Helping Women to Leading Positions: Wage Discrimination vs Quota

Leiden, prid. Kal. Sep. MMDCCLXX A.U.C.,

A major issue in modern feminism is the big difference between the number of men and women in leading positions. Some have argued for quota which force companies and the public sector to offer leading positions to women. However, if ‘we’ want women to work more and achieve more in their working careers, I doubt that quota are the right way to achieve this. The issue with quota is that they assign the same demands to all companies, regardless of the situation those companies face. Moreover, these quota only benefit a few women, leaving out all the women in non-top positions. So quota can get a few women to the top, but the road to the top is still entirely unclear. Meanwhile, if we increased taxes for male workers, and decreased taxes for female workers, companies have an incentive to hire more women, but they still can decide for themselves whether the higher cost of male employment is worth it, given the women they can hire. This way we allow markets to function, while ‘correcting’ their flaws (in case you believe they are flawed right now, this post is not about whether creating incentives for companies to hire more women is a good idea as such). Moreover, it will also incentivize women to work more in general and companies to hire more women in general, so more women will have the right experience to get to the top positions to begin with.

The basic idea behind this post is that quota could be an inherently inefficient way to get women to work. To be clear, a quota here means that the government demands of companies, public sector organizations and/or NGOs that they have a certain number of women working in certain positions. Firstly, assigning quota to companies and public sector organizations can be done in two ways. Either the government assigns the same quota to all companies. The inefficiency in this lies in the fact that not all organizations can find the right number of qualified women, while others may more easily find the right women to fill those positions. This means the cost to hiring women is not the same for all companies, seeing they need different things from their employees. I can imagine it is much harder to hire women in well paid tech jobs than in sociology professor jobs. Demanding all tech companies to hire the same number of women in their boards as social science faculties either puts the bar too high for tech companies, or too low for social science faculties. This of course does not mean that education programs meant to get more girls into science is a bad thing, but for now there simply are not that many women with tech degrees in their 40s or 50s ready to take leading positions.

The other option for the government is to micromanage, assign quota to each company based on the sector it is in. However, even then inefficiency remains, plus the government starts doing the research that companies already do anywayas the government needs to do the human resource management research to find out the right quota for each company.

Another problem with quota is that the way they are usually implemented does not work that well. In Norway, which has a quota of 40% women for companies’ boards, the quota have completely failed, as Norway’s social policies do nothing to get women into the position where they could be hired for a leading position. Generally speaking, women still work less when they get children, and they often do not choose the education that could get them into leading positions. So too few women get into the positions right below the leading positions, preparing them for the top job, and making the attractive candidates for companies. Because of this, quota are also not particularly efficient at closing the wage gap between men and women.

To overcome these problems, it could help to reduce the taxes that women need to pay compared to men. This offers women an incentive to work more; it provides men an incentive to work less and take more care of the children; it provides women with some of the money needed to have others take care of the children if both parents prefer to work; and it incentives companies to hire women with less working experience in their 40s (after having taken care of their children, if they did want to do so after all) instead of more experienced men. Moreover, taxing women less still allows companies the option to hire men if they truly think that hiring a person who happens to be a man will yield more profit even after taking the subsidy into account. I presume that in tech companies the lower tax on female employees will have less of an impact than in other sectors, simply because for now fewer women have the education and experience to work in that sector than men.

This also means we could reduce subsidies on child care. These subsidies are often in effect a subsidy on female employment, as it is usually women who take care of the children and stop working if these child care subsidies are not put in place. However, it is not at all obvious that all women prefer child care subsidies over extra salary. Maybe they have relatives or friends who want to take care of the children. In other words, a direct increase in salary for all women could be more efficient to get women to work than child care subsidies. If so, reducing subsidies on child care could be beneficial.

Fortunately, women respond to income incentives more strongly then men. That is, when the income of a woman is increased, her increase in working hours is larger than for men (the latter work a lot anyway), while an increase in the (potential) income increases the likelihood that a woman decides to work more than the likelihood that a man decides to work (the latter tend to work anyway) (page 64 of De Prijs van Gelijkheid). This means that an increase in the tax on income earned by men will result in a relatively small decrease in the hours worked by men, while an increase in the hours worked by women leads to a relatively large increase in the hours worked by women. (On a short side note, essentially the optimal tax rate for men is higher than for women, so from a tax maximizing perspective this measure is also sensible).

Of course this is highly discriminatory against men. Some may say that men are already positively discriminated by society, so that wage discrimination would just correct for this. Who knows, it is not the topic of this blog post. However, I think it is worthwhile to look into the impact of positive wage discrimination for women, because if ‘we’ want women to work more, we should try to achieve this in the most efficient way. If the reasoning above is sound, wage discrimination should break the glass ceiling, and also close the wage gap between men and women, which is an improvement on quota.

Bottom Line: Generally speaking, quota are inefficient. Using positive wage discrimination would probably be a more efficient way to get women to work.

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