Family2 Mar
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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?