This 29-minute podcast was released May 19, 2021.
“The most exciting part of doing research is having that research have an impact,” says Brigitte Madrian, dean and Marriott Distinguished Professor at the Brigham Young University Marriott School of Business. Madrian talks with Andrea Caceres-Santamaria, senior economic education specialist at the St. Louis Fed, about how her work in behavioral economics affected employer-sponsored savings plans.
Andrea Caceres-Santamaria: Hello. I’m Andrea Caceres-Santamaria, and you’re listening to the Women in Economics Podcast Series from the Federal Reserve Bank of St. Louis. Today I am joined by Dr. Brigitte Madrian. Dr. Madrian is the Dean and Marriott Distinguished Professor in the Brigham Young University Marriott School of Business. She is also a research associate at the National Bureau of Economic Research and past director of the NBER Household Finance Working Group.
Dr. Madrian’s current research focuses on behavioral economics and household finance, with a particular focus on household saving and investment behavior. Her work in this area has impacted the design of employer-sponsored savings plans in the U.S. and has influenced pension reform legislation both in the U.S. and abroad. She is a three-time recipient of the TIAA Paul A. Samuelson Award for Scholarly Research in Lifelong Financial Security.
Welcome, Dr. Madrian. How are you?
Brigitte Madrian: Thank you. I’m delighted to be here today.
Caceres-Santamaria: Oh, we’re so happy to have you. My first question for you is: You have a degree in economics from Brigham Young University and a Ph.D. in economics from the Massachusetts Institute of Technology. How did you choose economics?
Madrian: Great question. When I started college as an undergraduate, I was actually planning to major in political science, and the political science program here at Brigham Young University recommended that you take economics. So I enrolled in both the introductory political science course and the introductory economics course the fall semester of my freshman year. And I loved the economics class, and I wasn’t quite as excited about the political science class. So I immediately changed my major to economics.
I think I really liked the analytical thinking that economics required, and since it was an introductory class, there was very little math. And even though I had done well in math in high school, I didn’t absolutely love it. So I thought economics was going to be a great field because I could think analytically and didn’t have to do a lot of math. It turns out that the farther you go in economics, the more math you need to do. So that piece of my assumption was a little bit mistaken, but I continue to love the tools that economics brings to the table for analyzing problems in life and business and public policy.
I had a really interesting experience at MIT actually. So MIT has a really strong economics program, I think at all levels, but the undergraduate program is relatively small, so a lot of the faculty energy is directed into the Ph.D. program. And that’s a contrast to a lot of other institutions where the undergraduate program is large and the Ph.D. program is smaller. And I found the faculty there to be really supportive. The program overall was really supportive, but what was really unusual about my experience was the year that I started, I think they had about 35 students, which is a pretty large cohort. I don’t think they were planning on a cohort that large, but almost everyone they admitted accepted the offer to come. And 16 of those approximately 35 students were women.
And I’m not sure they’ve ever had a cohort of women that large. The year before, it was a handful; the year after, it was a handful. By “handful,” I mean two or three or maybe four. So it was an extreme outlier in, I think, the entire history that MIT has had, in terms of the number of women in their Ph.D. program. And it was fantastic to have so many women in the program. So in contrast to a lot of women in the economics profession who are one o a handful in their Ph.D. program, only one, and kind of experience this feeling of isolation and not having a lot of other people who shared some important life experiences with you, that wasn’t my experience at all. There were lots of women with interesting different backgrounds working on different things, and it was great. I feel really lucky and fortunate that I was part of that cohort.
Caceres-Santamaria: Yeah. Well, that’s great. Do you know why in that particular cohort there were so many women?
Madrian: I honestly have no idea. I just feel really lucky. And there were some amazing women who’ve gone on to do great things in lots of interesting places. It was a good time.
Caceres-Santamaria: Have you kept in touch with some of them?
Madrian: Yes. Matter of fact, I talked to a couple of them just three or four weeks ago. We had a Zoom call and caught up and it’s been great.
Caceres-Santamaria: Can you tell me a little bit about your work experience in economics?
Madrian: Yeah. I’ve had a little bit of an interesting career for an academic. So my entire professional career has been with universities. I graduated from MIT, and then my first job was in the economics department at Harvard University. I was there for two years, and then I left and moved to the University of Chicago, what was then called the Graduate School of Business. Now it’s the Booth School. And I was there for eight years. And then I left and went to The Wharton School at the University of Pennsylvania—that’s their business school—where I was in their—they have a small public policy department, business economics and policy. And then I moved to the Harvard Kennedy School, and I was there for almost 13 years. And that’s the public policy school at Harvard.
And then two years ago I moved to Brigham Young University to assume my current position as the Dean of the Marriott School of Business here. So I think one of the interesting things about my professional career is I have spent time in a traditional academic unit, an economics department at Harvard; several years in business school, so I’ve now been at three different business schools for a total of about 13 years; and about 13 years in a public policy school. So I have experience in lots of different academic environments.
I’ve also had the opportunity to do some interesting things that I’ve enjoyed, kind of extracurricular activities. So as you mentioned in the introduction, I spent eight years as the co-director of the National Bureau of Economic Research Household Finance Working Group. to get the Household Finance research program at the NBER off the ground, and that was a great learning experience, a great way to get really familiar with the growing field of research in household finance. I spent a couple of years chairing a commission for the Social Security Administration, their Technical Panel on Assumptions and Methods, and I got to dig in deep to how the solvency of the Social Security trust funds is calculated. And that was a great learning experience. I spent a few years on a review panel for the National Institutes of Health reviewing grants. So I’ve had the opportunity to do a lot of interesting things and apply the training that I received both in the classroom and my research and applying it to public policy problems, which has been a lot of fun.
Caceres-Santamaria: Now, your extensive work in behavioral economics has had a significant impact on employer-sponsored savings plans in the U.S. and on pension reform in the U.S. and in other countries. Can you share with us how your research led to these changes?
Madrian: Yeah. So back in the late 1990s, I happened to be talking with people associated with a large company in the U.S., and this company was one of the very early adopters of automatic enrollment into their 401(k) savings plan. So by “automatic enrollment,” I mean that the company automatically put their employees in the 401(k) plan and then gave the employees the option to opt out of savings if they didn’t want to participate in the plan. And prior to that time, the norm was, if you had a savings plan, you offered it, but the employees had to actively sign up if they wanted to participate in the savings plan.
And so this company wanted someone to do some formal statistical analysis of the plan, and I happened to know enough about the savings literature, even though that’s not what I had been working on, but I knew enough about it to know that almost no research had been done using data from employers. It was mostly survey-based, surveys of individuals. So I figured there would be some low-hanging fruit, and then when they sent the data, they said, “Well, we don’t know whether this is important, but just as a heads-up, we implemented automatic enrollment a year ago, so that might be important when you’re analyzing the data.”
And I knew as soon as they described it, that there was going to be something really interesting there. And so, you know, analyzed the data and showed that the savings plan participation rate for newly hired employees when you had to opt in to save at that company at that time, was less than 40%, and the savings plan participation rate for the newly hired employees who were automatically enrolled was more like 85%. So it was a huge difference in the fraction of employees who were saving for retirement. And that finding then led to a long-term research collaboration with a large benefits consulting firm in the U.S. The name of the company’s changed a few times, but we still collaborate with them. And also led to some connections with a former graduate school colleague, David Laibson, who’s now at the Harvard economics department, and a long-term collaboration with him and some other academic colleagues analyzing the behavioral determinants of savings outcomes, using not just economic frameworks, but also applying the concepts from psychology that were relevant.
The great thing about collaborating with, in this case a consulting firm that was working with companies that sponsor savings plans and other types of employee benefits, was that as soon as we would generate research findings, if they were relevant, this consulting firm would then go and start trying to figure out, well, does this have implications for how we communicate with companies about ways they could design their savings plan. So the research started having traction almost immediately because we were collaborating with this consulting company, and then very early on, it also drew the attention of regulators and government officials in Washington who were really intrigued by the research findings.
So one of those was an attorney named Mark Iwry who at the time was working at the Treasury Department. And he saw the research findings and he immediately recognized that there were some important implications for public policy, and so he started working on the policy side with the levers he had at his control. And so initially in the Treasury Department, that was through some letter rulings that clarified what employers could and couldn’t do under the current set of regulations in place, and then a few years later he started working on the Pension Protection Act of 2006. I was actually involved in writing the actual legislation and put in provisions that would make it easier for employers to adopt automatic enrollment and that would also encourage employers to adopt automatic enrollment. So that was a significant piece of legislation in the U.S. that was passed, that relied heavily on the research that I had done a few years earlier.
And then a few years after that, the U.K. undertook a major pension reform and passed legislation requiring that all companies in the U.K. use automatic enrollment to enroll their employees into a workplace savings plan. The employees could opt out, but for the employers, it was required to use automatic enrollment. And we’ve seen increases in the fraction of employees that are participating in retirement savings plans in the U.S. since the Pension Protection Act was passed, dramatic increases. And the U.K. has also seen dramatic increases in the fraction of their workforce that’s in a workplace savings plan.
That’s been incredibly rewarding. The most exciting part of doing research is having that research have an impact, and in this case an impact that hopefully improves people’s lives by helping them be better financially prepared for retirement.
Caceres-Santamaria: Well, to all of us saving for retirement, thank you. And correct me if I’m wrong, I had read Richard Thaler’s book—is this something that he wrote about? Your research, right?
Madrian: Yes. He’s been a great champion of this research and he of course has a lot of very related research. So he and Shlomo Benartzi have been strong proponents of kind of a variation of automatic enrollment, which is automatically increasing your savings rate over time. So they call that the Save More Tomorrow or SMarT approach to retirement savings. And a lot of employers have adopted that as well, so you get automatically enrolled into the savings plan, and then every year your contribution rate to the plan will automatically increase by one or two percentage points until you reach a pre-specified threshold or until you tell the company to stop doing that. And the combination of those two things, of automatic enrollment and then automatic contribution escalation, are really powerful to increase contributions into the retirement savings plan.
Caceres-Santamaria: And is this what they call in behavior economics “nudges”?
Madrian: Yes. These would be examples of pretty effective nudges.
Caceres-Santamaria: There you go. Good ones. So much of your research has focused on the topic of household finance and investment behavior. Has your extensive research brought up anything about financial behaviors that differ between men and women?
Madrian: That’s a really interesting question. My research hasn’t focused so much on differences between men and women, but there are lots of other people that have examined differences in the financial behaviors of men and women and uncovered some pretty interesting things.
I’ve spent a lot of my work looking at whether individuals are participating in a savings plan and how much they are contributing, and there are some minor differences between men and women, but those differences are largely accounted for by differences in income. For example, people are more likely to save for retirement if their income is higher and they contribute more if their income is higher, and we know from lots of evidence that men have higher incomes on average than women, so they’re slightly more likely to participate in a savings plan and contribute more. But those differences seem more related to the fact that men have higher income rather than something specifically related to gender. So if you account for the differences in income, you see fairly similar savings plan participation rates and savings rates.
One area where you do see differences is in terms of investment allocation and trading behavior. And the finding is that women tend to be more conservative and they don’t trade as actively as men do. And the research suggests that active trading is actually not a great strategy for most individual investors, so, in that case, the tendency of women to be more likely to adopt buy-and-hold strategies and be less active in trading, actually may lead to better outcomes for women than for men.
On the flip side, women have somewhat lower levels of financial literacy than do men. Part of that results from the fact that men and women get married and they specialize in the household, and in a lot of households men will specialize in household financial decisions and money management. And so there are some interesting patterns that happen as women get older and—because women have a longer life expectancy than men and men tend to marry women who are younger than them.
So the average woman is going to have, in all likelihood, even if she’s been married for much of her life, some period of time of widowhood where she’s going to be alone and have to manage her own financial resources. And we see that the financial literacy of women goes up. So, not clear how much of the differences in financial literacy are motivated by the desire to specialize and women are choosing to specialize early on in different things than their husbands if they’re getting married, but some of this equalizes out at the end of life as women approach needing to manage their finances more independently.
Caceres-Santamaria: Thank you for sharing all of those studies and all of that information. It’s very fascinating. And in particular to your point about women and financial literacy, I think that’s something that’s really interesting and something to look into, to see how we can change that. And we’re working on it by trying to offer as much financial literacy out there as we can, as young as we can, so that all genders can see the benefits of being financially literate.
Why do you think it is important that more women and minorities enter the field?
Madrian: Economists have a lot of influence in important decisions that are made, both with respect to public policy—by government officials and policymakers—in business, and we need well-informed opinions from people who represent the range of experience and backgrounds in our economy. And so we need women who’ve got training in economics who can be a part of those important conversations and we need underrepresented minorities to also have a training in economics so they can be an important part of those conversations as well. I think we’ve really seen the importance of that with the events over the last year. So the pandemic has created all sorts of issues that have needed to be solved, and individuals from different backgrounds bring different perspectives and experiences to those problems.
So one of the things we’ve seen with the pandemic is we’ve seen very different effects on white versus minority populations in terms of the health impacts, and we’re starting to see data about disparities in vaccination rates and who’s willing to get vaccinated and who has access to these vaccines. And if we want to have more equality in healthcare outcomes and access to healthcare, then it’s important to have representatives of the minority groups who are suffering from these disparate outcomes, at the table to help us think about how do you solve those problems.
Another thing that we’ve seen with the pandemic is the huge impact the pandemic has had on education. I’m at university, so I’m kind of focused on higher education, but also the impact it’s had on K through 12 education. And we’ve seen that women are bearing the brunt of the increased responsibilities to ensure that their children are being educated when you’re doing remote school. And if those women are also working, they’re kind of juggling their work responsibilities and increased childcare and homeschooling and all of that. And lots and lots of research, growing body of research showing that the effect of the pandemic has had disparate effects by gender in families with children. And so we need women at the table to help make sure that everyone understands that not everyone is being impacted equally and to help us come up with solutions that accrue to the benefit of everyone in society.
We know that women tend to be more concerned about public policies that impact children, that impact healthcare, things like that. So if we’re dealing with a pandemic, we absolutely need women at the table. And economics is an important set of analytical tools and perspectives, so we need women who are trained with those skills to be part of those conversations if we’re going to have the best outcomes in society, the outcomes that really ensure that we’ve got a level playing field and that we’re benefitting everyone, not just the people who happen to have a political voice.
Caceres-Santamaria: Very true. And what challenges have you faced as a woman in economics and how have you overcome them?
Madrian: Boy, that’s a great question. So I had a challenge early on in my career that I wasn’t necessarily expecting. I hadn’t given it much thought. So I mentioned earlier that my first job was at Harvard University in the economics department, and I was there for two years. And then I moved to the University of Chicago. And shortly after I arrived at the University of Chicago, I got pregnant. And that was exciting.
Madrian: And so I walked into the dean for the faculty and I said, “I’m pregnant. What’s the maternity leave policy?” And he looked at me and he said, “I don't know. I’m going to have to get back to you on that.” And as it turned out, I was the very first female faculty member they had ever had who was pregnant while on the faculty.
Madrian: And as a result of that, they did not have a maternity leave policy. So I had my baby in the summer, and then when classes started up again for the next academic year, I taught a full load. I didn’t get any teaching relief from having my first baby. But it caused the business school and the university to think about a maternity leave policy. So four years later, when I had my second baby, by that time they had implemented a policy which gave female faculty who had kids some teaching relief.
I felt like a pioneer in putting the need for a maternity leave policy on the radar screen, and even though I didn’t benefit from it with my first child, I did with my second child. So I was at the University of Chicago for eight years. By the time I left, there were several female faculty who had had children and benefited from that maternity leave policy.
Caceres-Santamaria: Well, I must say your story gets even more and more interesting. And so to continue, my next question for you is: How do you mentor women in economics and are you doing things to help draw women into the field?
Madrian: I know in my current role as the Dean of the business school, I certainly feel more responsibility to be a mentor to women who are interested in business and in economics. At the university I’m at, the economics program is not part of the business school. It’s part of the social science college here at Brigham Young University, but I’ve gone over and had several meetings with the female students here at BYU to try and encourage some of them to consider economics.
I’ve also been trying to do my part mentoring female faculty. So the economics department here has two young junior faculty. They’re the only women in the department, and I reached out to them just to see how things had been going with the pandemic and all of that. And we had a lovely Zoom chat, and so trying to kind of include them in the fold.
So I think there are a lot of things that we can do to mentor women in the field of economics. And it doesn’t always have to be something big and dramatic. And I’m not going to say I’m perfect at this, but I am trying to do what I can because I think it’s important. And I have to be honest, I told you this cohort that I had in graduate school had 16 women in it, and that was back in 1989 when I started graduate school. And I had high hopes that things were going to change and be different and, you know, 30 years later, there’s been a little bit of change, but I think it’s been a lot slower than many of the women in the economics profession have hoped for. And certainly, my experience with those 16 women in graduate school, it was definitely an outlier. And I and the other women recognized that at the time, but I don’t think we realized that 30 years later, that was still going to be an outlier.
Caceres-Santamaria: Yes. And I agree.
Is there anything else that you’d like to discuss about women in economics?
Madrian: I’ll just put a plug out there for all the women who are potentially interested in economics, trying to decide if this is for them. For me, it’s been a fantastic field. One of the things I love about economics is that it’s an approach to thinking and you can apply it to a whole range of different interesting questions. So I’ve applied it to think about household financial decision-making and also to think about some things in the health space, but economists are working on almost every important issue that you can think of, using the tools that they’ve had in their training. It’s a great disciplined way to think about issues and problems, and, for me, I’ve really enjoyed it.
Even though my career has only been in the higher education space, I’ve also really come to appreciate the vast array of career options that are open to people with training in economics. So there are opportunities in business, in the financial sector, in government. There are opportunities doing research. There are opportunities in consulting, leading teams. There are just a whole awful lot of things that you can do, and I have to say, I have known very few unemployed economists in my 30-year career.
Caceres-Santamaria: Well, great. Thank you so much for your time and for sharing your story with us. We really appreciate it.
Madrian: Thank you.
Caceres-Santamaria: To hear more from the Women in Economics Podcast Series, visit stlouisfed.org/womeninecon. That’s one word, stlouisfed.org/womeninecon. You can also stream Women in Economics on Apple Podcasts, Spotify, and Stitcher, or ask your Amazon device, “Alexa, play Women in Economics from TuneIn.” Thank you very much.