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Econ 3100, Chapter 3&4 Slides

by: Emily Banks

Econ 3100, Chapter 3&4 Slides 3100

Marketplace > University of Colorado Denver > Economics > 3100 > Econ 3100 Chapter 3 4 Slides
Emily Banks
CU Denver

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Slides for Chapters 3 and 4.
Economics of Race and Gender
Professor Saul Hoffman
Class Notes
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This 27 page Class Notes was uploaded by Emily Banks on Friday September 2, 2016. The Class Notes belongs to 3100 at University of Colorado Denver taught by Professor Saul Hoffman in Fall 2016. Since its upload, it has received 4 views. For similar materials see Economics of Race and Gender in Economics at University of Colorado Denver.


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Date Created: 09/02/16
(revised 8/11/2016) Chapter 3 – Marriage-An Economic Approach Framework  Marriage & Family are incredibly important economic institutions. o Core event in any young adult’s life, esp. women, esp. in past o Great example of broad application of economics as analysis of choices. Becker (p. 39) o Family as miniature economy  Lots of interesting changes to think about. o %s, ∆ in median age, divorce, cohabitation, div of labor  Two Caveats o Theory requires simplification. Will mostly ignore details of specific marriages to focus on broad principles. Abstract. o Everything is related! Marriage, fertility, work. 1 Start with the Facts -- what are we trying to explain? Current #s & Trends in Marital Status Decline in % married (U.S) % Married ↓ 20 % pts since 1950. < 50% for 1 time 2006. % Div/Sep ↑ from 2.5% to 13% % Nev Mar ↑ from 20% to 30% 2 Later marriage is the new norm. Look at 1960, then 1990, 2014. At age 18-19, ↓ from 32% to 4%; at age 20-24, ↓ from 72% to < 20%. Age profiles catch up at later ages, but not fully (more so in 1990 than 2014). Median age at 1 marriage=27 for women, 28 for men. 3 Changes in Family Structure International Table 3.1 Relationship Status of Persons Aged 15 and Over, Selected European and OECD Countries, 2012 Domestic Never Married partner married Div/Sep Australia 54.4 9.9 23.9 6.8 Canada 49.4 9.1 28.4 8.5 France 47.5 12.3 24.5 8.0 Germany 51.5 5.5 26.2 7.6 Italy 63.5 2.0 23.7 4.9 Japan 65.4 0.2 23.4 3.2 Netherlands 52.2 10.8 28.7 4.6 Spain 56.4 4.0 29.9 5.2 Sweden 42.4 19.4 26.7 7.4 UK 50.6 10.4 22.4 9.4 United States 52.5 1.2 30.8 10.6 Source: Society at a Glance 2014: OECD Social Indicators 4 ANALYSIS Part I: Why is marriage such an enduring institution? Why has it declined? Part II: How well off are women in marriage relative to men and what does it depend on? Supply/demand analysis What is Marriage ... to an economist?  Intertemporal Commitment Device (ICD) o “For better, for worse… In sickness and in health …” o Harder (more costly) to exit  Encourages taking long view, reducing Opportunistic Behavior Note: Cohabitation v Marriage?  “Contractual” arrangement for efficient production of household goods (esp. children). Ties in to ICD (above) 5 GAINS TO MARRIAGE  Since most people do marry voluntarily, they must find it beneficial. By Revealed Preference: if M (marriage) is chosen when S (single) is available, then likely U*(M) > U*(S). Holds for most people in most times and places. Therefore… There are gains to marriage! Both better off.  Sources: o Production and division of labor—on a gendered basis? o Investment o Joint Consumption/Public Goods  Start with Production- complicated, important, prob. less relevant now than in past – that’s an important idea! This is primary theory of marriage benefits from ≈ 10,000 BC – 1975. Had a long run! 6 PRODUCTION GAINS TO MARRIAGE st Model: Representative male (M) and female (F), 1 if single and then married to each other under different economic conditions (market and hh productivity). Model Set-up:  Preferences: U = U(C, G); G: ; C:_________  Constraints: o T H time in HH prod, T M time in market, w = wage rate o Time: T = T HT M (all time spent) o Production: G = G(T ;HZ) Z= all else. Simplify: let G = h H T o Budget: Spending = Earnings. Simplify, let p = $1. Each hour worked earn $w & can buy w/p = $w of goods. C =w x T M 7 If Single: Draw separate Time v Output graphs for G and C (see Fig 3.4) C C G G Then combine to draw PPC (Fig 3.5).  Endpoints  Slope = −w/h. Explain. Relative prices. Important  Best choice Details don’t matter much C G 8 MARRIAGE - 2 cases Case 1: Equal Productivity and Wage Rates (w =w m h f h )m f  Draw indiv & joint production possibility curve (using #s)- Fig 3.6 C G  New curve is parallel and twice as high  Results…. Whatever point they choose, if they share the output, they end up back on their original PPC, and if they don’t share it, one ends up worse off. o Bottom Line: No material gains to marriage if M and F are identical. o No reason for specialization on basis of gender. Consider point A (12, 12). Each could produce (6, 6) or could specialize (0, 12) and (12, 0) - but no tangible benefits to specializing. 9 Case II: Unequal Productivity and Wages by Gender  “Traditional/stereotypical” -- m > wf& h m h f  F has absolute advantage in non-mkt production; M has absolute advantage in mkt production. o Important - source of differences? o Could consider a non-traditional case – point here is gains from specialization and exchange not who does what o Compare to Comparative Advantage Construct PPCs for M & F—see Fig 3.7 Prices differ for M and F! C G 1. M PPC is steep – must give up 2 units of PG= 2 PC= ½ market goods (C) to get 1 unit of HH goods (G) 2. F PPC is flat – must give up 2 units of HHPG= ½ PC= goods (G) to get 1 unit of market goods 2 (C) 10 Now marry them and divide output - see Fig 3.8. Draw on next page 11 C G What do we learn from Fig 3.8? 12 See Fig 3.9 for same analysis with smaller diffs in productivity. Market Goods 45 40 PPC-Joint 35 30 25 (24,24) 20 PPC-M 15 (12,12) 10 PPC-Shared 5 PPC-F 0 0 5 10 15 20 25 30 35 40 45 Household Goods What does it tell us?  Almost certainly, production based on gender diffs in skills, is less important than in past.  Earnings by gender more similar (not equal)  Tech change has made hh prod require less skill  Mkts provide reasonable substitutes for many hh-prod goods.  Children are the final complication…. 13 A Caveat: Specialization and Commitment Obviously can be risky strategy to specialize Only makes sense in living arrangement with high prob of enduring Marriage as intertemporal commitment device important. Facilitates long run view necessary to reap potential benefits of specialization. 14 Box 3.1: Gender-Based Div Of Labor In Families-Going, but Not Gone Declining, but not quite dead, esp in families with young children 1950s/60s: 65% of married-couple hhs were “traditional” 2 in 10 married mothers of young children worked in labor mkt < 2% wife was sole breadwinner Check out TVLand for Leave it to Beaver 2010s: < ¼ of married-couple hhs are “traditional” th th Traditional: 1/6 of all fams and 1/5 of fams w children But—two interesting developments 1. Marr-couple w children < age 6: > 1/3 traditional, 3% W only. 2. Trend: Gender-based specialization for married-couple fams w child < age 6 ↑ 5 % pts betw 1994 and 2004, but down 3% pts since Among fams with child < age 6: # Father @ home, mother @ work = 214,000 # Mother @ home, father @ work = 5.2m 25:1 ratio 15 Marriage Approach #2: Investment  Adults in marriage make investments in their relationship  Like any investment, involves short-run costs; benefits are realized in future. So time horizon for decision-making is critical. Longer horizon makes investments more attractive, more likely to be made. Marriage as intertemporal commitment device---again. Examples: Buying a home; moving to another city to take advantage of employment opportunities; putting a spouse through school; having and raising children General and Specific Investments in Marriage Human Capital General v Specific – what is the diff? -- where/how are they valuable -- effect on current v other relationship Children as major investment 16 Marriage Approach #3: Consumption Emphasis on Joint consumption and Public Goods Many contemporary marriages are more about consumption, esp shared consumption. Similarity of tastes is valuable. Public v Private Goods:  Rivalness is difference.  Cannot consume diff amts of public good. So similarity of tastes are particularly important for these goods. Examples: living location and especially KIDS. Cannot consume diff amts of children or different investments in them. Other consumption issues:  Risk Sharing  Economies of Scale 17 Another Approach-- THE MARRIAGE MARKET Supply & Demand Marriage Model-- Overview  Emphasize decision to marry or remain single and way the gains to marriage are divided between husband and wife.  Examine market equilibrium - Price & Quantity  How well off women (and men) are within marriage and what things might determine that or cause it to change.  Based on work by Gary Becker (modified) Notation  Output = Z; ZF, M,dZ MF = output (utility) of single F, single M, and married-couple households. [Limitation—single good]  S and S = amount of Z to each partner: S + S = Z M F M F MF  Voluntary marriage requires both better off (Rational Choice) o S M Z &MS > F F o Or, more broadly, U(S M > U(Z M and U(S )F> U(Z F 18 The Marriage Market: Supply and Demand Analysis  Q = # of men or women willing to marry.  P =?? Use woman’s share of marital output = S . F Supply curve of women to marr mkt = # willing to marry @ each value of S F  Rational choice comparison of S & Z (or FtilitF)  If all women same, then supply curve is right angled: = 0, if S < Z , F F horizontal where S = ZF F  If different, each woman compares S & Z , willFng toFmarry where SFi Z [Fi U (S )M≥ UF(Z )]S F  Derive - see Fig 3.10 (with all same and then different) 19 What about the men?  Need demand curve of # men in terms of price (S ). Fame rational choice logic - each man willing to marry when S > Z . Mi Mi  Since Z MF +MS → F = Z M MF- SF. M & S Fnversely related.  If S is very high, S is very low, so some men may be better off F M single. As F ↓ SM↑, more men willing to marry -they are better off married  Derive demand curve…. See Fig 3.10 20 Derive and find Equilibrium and disequilibrium… See Fig 3.11 21 Comparative Statics - Changes in Supply/Demand Curves: How does equilibrium (# married persons, S M, S F) change with changes in exogenous variables of interest? Example 1: Sex Ratio Imbalance: N ≠ N F M  Examples: China male preference in fertility; the elderly (age 75+: 280 women per 100 men); baby boom, college campuses, race  Consider increase in # of women relative to men  Effects on equilibrium - See Fig 3.12.  Re-interpret (afterwards) if some partners are more desirable 22 Example 2: ↑ in women’s wages– (non-marr opportunities improved)  Operates through ↑ in Z F  Supply curve up or in -- old and new curves link up when all women are on curve.  Effect on equilibrium -- see Figure 3.13  Very subtle and important effect of S aFd S M  Reverse to think about S and D a century ago. 23 Changes in single life - sexual revolution, etc.  1950s - Very limited access to birth control & abortion. Sex outside of marriage carried real risks, especially for women. Also substantial social disapproval, etc. Single and married status were not close substitutes  1950s: large supply and demand. N* large. (Fig 3.14)  Change: decreases S and D. Plausibly decreases S less than D, since women bear greater costs in the event of pregnancy.  New Equilibrium – N* falls, S maF fall if S declines by less than D 24 A Competitor to Marriage - COHABITATION Very interesting new institutional arrangement. From scandalous to widespread. Raises subtle economic issues –______________________ Facts/Trends/Measurement POSSLQS Since 1995, Census Bureau has asked “householder” about his/her relationship to all persons in hh. See list of answers.  1977, POSSLQS≈1m (prob an over-estimate); mid-1990s--close to 3m;  2013--8m (=16m persons). 61m marriages ≈ 120m persons.  1 in 6 women age 25-29 were cohabitating and 1 in10 age 30-34  ↑ in Cohab % mirrors ↓ in Marr % between mid-1980s and late 2000s. Substitutes?  % cohab –negatively related to woman’s educ: for women age 22- 44, ≈15-20% cohab if hs degree or less, 6% if coll grad. 25 ECON ANALYSIS Difference in implied intertemporal commitment is primary distinction between C and M. C provides co-residence, joint consumption, etc, but w/o legal commitment & protections. Much easier to dissolve than M. Less intertemporal commitment. Can use to explain ↑ in C. Relate to improvements in contraceptive technology. Compare to 1950s. Sex/pregnancy etc not compatible with limited protections of C for both M and F. As before, specialization w/o commitment is dangerous strategy. C can’t compete with M b/c lacks commitment mechanism and doesn’t facilitate specialization. No surprise that was relatively rare in 1950s- 60s, etc. As contraception improved & shared consumption replaced production / specialization as basis for M (at least in early stages of M), Cohab becomes more attractive institutional arrangement. Provides shared consumption benefits, econ of scale of HH scale, etc. Cohab diffs by education (Lundberg/Pollak): emphasis on investment in children, with more-educated making larger investments and undertaking greater specialization by gender. Makes marriage particularly attractive, etc. as function of planned investments in children. 26 Transition from C to M often comes with plans for pregnancy (or pregnancy), Only 20% of cohabiting couples have their own children. 27


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