Nobel Prize winner Claudia Goldin knows how to close accounting’s gender pay gap

This article was published in the July/August edition of Public Accountant magazine. It is reproduced here with minor changes.

When Harvard professor Claudia Goldin was growing up in New York’s Bronx district in the 1950s, she read most of the Sherlock Holmes stories. She happily acknowledges that the famous fictional detective’s fascination with mysteries has rubbed off on her.

“I think of myself as Sherlock Holmes,” she admits.

That fascination with mysteries has just won her the Nobel prize in economics. The first solo woman to receive this honour, Goldin had been a popular tip in recent years, suggested by high-profile economists such as John Cochrane and Tyler Cowen.

The reason her name kept coming up in Nobel discussions is that Goldin seemed to have cracked one big puzzle – providing what many see as the most convincing solution to the case of the gender pay gap. This gender pay gap mystery is centred on a couple of simple questions: why do women earn less than men, and why is that gap largest in professional fields including finance, law and accounting?

Goldin’s friend and fellow economist, Professor Deirdre McCloskey, says Goldin has brought a fresh perspective to a question which many academics had previously thought of as explained only by sheer exploitation.

Goldin has given us pieces of her answer to this puzzle over the years, and has published a book on the topic, Career and Family: Women’s Century-Long Journey Toward Equity. In it, she lays out her solution end-to-end, the way the fictional Sherlock Holmes does at the end of his mysteries.

The insufficient explanations

In the United States, where Goldin has concentrated her studies, the most commonly used estimates of the gender pay gap are around 16%. In the UK, the gender pay gap has narrowed over recent years but not closed – in accounting it’s down to 6.6%.

That 6.6% is lower than the cross-industry gap of 8.3%, and behind that latter figure there is variation across regions, sectors and seniority levels. Goldin warns the percentages are misleading.

“This isn’t a simple thing,” she says. “This isn’t like going to the store and getting the price of honey crisp apples, okay? It’s really quite involved.”

People often try to make it very simple, creating a single number to describe what’s going on, she notes.

“But that single number disguises a tremendous amount.”

One of Goldin’s discoveries is that over a woman’s lifetime, that bare gender pay gap can change dramatically, depending on factors such as whether she is married, how long she has been working, whether she has taken time off to raise children, and how her industry organises its labour force.

In both the US and UK, we are offered plenty of possible explanations for the gap:

• Some analysts say men unfairly discriminate, meaning we need to purge the labour market of bias or find new ways to hire people without revealing their gender.
• Or maybe women don’t push hard enough. If that’s right, we may need to coach women in negotiation skills, or train managers to read their job applications differently to those of men.
• Some claim women in advanced societies get a raw deal simply because a substantial number of men are still devoted to keeping them down.
• Also common is the idea that graduates, in particular, sort themselves into professions by sex and are paid accordingly – a form of ‘occupational segregation’. Women become teachers, nurses, and accountants; men become managers, civil engineers, and sales representatives.

It’s not that Goldin doesn’t think those things happen at various places and times. Some governments do indeed seem devoted to keeping women subordinate – Saudi Arabia, the most famous example even after recent liberalisations, still requires a male relative’s assent when a woman wants to start a certain kind of business.

Goldin’s own early research documented US bans on hiring or retaining married women in jobs including teaching during the late 1800s and World War II. Unconscious discrimination still happens; Goldin co-wrote a landmark 1994 paper, Orchestrating Impartiality, showing that orchestras hired many more women as musicians when they ran ‘blind’ auditions. Men do often push themselves forward more vigorously than women, call in favours from men up the hierarchy, and more.

But none of these explanations seems to Goldin to be sufficient. She notes, for instance, that explaining the gender pay gap as a result of ‘occupational segregation’ doesn’t solve the mystery at all, because the gap exists within almost all occupations.

People talk about “how we need to devise methods to eliminate bias”, she says. “I couldn’t agree more. But that isn’t going to solve the big issue.”

Goldin wants to know what it would take to make the gender pay gap go away entirely. And she reckons she has found the answer.

Greedy work and couple inequality

Within one of Goldin’s starting points in solving the gender pay gap lies another puzzle: why do female professionals do relatively well in their first few years after graduating, only to see their pay slip behind men after that? In one analysis of US data, Goldin shows that shortly after graduating, female MBAs earned about 95% of the money that the male colleagues earned. But within four years, it dropped to less than 85% on average, and it kept dropping after that.

The answer to this puzzle, Goldin says, is that pay falls sharply for one specific large group: mothers. In many professional occupations, everything changes as women have children. By 12–15 years after graduation, US mothers’ pay in some professions has dropped to less than 60% of their male counterparts.

What’s going on here? Do male bosses just hate mums? Goldin’s historical data shows a great deal of progress for women. But that same data has also confirmed to her that in advanced economies, professional work is greedy – greedy for your time.

Goldin’s research over many years confirms what most professionals know or suspect: your employer will reward you disproportionately for putting in extra hours. You work 50% longer, building your relationships with clients and suppliers. You pull the occasional 18-hour day. You take calls after hours and at weekends. And you do not take five years out of the workforce to raise young children.

In a disproportionate number of cases, men in 2022 end up as the ones doing the extra work, taking little time off after the birth of children and logging the long hours. Disproportionately, women end up leaving at 5pm. Another way of putting this is that women with children end up seeking flexibility in their work – and putting flexibility above the firm’s needs tends to kill opportunities for advancement in fields where work is greedy.

As Goldin puts it, “Women often step back, and the men in their lives step forward”.

This is how working couples develop what Goldin calls ‘couple inequality’. One partner in the couple does more of the couple’s job-related, income-earning, professional work. The other partner does more of the family-related, non-income-earning, nurturing work, forgoing some paid work. The way jobs most often work in advanced societies is that one partner essentially leaves the career advancement track for a while – and that partner is usually a woman. This, Goldin argues, explains most of that peculiar gap between male and female pay in many highly-paid roles, including accounting.

When children enter a family, women’s average pay and their promotion prospects decline compared to men’s. Today’s gender pay gap mostly reflects the dynamics of today’s work for today’s couples.

Goldin says of these findings: “It’s a dirty little secret that everybody knows, but no one wants to admit. And the reason that I know everyone knows it ... is because no one has criticised it ... even those who speak about debiasing our managers, and who use my work on orchestras as the premier example of a bias.”

There’s only so many hours in a family’s day. So in couples raising families, only one parent can generally do this sort of work. In many professional roles, this makes a huge difference to rewards.

When a US lawyer’s hours increase from 30 to 60 per week, Goldin estimates, the average hourly rate increases by almost a quarter – regardless of gender. She doesn’t believe that’s patriarchy at work, either.

“Firms want workers who will put in the long hours because having workers who are readily available to the client is good for business,” she writes.

Making flexibility cheap

How are we to fix this problem of couple inequality? Goldin says the answer is what she calls ‘cheap flexibility’, where women get to take care of family without paying a heavy professional cost. The real problem is that right now, flexibility costs women too much – both in pay and in career prospects.

Flexibility usually still imposes a disproportionate cost on women. They tend to devote themselves to their children when they take time off, while men who do the same tend to end up pursuing career-advancing activities.

One key to cheaper flexibility, Goldin argues, is to have partners in a relationship agree to share the family burden. That will require more men to give up the 60-hour-a-week roles, lean out, and share the burden with their spouses.

Goldin does see more and more men ready and willing to take on more of the burden. Her students and ex-students want something else than the patterns of their parents and grandparents.

“And they’re out there and demanding something else,” Goldin says.

Workplaces are also making flexibility easier to get, she notes. Many organisations have begun letting both women and men take more time off when children are born. Remote work and video conferencing also increase opportunities.

When she talks to ex-students who have taken up consulting, she recounts: “I’ll say, ‘Where have you been going?’ And they’ll say, ‘Well, we’re not travelling as much. We don’t travel.’ Well, not travelling means that the woman with the kids who couldn’t take the job that requires going to Tokyo every other week ... it’s not a problem, because she doesn’t have to.”

Workplaces can still do more, she says. In particular, they can find ways to structure work so that people can share work tasks rather than working those 60-hour weeks. Making that happen more often, she says, will require more men to lean out

Accounting’s gender opportunity

Goldin began her gender research knowing almost nothing about the structure of the accounting industry.

“I had thought, naively, that the big accounting firms were sort of it,” she says.

She was surprised to discover that much of the US accounting profession was made up of firms with fewer than 10 people in them. Now Goldin regards smaller accounting firms as having an opportunity to attract more talent by offering their staff more flexibility than the big firms.

Smaller firms “benefit from the fact that the larger firms put more demands on their workers”, she says.

And that can make smaller firms more attractive employers.

But small or large, there are organisational changes that can narrow the gap. Goldin presents pharmacy as a case study.

Like lawyers and accountants, qualified pharmacists work in a well-paid field. And Goldin found that the median US female pharmacist earns around 94% of a male counterpart’s wage – compared to that average gender pay gap in the US of 16%.

US lawyers are in a very different situation. After 15 years in the labour market, a typical US female lawyer will earn just 81% of the typical male. These numbers might suggest that for whatever reason, something sinister is going on in law firms: they’re discriminating against their female lawyers, while pharmacies work hard to maintain something close to pay equity between men and women.

As Goldin has pointed out, though, this is not the case – something else is going on. It’s this: when women take time away from law firms to have and take care of children, they fall behind. When they return, they have lower status than men who continued working full-time. Pharmacies are organised differently. Typically owned by large corporate groups, they pay no real premium to people who work extra long hours, and they impose no pay penalty at all on pharmacists who take a few years off.

Large pharmacy chains see pharmacists as almost interchangeable; if you’ve done the training and earned the degree, you can dispense medicines. Goldin and her husband, economist Lawrence Katz, wrote in a 2012 paper that “the position of pharmacist is probably the most egalitarian of all US professions today”.

To a large extent, her research suggests, the size of your profession’s gender gap depends not on discrimination but on how your profession chooses to run its businesses.

Undermining prejudice

Career and Family is, ultimately, an optimistic book from an optimistic thinker. It argues that in the modern world, the opportunities for professional women have risen dramatically over the decades. That’s partly because prejudice is costly; market forces undermine it. Goldin credits this optimistic take to her training in history. “I do extremely well predicting the past,” she jokes. “And if I go and look at the past, I see phenomenal progress.”