Panel 3 michael leeds

Gender Preferences and the Glass Ceiling Michael A. Leeds Department of Economics Temple University

The Glass Ceiling as Discrimination • It affects the upper end of the income distribution • At first, all workers are treated equally • Beyond some point women are not promoted

An Alternative Explanation • Could a glass ceiling exist even if there were no discrimination?

• What if … o The reward structure differs for high-end jobs o Men and women respond differently to this structure?

Small Differences Can Mean a Lot • Adam Scott won the 2013 Masters Golf Tournament o It took 2 extra holes to beat Angel Cabrera o Scott won $1.44 million o Cabrera won “only” $864,000

• Why should one stroke be worth over $500,000?

Rewards and Productivity: The Standard Story • Theory says firms pay workers their marginal value o Marginal Revenue Product (MRP) o How much output does the last worker add? o What is that extra output worth?

• Small changes in performance bring small changes in pay

But Rewards Are Not Continuous • Rewards are not always tied to the absolute level of performance • They are frequently based on “rank order” o 2nd place at the Masters is worth much less than winning o Losing by 1 stroke is the same as losing by 10

• This extends to the corporate world o VPs are paid much less than CEOs

Why Do Firms Do This?

• Paying workers their MRP provides good incentives o The harder you work, the more you are paid

• BUT: It is often hard to measure MRP o Monitoring workers can be costly o Monitoring is often inaccurate

• It is usually easy to tell whose MRP is bigger o Give the winner a big reward and the loser much less o The bigger the gap, the bigger the incentive to work hard

The Problem for Women • Rank order tournaments provide a “winner-take-all” setting • Psychological experiments show o Women perform less well in such settings o Women tend to avoid these settings

Some Examples • Gneezy, Niederle, and Rustichini (QJE, 2003) o Had Technion students solve mazes o Gave two reward systems • Piece rate: no gender differences • Winner-take-all: men improved and women did not

• Booth and Nolen (JEBO, 2012) o English HS students solve mazes o Gave them a choice of reward system • Girls chose piece rate; • Boys chose winner-take-all

Implications • More is at stake in promotions as one advances up the corporate ladder • Do men do better in winner-take-all contests?

• Do women avoid winner-take-all settings?

• If so, women are at a disadvantage even if they are judged fairly