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Family2 Mar
 

Family2 Mar

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    Family2 Mar Family2 Mar Presentation Transcript

    • Economics of Family, Marriage and Divorce
    • Gains from Marriage or Cohabitation
      • 1. Specialization
      • 2. Economies of scale
      • 3. High quality housework at lower transactions costs
      • 4. Risk sharing
      • 5. Tax subsidies or penalties
      • 6. Consumption complementarities
      • 7. Higher wages for men
      • 8. Lower risk of poverty
      • 9. Better health
      • 10. Other?
    • 1. Specialization
      • Assume men and women have very different skills
      • One is more productive at home, the other in paid work
      • Productivity = output per hour
      • Model of specialization
        • If She spends an hour in paid work, she can earn $10
        • If She spends an hour in household work, she creates $20 value
        • If He spends an hour in paid work, he can earn $20
        • If He spends an hour in household work, he creates $10 value
      • The model will show: Both individuals can gain from being able to specialize in one of the two activities then “trading” with one another
      Production Possibilities She He Market $10 $20 H Prod $20 $10
    • Model of Specialization Draw Production Possibilities She He Market $10 $20 H Prod $20 $10 Household production Market 20 10 10 20
    • Model of Specialization Suppose She and He are single and each spends half of the time in market work and in housework. Value created: $15 each She He Market $5 $10 H Prod $10 $5 She alone He alone Household production Market 20 10 10 20
    • Model of Specialization Suppose She and He are married. She spends full time in housework. He spends full time in market work. Value created: $20 each She He Market $0 $20 H Prod $20 $0 She specializes full time He specializes full time Household production Market 20 10 10 20
    • Model of Specialization She specializes full time He specializes full time Comparative Advantage : ability to produce relatively cheaper than your trading partner He has CA in Market work, She in HProd For each $1 of Market earnings She sacrifices 20/10 = $2 of HProd He sacrifices 10/20 = $0.5 of HProd He has lower opportunity cost of Market work She has higher opportunity cost of Market work
      • Specialization does NOT have to be complete for there to be gains
      • Larger gains to specialization if men and women have very different skills
      • Smaller gains to specialization if men and women are more alike
      Household production Market 20 10 10 20
    • Specialization
      • Specialization model implies
        • Household members should allocate their time in which they have a comparative advantage
        • Specialization is efficient and is a good thing
      • Downsides of specialization :
      • Life-cycle changes : comparative advantage changes as individuals age (kids grow up)
      • Less likely to divorce even under extreme circumstances (e.g. domestic violence).
      • Loss of market productivity for housewives
      • I.e., if I stay home with the kids for 10 years, when I re-enter the paid workforce, my earnings potential will have fallen.
        • This is risky given high probability of divorce .
        • Reduces incentives to specialize.
        • Both occur simultaneously:
          •  divorce   specialization
          •  specialization   divorce
    • Gains from marriage: 2. Economies of Scale
      • Costs less per person if two people live together
      • Time:
        • Cooking for 1 vs. 2
        • Cleaning, shopping, laundry, childcare, repairs
      • Money:
        • Buying in bulk
        • Less waste
        • Share fixed costs of HH public goods - goods that can be consumed by  1 person
          • need one fridge if one person or 5 people
          • Furniture
          • Appliances
          • Utilities
    • 2008 Poverty Guidelines
      • Economies of scale 
        • Threshold for 2 people is NOT twice the threshold for one person
      Persons in Household 48 States and D.C. Alaska Hawaii 1 $10,400 $13,000 $11,960 2 14,000 17,500 16,100 3 17,600 22,000 20,240 4 21,200 26,500 24,380 5 24,800 31,000 28,520 6 28,400 35,500 32,660 7 32,000 40,000 36,800 8 35,600 44,500 40,940 For each extra person, add 3,600 4,500 4,140
    • Gains from marriage: 3. High quality housework, low transaction cost
      • 2 ways to get HH produced goods :
      • 1)  hire out, buy services
          • High transaction costs for small tasks
          • Employee might not do good job, hard to monitor
          • Principal-agent problem
            • Different incentives for those who hire and who are hired
              • Boss and workers
              • CEO and shareholders
      • 2) marry
          • “ worker” has personal stake in quality of work
          • Reduces transaction costs for repetitive contracts
          • Transaction / negotiation costs are much higher for more than 2 adults
    • Other Gains from marriage
      • 4. Risk sharing: Lower cost of job loss
        • less likely to suffer financial distress
        • better able to diversify employers, investments
      • 5. Institutional advantages:
          • Access to spouse’s health coverage
          • Tax benefits or costs?
      • 6. Consumption complementarities
        • activities that are more enjoyable when shared than alone
          • Conversation, playing sports, raising kids, sex
    • Marriage Tax/Subsidy
    • Marriage Tax/Subsidy Since 1969: tax or subsidy for being married
      • Married couples with two earners who earn roughly equal incomes pay marriage penalty
      • Married couples with only one earner or with one high earner and one who earns little receive marriage subsidy
      • Supports traditional family structure
      • Black couples more likely to pay penalty - more likely both will work with similar incomes
      • Empirical research: effects on decisions to get married are small but statistically significant.
      • Marriage tax/subsidy could be eliminated by:
        • Taxing individuals rather than families
        • Get rid of progressive tax (flat tax)
      Marriage Tax/Subsidy
      • Married males earn 10 - 40% more than single males with the same education, age
      • Possible explanations:
        • Marriage leads to higher productivity at work
          • division of labor- wife specializes in nonmarket work
          • Greater incentive to acquire human capital
            • Need to help support a family
          • Lower cost to acquire human capital
            • Face a lower interest rate, wives can help finance education
        • Highly productive men more likely to marry
          • men who are married differ from those who are not
            • responsible, motivated, etc.
        • Employer discrimination against gays
          • Single men may be gay
      • Evidence supports productivity effect
        • premium larger for men with wives that do not work
        • premium rises with length of marriage
      Gains from marriage: 7. Marriage Wage Premium for Men
      • What about married females’ wages?
        • Family pay gap:
          • Lower wages for married women.
          • Lower wages for mothers.
    • Utility of marriage
      • 90% of adults marry eventually
        • most people expect marriage to make them better off
      • I get married if my
      • Utility(married) > Utility(not married)
        • OR
      • Given I am married, we conclude my
      • U(married) > U(not married)
      • Observe: most U.S. households contain > 1 person
      • Conclude:
        • U(living with people) > U(living alone)
      • This is revealed preference
    • Marriage Trends
      • Single women as % of all women
      • 2007: 51% 1960: 34%
      • College educated women of all races
        • more likely to marry
        • marry, on average, two years later
      • Delaying motherhood
        • For every year by which a woman delays having first child, her lifetime earnings rise by 10%
      • Marriages don’t last as long
        • Rising divorce rates, rates of re-marriage
      • Cohabitation
        • 10% of adults 25-29
      • Same-sex couples
      • Single parenthood
      • Affects well-being -U.S. poverty rate overall: 12%
        • married couples: 5.5%
        • female-headed households: 26%
    • Theories of Marriage
      • Economists’ way of thinking about marriage:
        • Marriage like a firm
          • Merger between firms eliminates cost of negotiating contracts
          • Allocate scarce resources of money, time
            • Work vs household production
          • Partners make marriage specific investment, acquire firm-specific capital
            • Children – less valued by other partners
        • Marriage like a city
          • Produce and consume public goods
        • Marriage like two persons bargaining
          • Bargain over who spends money, does housework or enjoys leisure, gets more favors
          • More bargaining power if
            • Higher wage
            • Better utility in case of divorce (=threat point in bargaining game)
      • % married has fallen for all women
          • driven by “never married” more than divorce
          • 96% of married black women have black husbands
          • 96% of married white women have white husbands
          • College-educated people are more likely to marry other college-educated people
        • % never-married age 40-44:
          • White: 9%
          • Black: 30%
      • Modern marriage is less child-centric
      • Now 41% of married couples have their own children present in their household
        • Use to be 75% in 1880
      • Kids in 2-parent HHs as % of all kids:
        • 1960: over 90%
        • 2000: 67%
    • Decline in marriages: Explanations
        • Gains to specialization fall
        • skills and wages are more alike for men and women
        • Fewer reasons to specialize
          • cheap clothes, dishwashers, washing machines, Roomba
      • Less-skilled men have fared worse in labor markets since 1970s
        • lower real wages
        • higher unemployment
        • women less willing to marry men w/out job prospects
      • Wages for women have risen
        • opportunity cost of women staying out of the labor market to be home with children is higher.
        • increasing gains to being single,
        • decreasing supply of women to marriage
        • wage increase for Black women has been larger
      • Amount of household production time declined
        • Mechanization: washers, mixers
        • More variety and cheaper market goods: frozen meals, takeouts
        • Led to decline in marriage-specific investment by women
      • Rising life expectancy
        • more potential years in the labor force
      • Decrease in infant mortality
      • Fewer couples have children – lower cost of divorce
      • Less stigma from single parenthood.
      • Contraceptive pill
        • easier to get sex outside of marriage
      • Welfare reduces marriage rates?
        • Benefits only given to single-parent families; usually with limited labor market skills
      Decline in marriages: Explanations
    • Decline in marriage for black women
      • Declining labor market position of black men
        • Lower real wages and employment rates of less skilled/less educated men - less attractive as marriage partner
      • Incarceration
        • 2 million men in US prisons and just 100,000 women
        • 20% of Black men between 35-39 have been in prison, 3% white men
        • more black men in prison than have been to college
      • Low supply of young black men  strong bargaining position of men  why marry?
      • Lower bargaining power of women: more likely to
        • work
        • go to college
        • be a single mom
    • Divorce
      • Revealed preference : rising divorce rate  better off divorced than married
      • Economic consequence of divorce
        • women’s economic status falls by 20-25%
        • men’s economic status rises by 10%
      • Current divorce or separation probabilities :
        • Within 5 years: 20%
        • Within 10 years: 33%
        • Within 20 years: 50%
      • Probability of divorce affected by gender mix of children
      • No-fault divorce
        • since 1970, 46 states, requires no finding of fault
        • led to lower divorce settlements for women (property, alimony)
      • Unilateral divorce
        • does not require explicit consent of both parties
        • In states with unilateral divorce, adjusting for the relevant demographics, a couple is 6% less likely to have a child
      • Covenant marriage contracts
    • What drives modern marriage?
      • Consumption complementarities
        • activities that are more enjoyable when shared than alone
      • Increasing the financial stability leads to marriage
        • rather than marriage leads to financial stability
      • Cohabitation vs Marriage: Why marry?
      • Marriage more attractive for women than for women?