnings (84% to be precise for the Chicago graduates). The first is relatively less important because the gender gap in grades and courses is not very large. Instead, the large gender gap in earnings is mainly a consequence of gender differences in career interruptions and weekly hours worked. Women, over time, have more career interruptions and work shorter hours. Unfortunately, in the corporate and financial sectors, the relationship between income and experience is highly non-linear with heavy penalties for a single career interruption. The relationship between work hours and income is also highly non-linear (convex) in these sectors. Building continuous experience in these positions, and agreeing to continuous long and inflexible hours on the job matters a lot more than “leaning-in” and bargaining fiercely for wage raises.
Not surprisingly, almost all of the career interruption and differences in weekly hours worked is due to the decision to have children. MBA mums’ labor participation rates are 20% lower compared to both men and women without children. And those who continue to work, put in 24% fewer weekly hours. The impact of a kid on labor supply grows over time – a year after birth, hours by women fall by 17% while three to five years later, hours decline by 24%. Essentially, it gets harder to stay in the fast lane and women adjust their labor supply decisions, by choosing family-friendly jobs, and avoiding jobs with insane hours. The latter are the ones with greater career advancement possibilities, in a narrow monetary sense. The deviation from the norm of insane number of weekly hours (74 hours per week for investment banking and 61 hours for consulting), inflexible demands on time (travel commitments and inflexible schedules) and continuous employment (no breaks,) are greatly penalized in the corporate and financial sectors.
Going beyond business school graduates, a similar pattern persists. Pharmacists, for example, have a really small wage gap, but lawyers, for whom contact hours matter, exhibit large gender wage gaps. A similar pattern across occupations shows up in the UK. The biggest gender pay gaps are again in the finance profession. Goldin’s research also found that workers in industries with large wage gaps are more likely to say their jobs value those who "develop constructive and cooperative working relationships" and that their company generally determines their "tasks, priorities, and goals." So leadership pressure that emphasizes close working relationships, co-location for innovation, and Marissa Mayer like bans on remote work, may worsen gender inequality.
With the wage gap twice as big for women with kids than those without, the fundamental reasons behind the wage gap seem structural rather than negotiating skills or an aversion to leaning in. The root cause is inflexible workplaces with rigid hours. Some professions have transitioned towards flexibility – pharmacists are no longer family owned but are part of large chains. Pharmacists are now interchangeable so women have more flexibility in choosing when to work. We see this in medicine as well - doctors are shifting from one-person practice to larger multi-doctor health care facilities.
Some argue that the rise of the gig economy with flexible hours, and setting your own rates and times are appealing prospects and may narrow the gender wage gap.This may be overly optimistic. High-paying, high-contact professions such as CEOs, lawyers, M&A specialists, etc. are not going away. And the polarization of the job market, with some high-paying occupations and a mass of low-paying occupations, as a result of digital technologies, globalization and the rise of machines, may be accompanied by a rising, instead of a declining, gender wage gap.
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