the geography of female labor force participation and the...
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Geography of Participation
The Geography of Female Labor ForceParticipation and the Diffusion of Information
Alessandra Fogli, Stefania Marcassa and Laura Veldkamp
Minneapolis Fed and NYU Stern
June 2007
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Geography of Participation
Outline
1. How did female labor force participation evolve across the U.S.?
• Labor force participation in 3092 U.S. counties
• Two measures of spatial dependence
2. Why was there slow geographic diffusion?
• Women learn about the effects of employment on childrenby observing nearby working mothers.
• Information diffuses out from urban centers.
• Less uncertainty makes women more willing to work.
3. How much of the change can information diffusion explain?
• Calibrate using regional conditions in 1940.
• Compare spatial dependence in the model and the data.
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Source: Inter-university Consortium for Political and SocialResearch “Historical, Demographic, Economic, and Social Data:
The United States, 1790-2000” (3092 counties).
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Geography of Participation
Two Tests for Spatial Dependence
• Data: The highway distance between county centers (CTA)and female labor force participation rates by county.
• Control variables: Sectoral composition, occupationdistribution, race, marriage, fertility, urban, income, schooling.
• Test significance of potential labor force index (Tolnay ’95)
3091∑
i=1
LFPj
distanceij∀j = 1, ..., 3091, j 6= i
• Moran’s I tests for spatial clustering
I = N(d)∑
i
∑d zizi+d∑z2i+d
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Geography of Participation
Results: Potential Labor Force Index
control variables Potential LFP coefficient (β3)
none 0.047 (0.012)
demographics 0.016 (0.008)
demographics & occupations 0.017 (0.007)
LFPit = β1 + β2controlsit + β3Potential LFP + εit
• A one std. dev. increase in index (std = 22) implies a 0.35-1point increase in the LFP rate.
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Geography of Participation
Results: Moran’s I
• Spatial correlation is highly significant, declines with distance,but rises over time.
20 30 40 50 60 70 80 90 100
0.4
0.5
0.6
0.7
0.8
0.9
1
Distance in miles
Sp
atia
l co
rre
latio
n (
Mo
ran
I)
1940195019601970198019902000
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Geography of Participation
Why Use a Learning Explanation?
Results raise 2 questions: What are that local externalities? Why isthere so much diversity in diffusion rates?
• Changes in economic circumstances or technologies (the pill,the dishwasher, ect.) don’t answer either question.
• Preference externalities, thick market externalities explain localcorrelation, but not diversity in diffusion rates.
• Local information diffusion generates both effects (externality+ friction).
• Learning reconciles many other facts: time-series, labor supplyelasticity, cross-sectional differences due to ethnicity, wealth,ability, marital status and motherhood.
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Geography of Participation
Model
• Discrete infinite time. OLG economy. Large finite number ofagents whose location is indexed by i. Period 1: Agent isnurtured. Period 2: Agent works, has child and consumes.
• Preferences: over consumption and kids’ wage
U =c1−γit
1− γ+ β
w1−γi,t+1
1− γγ > 1
• Budget constrains consumption cit ∈ R+, labor nit ∈ {0, 1}.
cit = nitwit + ωit
• Wage depends on nature ai,t ∼ N(µa, σ2a) and nurture ni,t−1:
wi,t = exp(ai,t − ni,t−1θ).
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Geography of Participation
Information and Beliefs
• Learn about θ.
• Priors inherited from parents: θi,0 ∼ N(µ0, σ20).
• Observe J signals: (wit, ni,t−1) and (wjt, nj,t−1) for jεJi.
• Signal have local information: j’s are drawn uniformly from theset: {j : |i− j| ≤ d}.
• Signal variance depends on local (t− 1) participation:σ2
i,t = σ2a/(
∑jεJi nj,t−1).
Update with Bayes’ rule: σ−2i,t+1 = σ−2
i,t + σ−2i,t ,
µi,t+1 =
(σ−2
i,t
σ−2i,t+1
)µi,t+
(1− σ−2
i,t
σ−2i,t+1
)(∑jεJi(log wj,t+1 − µa)nj,t∑
jεJi nj,t−1
).
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Geography of Participation
Results
Participate if EUO < EUW :
EUOit =(ωit)1−γ
1− γ+
β
1− γexp
(µa(1− γ) +
12σ2
a(1− γ)2)
.
EUWit =(wit + ωit)1−γ
1− γ+
β
1− γexp
((µa − µi,t)(1− γ) +
12(σ2
a + σ2i,t)(1− γ)2
).
The probability that a woman will participate rises if...
1. The expected value of nurture µit falls.
2. Uncertainty about the value of nurture σit falls.
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Geography of Participation
Calibration
mean log ability µa -0.88 women’s earnings distribution
std log ability σa 0.57 women’s earnings distribution
mean log urban ability µaC -0.32 urban wage premium
mean log endowment µω -0.28 average endowment = 1
std log endowment σω 0.75 men’s earnings distribution
outcomes observed J 3 Prob(ni,t = ni,t−1)1970− 2000
radius of local interaction d 0.04 Moran’s I in 1940 (40 miles)
prior mean θ µ0 0.04 unbiased beliefs
prior std θ σ0 1.38 1940 LFP
true value of nurture θ 0.04 children’s test scores (NLSY)
intertemporal substitution γ 2 commonly used
Initial signal set from 1930 participation rates.
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Geography of Participation
Simulation Results
1940 1950 1960 1970
1980 1990 2000
0
0.5
1
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Geography of Participation
Simulated Aggregate Participation Rate
1930 1940 1950 1960 1970 1980 1990 2000 20100
0.1
0.2
0.3
0.4
0.5
0.6
0.7
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Geography of Participation
Conclusions
• Labor force participation spreads geographically. Looks like thespread of information through a network.
• Nearby counties’ participation rates matter, even aftercontrolling for economic and demographic factors.
• A model of information transmission where signals from nearbylocations have higher probability can explain these facts.
• Challenge for information externality theory: Why isinformation diffusion so slow? Might coordination motives alsoplay an important role?
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Geography of Participation
Labor Force Participation
• Much of the increase comes from women with children.
• Mothers of children under 5: 6% participated in 1940, 60%today.
1940 1950 1960 1970 1980 1990 20000
20
40
60
80
100
Years
Pe
rce
nta
ge
Married with ChildrenNon−married and Married w/o ChildrenNon−married with ChildrenTotal
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