Family3 Time
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Family3 Time

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Family3 Time Family3 Time Presentation Transcript

  • Male Participation Rates, by Age
    • Rising real wages and earnings
      • Real earnings have risen since 1940 and since the income effect dominates the substitution effect for older males, the participation rate has fallen.
    • Social Security and private pensions
      • Social Security benefits and coverage has increased over time.
        • This non-labor income has encouraged exit from the labor force.
      • Private pension coverage has expanded which is another source of non-labor income.
        • Pension rules have been changed to encourage early retirement.
    • Disability benefits
      • The Social Security disability program has become more generous which encourages low wage workers to exit the labor force.
    • Life-cycle considerations
      • Earnings of workers past their mid 50’s tend to grow slowly or decline.
        • Their education and training become more obsolete as well as declines in physical and mental capabilities.
        • This lower wage growth encourages workers to substitute retirement for work.
    Why LFP Rate of Older Males Declined
  • Female Participation Rates, by Age Most of the rise in participation rate is due to a rise in participation among married women . This is a surprising result since the rise in real wages of married men would have tended to decrease participation rates of married women
    • Rising real wage rates for women
      • The rise in real wages for women has both a Becker income and substitution effect.
        • Substitute towards goods in terms of both consumption and production of commodities.
        • Small income effect since its effect depends on the number of hours already working.
          • It is 0 if not currently working.
    • Changing preferences and attitudes
      • Career objectives of women have changed over time towards more market work.
        • Changed indifference curves to make them flatter.
    • Rising productivity in the household
      • Technology improvements have reduced the time necessary for household production and freed time for market work.
        • Microwaves, vacuum cleaners.
    Why the Participation Rate of Females has Risen
    • Declining birthrates
      • Presence of pre-school is associated with lower participation rates and the one-half decline in the birth rate and has freed time for market work.
        • High wages tend to lower the birth rate since it raises the opportunity cost of children.
        • The impact of children on participation has declined over time.
    • Rising divorce rates
      • The rise in the divorce rate has increased the incentive for women to participate in order to protect themselves against the impact of a potential divorce.
    • Expanding job accessibility
      • There has been expansion in employment in jobs traditionally held by women.
      • The availability of part-time jobs has increased making it easier for women to work.
    Why the Participation Rate of Females has Risen
    • Attempts to maintain living standards
      • In the last 20 years, the earnings of males has been stagnant and falling in some cases.
      • Married women may have increased their participation to maintain the family’s living standard.
    • Relative importance
      • Likely the most important explanations are the rise in the real wage rate and the expansion of “women’s jobs.”
        • The timing is off for the attitudes and anti-discrimination laws.
        • The technology innovations and lower birth rates may the result rather than the cause of the higher participation rates.
    Why the Participation Rate of Females has Risen
  • Female Participation Rates, by Race
  • Male Participation Rates, by Race
    • Demand-side factors
      • African-American males face worse labor market conditions due to lower education, discrimination, and mismatch between location of jobs and residence.
    • Supply Side
      • Non-market income sources such as Social Security and public assistance are more appealing to African-American males since have lower wages.
      • Illegal activities may be also more attractive.
    • The health of older African-American males tends to be worse than for older white males.
    • High participation rate of African-American wives may lower the participation rate of African-American husbands.
    Lower Participation Rate for African-American Males
    • The business cycle has two offsetting impacts on participation.
      • The added-worker effect occurs when the primary earner loses his or her job and other family members look for a job to offset the decline in family income.
        • This because the other family members suffer a decrease in their non-labor income.
      • The discouraged -worker effect occurs when a person stops looking for work because they become very pessimistic about finding a job.
        • Recessions lower wages and thus the “price” of leisure and so some workers substitute leisure for job search.
    • The discouraged worker effect outweighs the added worker effect and so the labor force shrinks in recessions.
      • The added worker effect applies only to families where the primary earner is unemployed, while the discouraged worker effect may impact all workers.
      • Some married women are only marginally attached to the labor force.
    Cyclical Changes in Participation
  • Why Have Hours of Work Remained Stable since 1945
    • Rise in real wages since 1945 should have decreased weekly work hours due to the income effect.
    • A leading explanation is the rise in education levels has offset the impact the rise in real wages.
      • More education may reflect more job commitment
      • Educated worker have nicer working conditions and thus less desire to reduce hours.
      • Educated workers have more fixed costs per worker (e.g. training) and thus firms resist reductions in hours per week (costs per hour rise).
    • Other factors include higher tax rates, and overtime pay premiums
    • Americans face a “time squeeze” since total hours worked per person has risen.
      • Partly due to rise in share of prime-age workers who work more hours.
      • Much of the rise has been voluntary since highest paid jobs have had biggest rise.
      • Hours of leisure have risen not fallen.
        • Household production time has fallen.
    Are Americans Overworked?
  • Household production and Technology
    • Technology made women more productive in HH,
    • but also makes long hours on household production unnecessary
    • in total
      • first hours of H highly valued
      • additional hours much less valued
    • 20 th century time savers:
      • dishwasher
      • vacuum
      • microwave
      • refrigerator
    • shift some hours spent on housework to either
      • leisure
      • work
  • Unemployment Rate
    • Households produce utility-yielding commodities with combinations of market goods and time.
      • Examples of commodities: meal, clean house, entertainment, quality of children
    • Three uses of time
      • Labor market time (generates income to buy market goods)
      • Household production time
      • Leisure time
    • Uses of time are competitive with each other
      • Work takes away time from household production and leisure
    • Tradeoff
      • more hours worked, more $ to buy stuff
      • but less time for leisure and household production
    Model of the allocation of time
  • Allocation of time
    • Marginal decision-making
      • 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.
    • Market time valuation : wage
      • Individual has no influence on market wage
    • Leisure time valuation : How I am willing to trade off work/leisure
    • Factors that affect decision
      • 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.).
    • Time-intensive commodities use a large amount of time and a small amount of goods.
      • Watching the sunset.
    • Goods-intensive commodities use a small amount of time and a large amount of goods.
      • Meal at fast-food restaurant.
    • As labor-market time becomes more valuable—substitute time-intensive commodities for goods-intensive ones.
    Commodity Characteristics
  • Indifference Curve Leisure Hr Income/day 24 0 Indifference curve shows work and leisure combinations that yield the same amount of total utility. 24 0 Work Hr U
    • Negative slope
      • To keep the level of utility the same, some of income must be given up if one wants more leisure
    • Convex to origin
      • With low hours of leisure, individuals are willing to give up large amount of income to get 1 more leisure hour.
      • With high hours of leisure, individuals are willing to give up small amount of income to get 1 more leisure hour.
  • Budget Constraint Leisure Income/day 24 0 Budget constraint shows the combinations of income and leisure that a worker could get given a wage rate $120 At a wage rate of $5, a worker could get a maximum income of $120 per day ($5/hour * 24 ) At a wage rate of $10, a worker could get a maximum income of $240 per day. At a wage rate of $15, worker could get a maximum income of $360 per day. $240 $360 Slope of budget constraint (rise/run) = wage rate
  • Utility Maximization Leisure Income/day 24 0 The optimal or utility maximizing point is where the budget constraint is tangent to the highest attainable indifference curve $240 U 1 U 2 U 3 16 $80 A At a wage rate of $10/hour, the optimal hours of leisure is 16 (8 hours of work) at point A $360
  • Utility Maximization Leisure Income/day 24 0 The optimal or utility maximizing point is where the budget constraint is tangent to the highest attainable indifference curve $240 U 2 U 3 16 $80 A If the wage rate rises to $15/hour, the optimal hours of leisure is 15 at point B B At a wage rate of $10/hour, the optimal hours of leisure is 16 (8 hours of work) at point A 15 $360
  • Utility Maximization Leisure Income/day 24 0 $240 U 2 U 3 15 16 17 $80 A Income effect is measured through a parallel shift of the old budget constraint, from A to C (from 16 to 17 hours of leisure). Substitution effect is measured by movement along U 3 , from C to B (from 17 to 15 hours of leisure). Net effect is an increase of hours of work by 1 hour. B C Income and substitution effects
      • 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.
    • What if wage increases to $15/hr ?
    • Income effect of higher wage
      • higher wage increases income (he is richer)
        • Demand for leisure increases, hours of work fall
    • Substitution effect of higher wage
      • higher wage increases opportunity cost of leisure
      • hours of work increase
        • Substitute goods for time in production of commodities
          • buy more restaurant meals and fewer home-cooked meals.
          • fly to vacation rather than drive.
    Income and Substitution Effects
  • Effect of Change in Wage on Employment
    • For women:
      • Dominant substitution effect, at least at lower wages.
      • perhaps income effect has become more dominant in recent years.
    • If only working few hours per week:
      •  wage could cause person to leave labor force.
    • If start out of LF and then wage increases:
      • Causes only substitution effect so will increase probability of working for pay.
  • Change in Nonlabor Income
    • Assume :
      • Mark has maximized utility subject to his budget constraint so that he is working for pay 40 hours /week with wage = $10/hour.
    • Now there is an  nonlabor income (he won a lottery):
      • demand for all normal goods including leisure  
        •  paid work hours.
        •  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 income falls.
  • Taxes and Labor Supply
    • Progressive tax system based on taxing families instead of individuals means that the earnings of a sequentially secondary earner are taxed at a higher marginal rate.
    • Higher marginal tax rate means that household production has lower opportunity cost.
    • Lower wage should mean less leisure, if leisure is a normal good.
    • Therefore, theoretically, the overall impact on labor supply is ambiguous.
    • Empirical research suggests that reductions in tax rates do increase both the hours worked and labor force participation
  • Income Tax and Individual Labor Supply Leisure Income/day 24 0
    • An income tax shifts the after- tax wage downward and may either raise or lower a person’s optimal number of hours of work.
    $240 I 1 I 2 16 U 2
    • Prior to the income tax, the optimal hours of work is 9 (15 hours of leisure) at point U 1 .
    15 U 1 $360
    • The optimal hours of work would increase if the income effect was larger than the substitution effect.
    • After the income tax, the optimal hours of work decreases to 8 (16 hours of leisure) at point U 2 . This implies the substitution effect caused by the tax is larger than the income effect.
  • Leisure Cost of Goods
    • Leisure cost of an $8 movie ticket: how many hours you have to work in order to pay for it
    • If wage=$6/hr, work 1 hr 20 min to pay for ticket
    • If wage=$16/hr, ticket costs 30 min of leisure
    • 1908 Ford Model T cost 2 years of average wages.
    • 1997 Taurus cost 8 months of wages
    • Gallon of gas in 1970: 6.6 min, in 1997 5.4 min
    • Half-gallon of milk in 1919: 39 min, in 2000: under 7 min
    • in 1900 a pair of Levis was 9 hours and 42 min,
    • 2000: 3 hours and 24 min
    • In 1910 a 3-min coast-to-coast phone call: 90 hrs 40 min, today, many people treat such phone calls as free.