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Monday, October 20, 2014

What's holding back female employment?

Almost four years ago, I asked whether the U.S. was in for a labor market slump similar to the slump experience in Canada during the 1990's. Evidently, the answer turned out to be yes.

How is the U.S. faring relative to Canada back then? American prime-age males seem to be tracking their Canadian counterparts, both in terms of employment-to-population ratios and in labor force participation rates. American females, on the other hand, appear to be lagging behind their Canadian counterparts. Let me show you some data.

Let's begin by looking at the employment ratio for prime-age males:

As you can see, the sharp drop and subsequent recovery dynamic for prime-age males is remarkably similar across these two countries and time periods. (The initial E-P ratio was about 87% for both countries; see here).

Here is what their labor force participation rates look like:

Again, the recovery dynamic looks almost identical (The initial part rate for Canada was 93%, for the US about 91%; see here).

Alright, now let's take a look at the same statistics for prime-age females. First, the employment ratios:

These dynamics look quite a bit different. The main effect of the recession in Canada was to slow down the growth rate in the employment ratio. In the U.S., the effect has been to reduce the employment ratio, with only a very weak sign of recovering in the past year.

Here is what the labor force participation rate dynamics look like:

Again, two very different recovery dynamics.

A colleague of mine suggested that state-level layoffs in education and government may explain a good part of the lackluster recovery dynamic for U.S. females. This is certainly worth looking into. However, if we take a look at the following diagram, we see that the discrepancy appears to have happened much earlier -- around 1997, in fact.

It seems unlikely to me that the divergence between Canadian and American prime-age females is driven by cyclical considerations (although, a small part of the recent gap may be). Work incentives are likely to have changed, although what these changes were, I do not yet know. In any case, I doubt that monetary policy is a tool that can be used to close this gap. I can think of plenty fiscal interventions that might help, however.

Addendum Oct. 22, 2014

My colleague, Maria Canon, points me to the following paper by Sharon Cohany and Emy Sok Trends in labor force participation of married mothers of infants, as well as this interesting set of slides by Jennifer Hunt: Female labor force participation: slack and reform.

And here's a real doozy "Universal Child Care, Maternal Labor Supply, and Family Well-Being" by Michael Baker, Jonathan Gruber, and Kevin Milligan (JPE 2008). From the abstract:
We analyze the introduction of highly subsidized, universally accessible child care in Quebec, addressing the impact on child care utilization, maternal labor supply, and family well-being. We find strong evidence of a shift into new child care use, although some crowding out of existing arrangements is evident. Maternal labor supply increases significantly. Finally, the evidence suggests that children are worse off by measures ranging from aggression to motor and social skills to illness. We also uncover evidence that the new child care program led to more hostile, less consistent parenting, worse parental health, and lower-quality parental relationships.


  1. Did you try to take out the trend in women's LFP? Or look at women below 40 years of age? From your last chart, it seems like Canadian female LFP was still converging to its post-baby-boomer steady state in the early 90s, whereas the US in the 00s and 10s had clearly reached the steady state.

    1. But why is the "steady state" part rate for Canadian women so much higher?

  2. Note - Maternity leave in Canada is substantially different than in the US with Canadian women being entitled to return to their jobs after a year away (increased from 6 months around 2001). In the US the maternity leave provision is about 6 weeks. As a result, many women might be losing their jobs and then having a hard time re-entering the labour market as a competitive applicant. It would be interesting to see what this dynamic looks like for women with pre-school aged children - I would imagine the Canadian women are much more likely to return to work (and stay at work) after having children than their American counterparts. Any way to break out the data between mothers and non-mothers?

  3. Speculation:

    Presumably most non-LFP women are part of a two-adult household. If this is the case, their decision to exit (or not enter) the workforce is a function of their lifetime marginal income vs. the marginal cost to the household of both adults working. This lifetime marginal income is mostly a function of real wage expectations.

    So perhaps the 2001 and 2008 recessions had the effect of a "news shock". Prior to that time, real wages had been stagnant but lifetime wage expectations were "sticky" due to anchoring effects. The recessions may have eliminated those "anchors" and caused women to recognize the likely shallower slope of lifetime real wages.

    The above would imply that the recessions were a "supply shock" phenomenon. As lifetime real wage expectations fell, the labor supply curve for women shifted to the left.

    Of course, this doesn't necessarily explain the U.S./Canada divergence, unless of course Canadian women remain more optimistic!

    1. Diego, it's possible. But I think the slides from Jennifer Hunt lay out a more plausible hypothesis. In many countries, excluding the U.S., there are more generous programs to keep the costs of having children low (e.g., subsidized day care).

  4. I don't disagree with Hunt's conclusion that the U.S. is less friendly to dual-income middle class households. The question is, what changed in '97 (and in subsequent recessions)? Did the U.S. government and/or corporations pull back materially on previously-generous childcare-related subsidies? I suspect the answer is no, and therefore we have to look elsewhere for explanations (i.e. not the cost of two adults working, but the expected marginal income generated by the second adult).

    1. No, the US did not pull back -- the other countries made theirs more generous. This may explain a large part of the gap. I suppose the recent decline in the US part rate may be due to cyclical factors (like layoffs from state financed government services, teachers, nurses, etc.).

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