Janet Yellen and the Glass Ceiling

January 16, 2014

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On Monday, Jan. 6, 2014, Janet Yellen was appointed to become the next chairperson of the Federal Reserve Board of Governors after current chairman Ben Bernanke’s term ends on Jan. 31. Although she faces many significant challenges regarding economic policy, one of the most interesting and important aspects of her leadership will be its implications for the glass ceiling phenomenon that is prevalent throughout American business culture, as she will be the first female chairperson of the institution in its 100-year history. In particular, I believe that her role as the Fed chairwoman will serve to both inspire women to strive for higher leadership positions in their careers despite the “winner-take-all” reward system of the corporate world and be a symbol of their competence in taking on these greater challenges.

At the GIC women’s conference, I was particularly interested in Professor Leeds’ presentation on an economic explanation for the glass ceiling because I was familiar with the concept of marginal revenue product (MRP) from my own studies as an economics major. Standard economic theory posits that firms pay workers their MRP, which is how much the marginal, or extra, worker adds to revenue. When I learned about this idea in my intermediate macroeconomics class as a college sophomore, I was left with a question that remained largely unanswered until I heard Dr. Leeds’ presentation: Do firms really know how to measure each worker’s marginal contribution to revenue? Finally, during Dr. Leeds’ talk at the conference, I received an answer: not always. In particular, this standard theory does not hold for high-end jobs for which it is difficult to measure productivity. Such jobs are characterized by a “winner-take-all” reward system, unlike the piecemeal system of getting paid one’s MRP. In a “winner-take-all” reward structure, there is a great disparity between the size of the “winner’s” reward and the “loser’s” reward, even if the “loser” did not perform much worse than the “winner.” An example of such a situation is a CEO of a company getting paid much more than everyone else in the same firm, even other important executives. It turns out that such a reward system may provide an explanation for the glass ceiling: Because women appear to do worse in or avoid these “winner-take-all” situations (as is suggested by economic studies), it is more difficult for them to climb the corporate ladder and reach top positions within their companies. However, with Dr. Janet Yellen as the new Fed chair, this trend of women not realizing their full potential because of behavioral differences will hopefully break down.

I believe that with a woman as the Fed chair, “winner-take-all” situations will cease to be so disadvantageous for women. Janet Yellen’s position of power in the financial world will hopefully put an end to the notion that women do less well than their male counterparts in top corporate positions by inspiring women to thrive in, rather than avoid, these situations. If in the past a woman would tend to avoid a high-stakes “winner-take all” situation, hopefully now, with a female leader holding what is arguably the highest position in the financial world, she will feel more confident in taking the opportunity. Moreover, Dr. Yellen’s leadership will not only inspire women to try to embrace high-stakes situations, but will also be evidence that they are actually capable of it. Ultimately, having a female Fed chairperson will be a source of inspiration for women and a testimony to the competence of women in holding top positions.

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