Why are heavily regulated European labor markets associated with a smaller share of women in top management positions compared with liberal market economies such as in the US?

The Dilemma of Gender Equality: How Labor Market Regulation Divides Women by Class. Torben Iversen, Frances McCall Rosenbluth, Øyvind Skorge. Daedalus (2020) 149 (1): 86–99. https://doi.org/10.1162/daed_a_01775

Abstract: Women shoulder a heavier burden of family work than men in modern society, preventing them from matching male success in the external labor market. Limiting working hours is a plausible way to level the playing field by creating the possibility of less gendered roles for both sexes. But why then are heavily regulated European labor markets associated with a smaller share of women in top management positions compared with liberal market economies such as in the United States? We explain this puzzle with reference to the difficulty of ambitious women to signal their commitment to high-powered careers in regulated markets.

Despite a large influx of women into mainly service sector jobs over the past four decades, women continue to be underrepresented in the labor market, and they earn less on average than men. These gender differences are almost certainly linked to greater de facto responsibilities of women in child-rearing and household work, but there are major and intriguing differences across rich democracies.

In low- and mid-level jobs, the differences are fairly well understood. In Europe, union bargaining and wage compression put a higher floor under the lowest paid jobs where women disproportionately find themselves in every country. The gender gap in wages is smaller in Europe as a result, although another reason could be that low-productivity jobs may be scarcer. Regulated working hours, compatible with work-family balance, complements family-friendly policies such as public subsidization of childcare. Yet if this broadly accepted story is accurate, we should also expect the number of female managers of large firms and university-educated professionals to be rising as we travel from the United States and the United Kingdom to continental Europe and further north to Scandinavia. In fact, the reverse is true. Although the number is small everywhere, the share of women in high-powered private sector careers in the United States significantly exceeds that in Germany or Denmark. The explanation cannot be the long hours and inflexible schedules of professional work, since this is equally true in the United States. Also of no help are theories of occupational performance that predict greater female success in jobs requiring relationship management and multitasking, since these criteria characterize managerial jobs across the United States and Europe.

Our explanation instead focuses on unintended consequences: regulations that curtail working hours at nonmanagerial levels discourage employers from promoting women to higher levels, given that they have incomplete information about candidates. To employers who can measure productivity only imperfectly, long working hours are a signal – though a noisy one – of expected productivity and therefore of suitability for many kinds of higher-level managerial jobs. Labor market regulations tend to equalize both wages and employment opportunities for men and women when productivity is linked to hours worked, but it has the perverse effect of intensifying statistical discrimination against women in highend jobs, even when these jobs are themselves unregulated. This logic explains the opposite effects of working-hours regulation at the low and high ends of the occupational hierarchy. Sadly, all good things do not go together, and labor market regulations produce good and bad results at the same time.

We begin by distinguishing jobs along three dimensions: 1) whether hours worked are positively associated with (hourly) productivity; 2) whether there are ample opportunities for promotions based on competition rather than seniority; and 3) whether working hours are regulated (restricted) below the management level.

As a general matter, low- and mid-level jobs may or may not be regulated in terms of working hours and wages, whereas top-end jobs are typically unregulated. While both women and men may have equal levels of ambition, family responsibilities are borne disproportionately by women in a way that reduces, on average, their availability to work around the clock (see Figure 1).