Why are there so few female top executives in egalitarian welfare states?

• Author: Henrekson, Magnus
• Position: Report

During the twentieth century, dramatic changes occurred in the economic situation of women across developed economics in the West. Only two or three generations ago, most women were restricted to low-paying occupations with bleak career prospects. In recent years, the women's share in higher-paying professions previously dominated by men has risen substantially. Today, women's labor-force participation is comparable to men's; women have the same or higher levels of education and have largely bridged the pay gap for comparable work. In a parallel development, women's share in positions of power in the political sphere has increased dramatically.

In contrast to these developments, female representation in some key sectors of the labor market has hardly changed in the past century. One particularly conspicuous area is top management of large firms. Female chief executive officers (CEOs) constitute, for instance, only 2.4 percent of all CEOs of the Fortune 500 (F500) companies in the United States and only 1 percent of all listed companies in Sweden (Renstig 2006; Catalyst 2007b). Why have women made broad and consistent advances into top positions in politics and the public sector, but not in this sector? Given the symbolic (and real) importance of CEOs and their top management teams as occupants of a commanding height, many observers have interpreted the lack of female representation as a sign that women still suffer widespread discrimination in society (see, for example, Altonji and Blank 1999; Goldin and Rouse 2000; Black and Strahan 2001). Adding to this puzzle is another and, on the surface, surprising pattern: the fact (as we show) that female underrepresentation among managers is greater in Scandinavian countries, where gender equality has been promoted most heavily, than in Anglo-Saxon societies with their more laissez-faire attitude toward this issue (Hakim 2000, 2004; Mandel and Semyonov 2006).

What accounts for this difference? We examine whether differences in policies and institutions across countries can further our understanding of the patterns of differences, in particular the low share of women in top corporate positions. While considering institutional and policy differences, we also suggest a somewhat novel mechanism to explain the phenomenon--namely, psychologically induced path dependence in career trajectories. Incentive structures include both a monetary and a nonmonetary element and are influenced by norms and habits. We emphasize further that norms and habits are not set in stone and tend to be endogenous--that is, the consequences of policies and institutions (see, for example, Lindbeck, Nyberg, and Weibull 1999). We consider preferences and internal payoff structures as mutable and as affected by factors such as time allocation and the external payoff structure (Bowles 1998).

Our purpose here is thus twofold: (1) to identify pertinent institutions governing the structure of payoffs with regard to women's career choices and aspirations; and (2) to study the interaction and feedback of payoffs with the formation of norms and institutions--formal and informal--and to consider issues such as the path dependence of career progression. This inquiry involves an exploration of psychological mechanisms that may amplify these effects in a setting where preferences are treated as malleable and endogenous. We focus on data for Sweden and the United States, both because of the availability of data and because these two countries constitute the strongest contrasts in the exercise. They stand at opposite ends of the policy spectrum with regard to the degree of state involvement in the economy (Freeman, Topel, and Swedenborg 1997) and in the family (Mandel and Semyonov 2006).

Few studies examine the effects of path dependence on career progression. Shoba Arun, Thankom Arun, and Vani Borooah (2004) investigate how different kinds of career breaks affect women's subsequent working life. They find that long child-related breaks induce the largest income penalties, lead to a loss of status and seniority, and reduce the probability that the women in question return to the same type of job they had previously. William Sewell, Robert Hauser, and Wendy Wolf (1980) as well as Audrey Light and Manuelita Ureta (1995) argue that the first job's potential is an important determinant of subsequent career success. Furthermore, career planning can explain actual work behavior to some extent. Catherine Hakim (2004) finds that women who make the most realistic career plans and acquire the needed skills succeed best in the labor market and represent a rather inelastic labor supply, similar to that of men. James Albrecht and his colleagues (1999) as well as Eva Meyersson Milgrom and Trond Petersen (2006) find that temporary career withdrawals (partial or complete) result in women's accumulating less experience, which lowers the likelihood of future promotion.

We start by reviewing the empirical evidence of the current situation in Scandinavia and Anglo-Saxon countries. There exists no clear set of indicators of career progression, and we therefore present different measures where comparable data are available. In the second section, we analyze the possible outcomes of different institutions and make an exploratory empirical evaluation of the expected effects through a comparison of the situation and recent development in the two country groups, with special emphasis on the United States and Sweden. In the third section, we suggest a number of psychological mechanisms that, by inducing path dependence, are likely to be important for both the initial career choice and the subsequent evolution of career aspirations and performance, thereby reinforcing the behavioral effects the institutional setup induces. The main focus is on fertility. Both the extent of markets and the role of other institutions (or lack thereof) are important components of how agents interact and consequently of how outcomes are determined. We therefore relate the psychological mechanisms to the institutions in an attempt to explain the empirical evidence.

The Facts

The Anglo-Saxon countries (here, the United States, the United Kingdom, Canada, and Australia) and the Scandinavian countries (here, Sweden, Denmark, Norway, and Finland) constitute reasonably distinct institutional settings, notwithstanding the substantial differences between countries within each of the groups. Among advanced nations, the Anglo-Saxon countries tend to have the smallest degree of government involvement in the economy, whereas the Scandinavian countries have the largest. Both groups, however, have high levels of female participation in the labor market compared to the rest of the world.

In Table 1, we summarize comparable indicators of women's career progression, together with some basic economic measures for these two country groups. As the table shows, both groups have about the same female participation in the labor market, with the Scandinavian countries showing a somewhat higher rate than the Anglo-Saxon countries. The groups also have high and similar incomes per capita, with important exceptions of especially high incomes in the United States and oil-rich Norway. A marked contrast is that Scandinavian countries have more than twice the share of female members in legislative bodies, whereas Anglo-Saxon countries have a higher share of females in managerial positions.

To an outside observer, it might seem paradoxical that women in Sweden (and to a slightly lesser extent in other Nordic countries) are so successful in obtaining top political positions, both in an absolute sense and relative to the United States. Does this relative success occur because Swedish political careers are less time-consuming and less competitive? If not, the arguments put forward regarding institutional and psychological barriers to female Swedish business executives would be weakened. However, as documented by Lenita Freidenvall (2008) and Diane Sainsbury (2004), the explosive development of female representation in political positions in Sweden can be attributed largely to the gendering of democracy, which resulted in the introduction of voluntary quotas in virtually all parties. Once entrenched, this principle became a binding norm, resulting in approximately a 50 percent female share of parliamentarians and a 40-50 percent share of female cabinet ministers since 1994.1 This principle then spread to management positions in the public sector, and by 2006, 58 percent of all public-sector managers were women, compared to a mere 23 percent of managers in the private sector (Statistics Sweden 2008, 106).

The relatively high share of female participation, as depicted in table 1, has evolved only during the past century. In the twentieth century, women achieved far-reaching changes in overall autonomy, including opportunities in the labor market. Claudia Goldin (2004) describes how in the United States in the twentieth century, there were five different successive cohorts of college graduate women, each having different opportunities and responding to different institutional settings. Her analysis shows how women's preferences with regard to occupation, family formation, and economic independence changed. Every consecutive cohort succeeded better than the previous one. Large changes also occurred in western Europe, including Sweden.

Until the 1970s, women were essentially unrepresented in executive positions in the Swedish business community, whereas women's corresponding representation in the United States was already expanding. Table 2 presents the share of women in intermediate and higher executive positions in the private sector for a few industrialized countries (governed by data availability). The table also includes public-sector executives in the figures, which tends to inflate the Swedish share. Even then, Sweden falls behind not only Anglo-Saxon countries, such as the...