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Speaking of the Economy
Speaking of the Economy - Arantxa Jarque
Speaking of the Economy
March 25, 2021

Diversity in Economics and Central Banking

Audiences: Economists, General Public

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Arantxa Jarque discusses the importance of having diverse voices represented at the Federal Reserve and in the economics profession in general. She also describes what stands in the way of diversity and how to address these barriers. Jarque is a senior policy economist at the Federal Reserve Bank of Richmond.



Charles Gerena: Hi, I'm Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Today's episode will focus on diversity at the Federal Reserve and the economics profession more generally. I'm speaking with Arantxa Jarque, a senior policy economist at the Richmond Fed who has studied this topic. Arantxa joined our department in September 2009 after teaching economics at the Universidad Carlos III de Madrid in Spain.

Glad to have you here, Arantxa.

Arantxa Jarque: It's great to be here.

Gerena: Articles in Reuters and the New York Times recently analyzed the gender and racial diversity of Federal Reserve leadership, and found it to be lacking. Groups like Fed Up have complained about this issue for years. How bad is it?

Jarque: There are good reasons for concern. For the purpose of this discussion, we can focus on blacks and women just to illustrate, though certainly other groups are also underrepresented.

Just to lay down some facts, since the founding of the Federal Reserve System in 1913, only three of the members of the Board of Governors have been black: Andrew Brimmer, Emmett Rice and Roger Ferguson. Raphael Bostic, who became president of the Atlanta Fed in 2017, is the first black president of a Reserve Bank.

As for females, it was only after 1982 when there was a female among the presidents. That was when Karen Horn was appointed to lead the Cleveland Fed. Since then, at most we've had three female presidents out of 12, which is exactly the situation we have right now.

The first female governor, Nancy Teeters, was appointed in 1978. But it was only after 1994 that we had more than one of the seven seats occupied by a female, when Janet Yellen was appointed to serve alongside Susan Phillips. Then, the year 2014 saw the maximum number of female governors ever, which was four.

Right now, if you take kind of a rough count, women are about 30 percent of Fed leadership, between presidents and governors, while the only black policymaker represents only 5 percent.

I would say, overall for women, things have definitely been getting better, in the sense that they've had solid representation. But that is not the case for blacks.

Gerena: Of course, you are referring to a small cohort — there are just 19 Reserve Bank presidents and members of the Board of Governors. What about the board of directors at each Bank?

Jarque: That's right. The numbers are kind of small for presidents and governors.

There are 108 directors at the main branches of the Fed, nine for each of the 12 branches. So it is more meaningful to look at those statistics and, maybe, to expect changes. And, in fact, we have seen changes.

Let me first say that these director positions are very important positions. They not only help us run the Reserve Banks and give us the pulse of what's happening in different parts of the country, it is also the case that a subset of the directors are in charge of selecting candidates for Bank president whenever there is a change in leadership. So it is encouraging that we're seeing an increase in diversity in these positions.

I have personally studied female representation on our boards of directors. I can speak to that a little bit. The first year women were hired as directors was 1977. That year, there were five women out of the total of 108 board members. But the proportion of females has increased steadily and significantly since 1977, and it's reached its peak this year with 46 women, which represents 43 percent of the total.

As for race, which is obviously another important dimension of diversity to focus on, the data on the race of our boards is only readily available since 2017. But, I have to say, even within that short span of time, the increase has been remarkable. Today, 33 percent of directors self-identify as a racial minority versus 22 percent four years ago.

So there is definitely positive news on the director side. Of course, more work lies ahead, first in maintaining representation and also fostering inclusion.

Gerena: Beyond principles of fairness and equity, why does this lack of diversity matter for monetary policy?

Jarque: Yeah. So, definitely fairness is a key reason why we should fight for representation. But there [are] other reasons.

One important one is the fact that we would be leaving talent on the table. Think about the importance of female labor supply in the economic recovery from the pandemic. What would be the missing GDP growth that would result if all the women who had to leave the labor force because of the special circumstances some of them face don't return? The economy would certainly take a bit hit. That's an easy way of thinking about it.

In addition to just leaving talent on the table, there is also the misallocation of talent that can occur when women or minorities are not welcome in certain occupations. There are economic estimates of the costs of discrimination through these channels, and they are large.

For women in particular, there's other reasons why it is important to bring them into policymaking. We actually have evidence that they make economic decisions in a different way than men. For example, they seem to have different preferences with regards to children's labor supply or their consumption. One recent study of Uber drivers showed that women choose to drive slower and closer to where they live. This behavior difference can explain some of the gender pay gap that we see in this occupation.

There has also been studies that suggest that women also seem to have different levels of risk aversion and even taste for competition. Treasury Secretary Yellen famously said that perhaps we wouldn't have had the 2008 crisis, or it wouldn't have been as bad, if instead of Lehman Brothers it would have been "Lehman Sisters."

It's also worth noting that we're not quite sure why women make decisions in this different way. It could be by nature, but it could also be nurture, and likely it is both. For example, there's evidence that when social norms are different, like in matriarchal tribes in Africa, attitudes toward competition can actually be reversed — that is, women are the ones who choose to compete more often than men.

But then, obviously, there is also nature playing a role, like in the obvious case of childbearing, which has traditionally conditioned economic outcomes for females. One clear example is the evidence that the improvement in health outcomes after childbearing — both in survival probability and survival rates and how fit women were for working after giving birth in terms of health outcomes — was a big determinant of the increase in female labor supply during the mid-20th century. In that same period, the diffusion of infant formula was also happening, which was also important in allowing women to reconcile work and motherhood. So, definitely that's something to take into [account] — the very special things that women go through that men don't.

A final point I wanted to make in thinking about why diversity matters for monetary policy is that women seem to have different views on economic outcomes and policies. There was a survey in 2014 conducted by some researchers that found that [among] male and female economists, women were 25 percentage points more likely to disagree that the United States has excessive government regulation of economic activity. They were also about 30 percentage points more likely to agree with making the distribution of income more equal or, not surprisingly, 42 percentage points more likely to disagree that labor market opportunities are equal for men and women.

All in all, no matter the reason behind these differences, bringing the experiences and views of women and minorities to the table seems to be important in order to enrich the debate that we certainly need before we make policy decisions.

Gerena: Based on what you said, diversity would also be an important issue in the economics profession in general.

Jarque: Oh, definitely. All of the above apply, right?

It is fair for women to have the same opportunities as men in the general field of economics. It would also be a waste of talent not to have women's voices at the table. We probably would miss some important information about economic decisions, which is what our field studies, given that women do perform different functions in society and, hence, they think differently potentially about issues and are exposed to different information.

Perhaps one of the reasons why we're not sure why women seem to make economic decisions differently is because we don't have enough women economists who are looking into it. Of course, women have interest in all areas of economics, not only in the narrow field that is sometimes labeled "gender" or "family" economics. We need their voices in every field.

If you've ever been to an economics seminar or have submitted your research to a peer-reviewed journal, you will know that progress in the field of economics, like in many other academic fields, entails explaining your ideas and exposing them to the judgment of others, which is good, right? The idea is that you get feedback and get your ideas to a better place.

But because established economists have a lot to say about whether your ideas get heard at all, it is important to have a variety of voices in the seminar room and in the editorial team of the journals and the reviewers: women, racial minorities, people with different backgrounds in terms of their education, nationality, sexual orientation, family structure; you name it. Our profession will be missing out if we don't make room for all possible voices, I think.

Gerena: Indeed.

Given the importance of having a variety of voices represented in economics and the Fed, why isn't there more diversity? How did we get in this situation?

Jarque: This is a very important question that is being considered, certainly at the Richmond Fed and at the Federal Reserve System level. It likely has a lot to do, first, with the fact that economics as a field is not diverse enough. Fed leadership is likely to have a background in economics, so that really matters.

Luckily, we have some data. The Integrated Postsecondary Education Data System collects information on college majors, and then the American Economic Association has a committee for the success of women in economics that has been tracking PhD and career progression of females in economics for more than 20 years.

This data shows that the percentage of female undergrad students who have decided to major in economics has stalled at around 30 percent for the last 25 years and about 12 percent for underrepresented minorities. This has happened while other STEM fields have seen significant increases in diversity, especially for females. These other STEM fields have had representation rates consistently above that of economics.

The problem is even more pronounced at the graduate level and beyond, which is [where] policymakers with a background in economics are more likely to come from. About 30 percent of first year PhD students are female. When you go to check the rates for full professors, only 15 percent of them are women. That's pretty discouraging, at least to me as a female economist. There is some bright spot, which is that this 15 percent is double the representation rate that we had in the late 1990s. So, there's been progress.

This lack of diversity is also present among PhD economists working elsewhere, so it's not only about academia. A recent report by Brookings that focused on PhD economists working in the public sector found that about 30 percent of PhD economists in 2019 were women and 24 percent were minorities, compared to 24 percent and 21 percent in academia, respectively. So, a similar problem is, maybe, a little better within government agencies. At the Fed, in particular, 23 percent of PhD economists are female and 25 percent are minorities.

So, in conclusion, the pipeline for Fed leaders is probably not diverse enough. But we also need to consider how we design our institutions to make sure we can attract diverse leaders.

Gerena: That's a good point.

There has been a lot of discussion, in the last couple of years in particular, about structural issues that lead to inequalities. So, I assume that you're also referring, when you say "institutions," do you also mean the Fed as well?

Jarque: Exactly.

For the Fed in particular, there are plenty of restrictions on what kind of person we can hire for a governor at the Fed or as a president, or even a member of the Bank's boards of directors. There's geographic restrictions, there are interest of conflict restrictions, restrictions on the industries they can work in, strict tenure limit terms. Even their compensation is very regulated and very limited in some cases.

There's good reasons for all of this. But it is important to evaluate whether these rules may be leaving out more diverse policymakers, or perhaps consider changing them so that we can attract a broader array of candidates.

One thing that would probably be desirable is a little more transparency in the hiring process for Fed presidents. Whenever there is a change in leadership, then it would be useful to know the diversity of the pools of applicants being considered. There's been some progress in this but there is, obviously, privacy constraints that we have to respect, so it's not an easy problem to solve.

Gerena: So, what would you say has kept so many people out of the pipeline? What barriers still remain to be addressed?

Jarque: Right … So, the economics profession as a whole, I have to say, has been having a very lively conversation about diversity, especially centered around women but also racial minorities, in the last few years. Being conscious of all the barriers that these underrepresented groups face is a first important step in the process of actually addressing them.

I classify the many barriers that exist into four main areas. The first one is what I call institutional design. Some features of how the economics profession is structured may not be a very good match for the circumstances of these underrepresented groups — the fact that we rely on networks for hiring, which perpetuates the establishment. Or even just having promotions in academia based on "up or out" policies or tenure tracks for new Ph.Ds. This obviously can hurt disproportionately women who want to have their families right about the time when they are being evaluated. They may discourage women to even enter the profession, even if they haven't even decided whether they want to have kids in the future or not. It's something that they think about.

These things are difficult to address. Even attempts to implement generous maternity leaves may have actually comparatively hurt women, since they were offered to both new mothers and fathers in the interest of "fairness."

A second type of barrier is, of course, very common to other professions, which is the lower female attachment to the labor force. This might be behind this leaky pipeline, at least with the data in academia with very few women of the full professor rank. This may be due to the fact that women bear a disproportionate share of childcare and housework responsibilities, especially in two-earner households. Perhaps, work-life balance in the workplace can help here.

A third type of barrier to diversity relates to the lack of role models and information about potential career paths. One important fact to keep in mind is that underrepresented minorities may not know as much about economics as an occupation, or easily find mentors to coach them on how to succeed once they are in the profession, precisely because they aren't represented. This cycle can be very hard to break unless we try intentionally to break it.

And then, finally, a fourth type of barrier would relate to the culture within the economics profession, which has many good things that we all enjoy very much. But also, unfortunately, some areas of this culture definitely need some changes.

There is evidence of discrimination for female coauthors in journals when you start counting and really analyzing it in detail. There has also been very worrisome discriminatory language used versus women in discussions about the economics job market in anonymous online forums. Several survey efforts that have been done in the profession, as well as individual testimonials, have also uncovered complaints about discrimination for women and underrepresented minorities.

Gerena: Given all that, have we started that process of tearing down these barriers to let the new voices into the hallways of academia and the offices of Reserve Banks?

Jarque: Well, I am not sure it is enough, but I have certainly seen lots of initiatives both in the profession and at the Fed. You see a ton of different initiatives that are out there and conferences, even one at the Fed: the DivEc Conference. So, I'm really hopeful that this energy will continue because we do need to do more. And we should keep the discussion alive and, very importantly, evaluate the different initiatives that we are trying and change them or promote them as needed.

I have done some work putting together data on female representation at our Reserve Bank boards of directors, and I want to touch on one bright spot that I found. It turns out that one of our institutional details that I mentioned before, the strict tenure restrictions for directors, may have actually played an important role in diversifying our boards.

Just to give you some background, our tenure rules allow a maximum of seven years of service. And what I found is that this is actually a lot stricter than in most private companies, where there are often no limits on how long directors can serve and they have the hardest time refreshing their boards. So, our strict tenure limits imply that if you were, right now, to change radically your policy in hiring and you decide that you only want to hire black directors, it would only take you six years to have a completely black board. And that's huge. That's not something that can be achieved that easily in the private sector.

When you look at the data, you see that the changes that have been going on in our hiring practices for these directors in our boards over time have had a very important impact in the diversity of our boards because of these fast refreshments, especially in the last 10 years. I saw, in the data, a tremendous increase in the representation of females, and I found evidence that the increase was somewhat intentional. I saw that Feds that had just lost a female director, or that had less females to start with, were a lot more likely to have a new female director among their new hires.

Gerena: I understand that one of the ways the Richmond Fed has tried to diversify the pipeline is through the Research Associate program, which you manage. Tell us more about that.

Jarque: We have been working on this for a while here, and more and more we are coordinated with the rest of the Federal Reserve System. The idea is to leverage our research assistant program exactly like you said, to diversify the pipeline into the economic profession. These are the economists of the future.

The research assistant, people call them RAs, is a two-year job for recent graduates who are interested in a career in economics. They want to learn more or be more prepared for it. RAs help economists with policy and, especially, with their research projects. We also have summer internship opportunities that provide this type of information-rich experience for even younger economists-in-the-making.

Since many of these RAs go on to earn PhDs in economics, we work really hard to make our program welcoming to all, but also to make sure that we provide good mentoring and that we send these young economists on to the world with the skills that they need to navigate the profession successfully, no matter what their background is.

In general, our culture really needs to be one where everyone feels like they belong. Only when this is happening regularly will the economics profession be able to fully take advantage of the rich variety of ideas that are out there to be tapped, and in that way serve fully our communities.

Gerena: Well, the Richmond Fed will certainly continue working on issues of inequality, diversity and inclusion, both within our institution and also as a topic of research going forward.

Arantxa, thank you for educating us about this important topic today.

Jarque: Thank you.