How women’s labor has shaped the U.S. economy

The late 1970s and early 1980s was a challenging time for the American economy, with inflation hitting 13.5 percent while unemployment reached 11 percent. It was also a turbulent time, as many indicators of the economy’s overall performance, including annual change in GDP and total hours worked, were moving up and down with pretty big swings.

Starting around 1983, however, something rather remarkable happened: The economy’s fluctuations became milder. Notably, GDP growth didn’t vary as much year to year, and inflation was more stable. Economists call this “the Great Moderation,” a period lasting from roughly 1983 to 2007, when the economy’s cycles of booms and busts were more mild than they had been.

But starting around 1991, a troubling pattern emerged: Employment didn’t recover as quickly as other economic indicators after a recession. While GDP growth and firm investment bounced back, employment remained low for longer.

These are some pretty big puzzles in economics, ones with meaningful impacts on people’s lives. Are the factors that led to the Great Moderation something that could be replicated in the future? Is there a way to avoid future jobless recoveries?

Economists have offered a number of explanations for these changes to the business cycle, focusing mainly on the role of technological change and monetary policy. But former visiting scholar Stefania Albanesi was struck by the timing of the changes. The Great Moderation coincided with a period of rising labor force participation by women. Jobless recoveries coincided with the plateauing of women’s labor force participation (Figure 1).

The rise in women’s labor force participation from 37 percent in 1960 to 61 percent in 1997 is a remarkable economic development. And while economists have studied the causes for this increase, “there was really no work addressing how the changes in women’s behavior in the labor market had interacted with the aggregate economy,” Albanesi said.

This question is what Albanesi sets out to address in her new Institute working paper. She shows that the 30-year rise in women’s employment and how women’s labor responds over the business cycle are both important for explaining the economy’s behavior during booms and busts. This analysis can help economists better understand the factors that influence the magnitude of expansions and contractions and better predict where the economy is headed next.

How men’s and women’s labor respond in recessions

Conventional analysis has generally assumed that workers respond similarly over the business cycle: Hours go up in good times when companies expand production, and they go down in bad times when firms scale back.

In fact, the data show that how much men work and how much women work do not follow the same patterns over the business cycle, for at least two reasons.

First, research shows that households value the “insurance” that its members provide each other. When the primary earner’s employment prospects become more uncertain, the secondary earner becomes more likely to increase their hours and less likely to leave employment. So when the economy is entering a recession and unemployment is on the rise, secondary earners want to stay in the labor force. During the 1980s and ’90s, men were much more likely to be the primary earners and women the secondary earners, so while men’s hours fell in a recession, women’s hours increased.

Second, men’s employment fell more than women’s in recessions because men and women tended to be employed in different industries. In 1995, roughly the midpoint of the Great Moderation, men were 87 percent of the construction workforce and 68 percent of manufacturing; women were 77 percent of private education and health services and 61 percent of financial services. Construction and manufacturing see much bigger dips in employment during recessions than the service sectors see.

As more and more women entered the labor force, the factors that made them less likely to leave employment during recessions made business cycle dynamics milder. This explanation differs from previous ones, which tended to focus on new technologies. For instance, some economists pointed to supply-chain management, which allows firms to adjust their production more quickly when demand for their product rises or falls. Albanesi’s analysis, in contrast, finds that the role of technology in the business cycle did not change much over time. She writes, “This result suggests that ignoring gender differences yields an incorrect inference on the drivers of the Great Moderation.”

A long history of jobless recoveries—for men

Economic expansions and contractions all look a little different from each other, but generally there is a group of economic measures that move together in a way that is either good or bad for people and firms. The “jobless recoveries” that began with the 1991 recession were notable because while GDP bounced back, employment didn’t.

Since GDP captures the value of goods and services produced in the economy, most explanations for jobless recoveries have focused on factors that would lower firms’ demand for labor, such as automation and outsourcing. During recessions, the story goes, firms started adopting technologies that replaced workers and moved other jobs overseas. Firms’ output then bounced back, but they didn’t hire as many domestic employees as before because they had found workarounds.

If automation were the reason for jobless recoveries, Albanesi points out, then we’d expect to see that unemployment spells would look different for workers formerly employed in manufacturing than for workers formerly employed in other sectors: Former manufacturing workers would find new jobs more slowly and their unemployment spells would last longer. The data do not bear this out, however.

This is where looking at men’s and women’s labor trajectories separately comes in. “It’s not that the recoveries have become jobless since the 1991 recession. They always looked jobless for men, even in the 1970s and ’80s,” Albanesi said. In other words, business cycle dynamics for men have not changed.

But during the period when women were entering the labor force in large numbers, they barely experienced any job loss during recessions. “Then their employment went up like crazy during the recovery, making it look like aggregate employment was recovering very, very strongly.” Albanesi said. “But it was really just women driving the strong recovery.”

Starting with the 1990–91 recession, the pattern of men’s and women’s hours started to look more similar, however. This is what Figure 2 shows. In each panel, year zero is when unemployment is at its lowest—the height of the period of economic expansion. As economic conditions worsen, men’s hours fall. This pattern holds in each of the six cycles pictured.

The pattern of women’s hours looks different. In the first three cycles, the growth in women’s hours slows but it never goes negative. In other words, total hours worked by women continue to rise through the recession.

In the 1990–91 cycle, women’s hours grow but more slowly. In the 2001 and 2007–9 cycles, women’s hours decline—not as much as men’s, but the lines are now more or less parallel.

The rise of jobless recoveries for women

What happened in the early 1990s to make men’s and women’s labor patterns similar to each other? As Figure 2 shows, women’s labor force participation plateaued then. Women were no longer entering the labor force in large numbers, which had caused their hours to increase even in recessions during earlier business cycles.

Other patterns might also have played a role in making men’s and women’s labor supply look more similar after 1990. One, marriage rates have declined markedly, falling around 15-20 percentage points since the late 1960s. Even with cohabitation on the rise, the share of adults who are living together in committed relationships has fallen, which may mean fewer “secondary earners” become attached to the labor market in recessions.

Two, women themselves have changed. In 1970, only 11 percent of women in the labor force had a bachelor’s degree or higher. Women also had less on-the-job experience than men on average, simply because fewer of them had spent a career in the labor force. This changed as more and more women pursued higher education, joined the labor force, and stayed in the labor force. By 2021, the share of women in the labor force with a bachelor’s or higher was 48 percent. Women’s wages relative to men’s wages rose commensurately, from around 65 percent in 1970 to 85 percent in 2017. This increase in experience and wages made male and female employees much more similar to each other in the eyes of employers.

What if women’s labor force participation had continued to rise?

The role of women in the economy evolved immensely over the 20th century. Yet, the ways in which women’s employment has differed from men’s has not generally been considered in analyses of the macroeconomy.

Albanesi uses a counterfactual exercise to drive home the point: What if women’s labor force participation had continued its 1969–92 growth rate after 1992? In Albanesi’s calculation, aggregate hours would have declined only half as much in the 2001 and 2007–9 recessions. And, the growth in output during the subsequent recoveries would have been higher.

“This seems a little quaint right now because we have since had two massive recessions—we had the financial crisis and then the COVID crisis,” Albanesi said. “But for institutions that monitor business cycles for policy reasons, I think this is something that is very useful to know.”

With research assistance by Zoe Stein.