Chapter 7Women at Work

• Outline of Chapter:• 1) Review employment trends and

discuss various reasons for observed trends.

• 2) Economics of employment behavior.

• Key terms:– Employment

– Unemployment

– Labor force participation rate (LFPR)

– Measured with CPS.

Review LFP Trends

• Table 7.1: – LFPR by sex and race (U.S. in year

2002). – Shows breakdown for entire

population, then prime-aged workers (to exclude students and retirees).

– By race/ethnicity.

• Figure 7.1: – LFPR over time for men and women. – Note for men and for women– Men Women– 1950: 86% 34%– 2001: 74% 60%

Further Details Concerning Female LFP

• Figure 7.2: – Female LFP by marital status over time.

• Married Single• 1900 5% 44%• 2001 62% 68%• Other persisting differences:

– Ex., married women more likely to work part-time than single women.

• Figure 7.3: Female LFP in 2002 for ages 25+, by education (relates to increasing potential market wage).

• Table 7.2: Female LFP over time for selected countries.– Usefulness of int’l comparisons.

Women’s Work Over the Lifecycle

• Supplemental Figure 3.7: – Age-participation profiles for years 1940,

1960, and 2001. – Each separate year’s profile: a snapshot

of data, so not following the same person over time.

– To note: change in LFP at peak-childbearing years.

• Lifecycle patterns by birth cohorts: (whites only).– Research by Claudia Goldin. – Plots same birth cohort over a lifetime

• Birth cohort: individuals born in same decade but not same people

– Helps to explain relatively low wages for older working women (limited experience).

Notes From Goldin’s Research on Lifecycle Employment Patterns

• Table 7.3: Compiled data from U.S. decennial censuses to construct 6 birth cohorts– Follow a single cohort across each row.

• Youngest age range: – Huge difference by marital status;– Implies nearly all women drop out of LF

upon marriage; – Difference slowly falls as move to more

recent cohorts (comparing 1st 2 columns)

• First cohort: – See birth years: – Very low LFP all periods, even when

children probably grown up.

More Using Goldin’s Birth Cohorts

• To notice:– 1) 2nd cohort: noticeable LFP after age

45; still only about 1/5 working.– 2) 3rd cohort: 1st time get big LFP

starting age 35 (17% to 25%).– 3) 3rd and 4th cohort: noticeable LFP

starting age 25.– 4) 5th cohort:

• More young working, interpreted as less LF withdrawal at marriage, more at pregnancy.

• Little change between first two periods due to baby boom.

• Big LFP at each age range.• Now over half of older women work.

– 5) 6th cohort: now LFP for married young is 75% of LFP for single young.

Major Trends for Shown Cohorts

• Major trends:– Early on, LF withdrawal at

marriage; near-permanent end to paid work.

– Later, some LF withdrawal delayed till pregnancy; still most never work again.

– At end: LF withdrawal at pregnancy but more return as kids age.

– Relate back to Supplemental Figure 3.7.

Implications for Wage Comparisons

• Important implication for comparing wages across sex: – Consider which cohorts

included in wage averages. • If have individuals from earlier

cohorts, they are likely to have little work experience throughout their lifetimes so will have lower wages.

• Implies that some of wage gap will go away once the earlier cohorts age their way out of the data, leaving more and more female workers with full (or nearly full) lifetime work histories.

Historical Experience of College Women

• Research by Goldin: – Family and work experiences of

college-educated throughout 1st half of 20th century.

• For that 1st birth cohort:– For both men and women, college rare

around year 1900– For women: very rare to combine work

and family.– 1/3 of women who went to college

never married.– Nearly half never had kids (including ¼

who did marry).– Occupations: 60% school teachers.

More on College and Work Trends

• As move forward by cohort: college-educated women more and more likely to marry and have kids.

• From then to now:– First choice was work or family.– Then choice was work and family.– Now with so many more college-

educated women, choice is career then family.

• Claudia Goldin: – Chaired economics professor at

Harvard; – 1972 PhD from Univ. of Chicago.– Never had children.

Economic Model of Paid Hours/Employment

• Original model: – Modeled choice between paid work and

leisure.

• Model set up:– Fixed total number of hours that

individual chooses to divide between work and leisure (L + M = T).

– Factors that affect decision include own preferences for work vs leisure, market wage, and nonlabor income.

– Model assumes individual will maximize utility subject to budget constraints (limits on time, money to spend, etc.).

– Individual has no influence on market wage (W same for each hour worked).

More on Economic Model of Work

• Marginal decision-making: – Actually two margins:

• Hours of work; • Employment .

• Hours choice easier to understand:– Question: Should I work hours by 1 (and

therefore leisure by 1)? – Answer: I will work by 1 hour as long as

the market values my time more than I do.– Relate to employment choice: work

hours implies probability of being employed.

• Market time valuation: wage• Leisure time valuation: How I am

willing to trade off work/leisure.

More on Original Model of Work

• Both time valuations measured on the margin: for extra hour.

• Marginal value of time in mkt: MVTM = MUM = change in utility

from paid work by one hour.• MUM = U/M

• Or: MUM = [U/C * C/M]

• So: MUM = MUC * w/P

• If M then MUC so MUM

• Diminishing marginal utility.

More on Economic Model

Marginal Value of Leisure Time:MVTL = MUL = change in utility from

leisure by one hour .• As L then MUL .

• Diminishing marginal utility.

• Formal Rule: – Keep work by one hour as long as

MVTM MVTL.

• Utility maximizaton :– I.e., best choice about work/leisure.

– MVTM = MVTL for last work hour added.

What is Effect of in Nonlabor Income?

• To start: – Assume Mark has maximized utility

subject to his budget constraint so that he is working for pay 40 hours per week with wage = $10/hour.

• Now there is an nonlabor Y:– Law of Demand: any Y demand

for all normal goods including leisure paid work hours.

– Hours of work margin: pd hrs.– Employment margin: probability of

working for pay (because it means a higher market wage is required to induce Mark to work for pay).

– Effect is opposite if nonlabor Y falls.

What is Effect of Wage?

• To start: (same as before)– Assume Mark has maximized utility

subject to his budget constraint so that he is working for pay 40 hours per week with wage = $10/hour.

wage to $15/hr (an MVTM):– Substitution effect: w is an

opportunity cost of leisure, so demand for leisure and paid work hours.

– Income effect: w is like real purchasing power ( Y ), so causes demand for all normal goods including leisure, which means work hours fall.

– Key: net effect is uncertain.• Cannot know in advance if wage will cause

work hours to go up or down.

Effect of Wage on Employment

• For women:– Dominant substitution effect, at least at

lower wages.– Macunovich: suggests that perhaps

income effect has become more dominant in recent years.

• Employment Margin:• 1) If only working few hours per

week: wage could cause person to leave labor

force.

• 2) If start out of LF and then wage increases: – Causes only substitution effect so will

increase probability of working for pay.

Modify Original Model

• Problem with the model: only allows for two uses of time: paid work or leisure. In reality, 3 choices: paid work, home (unpaid) work, leisure.– Now: M + L + H = T.

• Influx of women into labor market led to expansion of model.

• So now each of the three choices has its own marginal valuation:

Three Activities

Review leisure and mkt time:

MVTM = MUC * wage.

MVTL = MUL

Third Use of Time: Home Prod.

MVTH = MUH:

• MUH = MUG * MPH.

H MPH so MUH .

• [known as diminishing marginal productivity]

G MUG and so MUH.

Best Choice When Have 3 Uses for Time

• Marginal decision-making: Choose M*, L*, and H* such that: Always equate utility on the margin: increase time in an activity until marginal value of time equal for all 3 activities.

• Remember: must always satisfy the time constraint:

• M* + L* + H* = 24.

More on Expanded Work Theory

• Whenever work by 1 hour:– Same as (L + H ).– Individual is leisure by 1 hour or

unpaid home work time by one hour. – To restate: when M:

L so MUL; H so MUH. M MUM

(due to M C MUC)

– Comparative Statics:• 1) Effect of wage.• 2) Effect of nonlabor income.• 3) Effect of kids.• 3) Effect of in household production.

Explaining LFP Using Comparative Statics

• 1. Effect of husband’s earned income: – Like any nonlabor income: Demand

theory: will D for all normal goods including leisure paid work and home production.

– Will MVTM since will MUC (as purchase more from husband’s increased income).

• Relate to real world:– Explains race differences in LFP.– Does not explain female LFP since

husband’s Y has been until very recently.

• Contradicts notion that married women “pushed” into LF from low husband’s Y.

Continue with Comparative Statics

• 2. Effect of female wages: – Rising wages opportunity

costs of leisure and home production so will both and LFP. (pure substitution effect)

– Remember: • MVTM = MUC * wage.• So wages is an MVTM.

• Relate to historical trends: – Wages throughout 1900s but

mostly from after WWII till early 1970s.

Continue with Comparative Statics

• 3. Children and LFP: – Presence of children (young kids in

particular) will increase value of time in home production for all hours ( MVTH) so will reduce paid work and leisure.

– Relate to history: fewer kids so lower MVTH.

• 4. Home Productivity (MPH): – Impact is unclear—complicated.

– Relate to history: much so probably contributed to LFP.

Evidence from Costa (2000)

• Summarized evidence about importance of married women’s wages on their LFP.

• Divides 20th century into 3 periods:

• 1) 1900 – 1930: little influence of own wages; primary influence was husband’s income.

• 2) Mid-century: big influence of own wages.

• 3) End of century: less influence of own wage or husbands’ income as LFP became norm.

Exercise

• For Country X: – Population = 100,000; – Employed = 60,000; – Unemployed = 3,000; – Not in LF = 37,000.

• Answer these questions:– 1) Calculate size of LF; LFPR, and

unemployment rate.– 2) Give examples of not in LF.– 3. Give reasons woman might switch

from not in LF to LF.– 4) If go into recession, what expect will

happen to:• A. # employed and # unemployed.• B. # not in LF.