At the traditional IZA reception during the Annual Meeting of the Allied Social Science Associations (ASSA), held in Philadelphia in January 2014, IZA Director Klaus F. Zimmermann and Research Director Corrado Giulietti presented the 2013 IZA Young Labor Economist Award to Martha Bailey (University of Michigan), Brad Hershbein (Upjohn Institute) and Amalia Miller (University of Virginia) for their article “The Opt-In Revolution? Contraception, Fertility Timing and the Gender Gap in Wages” (American Economic Journal: Applied Economics, 2012, 4 (3), 225-254).
The award-winning paper is a prime example of how careful empirical research can enhance our understanding of the functioning of labor markets. The paper starts out from a classic and long-standing puzzle in labor economics – the gender wage gap and the question what determines whether the gap widens or declines. The paper then comes up with a creative and original hypothesis about a potential driver of the wage gap. Finally, the authors combine a large amount of data from various sources to convincingly show that their hypothesized mechanism is actually empirically relevant.
The puzzle to be explained is why the gender wage gap, after being relatively stable for about 30 years, declined rapidly and substantially in the 1980s. The authors hypothesize that the introduction of “the Pill” played an important role in this reduction. Oral contraception could be relevant for women’s life-time earnings, for instance, because it changed women’s incentives to invest in education, it allows them to accumulate more labor market experience, and it could change the type of jobs that women select into.
To test the influence of the Pill on the gender wage gap, the authors follow a sample of U.S. women who were born in 1943-1954 and who were interviewed by the National Longitudinal Survey of Young Women at several points in time from 1968 onwards. Some of these women lived in U.S. states where legal access to the Pill under age 21 was introduced earlier than in other states. The authors use these differences in early legal access to test whether and why the Pill really had a causal impact on the women’s labor market experience.
The paper demonstrates that early legal access had indeed a dramatic impact on several important outcomes in the life of these women. In particular, the authors show that women who had early legal access to the Pill were more likely to be enrolled in school in their early 20s and had reached higher levels of education at age 25. Consistent with greater school enrollment, these women had lower labor force participation rates and work hours in their early 20s, but they worked more afterward, so that by their early 40’s they had cumulated higher levels of work experience. Women with early legal access also received more formal job training and were more likely to work in professional occupations and in jobs that were traditionally “non-female occupations”. The greater human capital investments and the higher labor market participation led to steeper wage profiles and higher overall wages. By age 50, the women with early legal access to the Pill earned as much as 8 percent higher hourly wages.
In sum, the paper provides important new insights on the reasons behind the observed trends in the gender wage gap. It also enhances our understanding of the links between fertility, education, and life-cycle wages, more generally.