Economics of Gender

Chapter 5

Assist.Prof.Dr.Meltem INCE YENILMEZ

Economic Tools and Economic Thinking

• Microeconomic ApproachA. Constrained optimizationB. Comparative statics

• FunctionsA. Utility functionB. Household production function

• Total and Marginal Functions• Supply & Demand• Empirical Methods

A. Regression analysisB. Natural experiments

Microeconomics

• Choices: – Individuals are rational utility maximizers– Constrained by budget and time (constrained maximization)– Decisions made on the margin

• Variables: – Endogenous (dependent or choice variable)– Exogenous (independent or explanatory variables)

• Theory: – Posits relationship between dependent variable and independent

variable(s).

• Functional form: X* = F(Z).• Best choice (solution): x*

Comparative Statics

• Assume: X* = F(Z).• Theory: X*/Z 0.• If Z , this causes X*.• Microeconomics:

– Economic actors choose endogenous variables to maximize something.

– Best choice: satisfies above total condition and a marginal condition.– Theory predicts how best choice changes when exogenous variables

change.– Predictions: comparative static results; use to assess theory.

Functions

• Functions: A convenient way to show what depends on what.– Demand function can be written as Q = f(P)

• Utility function:– U = U(X, Y) where X & Y are two goods; – Ordinal utility versus cardinal utility– Utility theory a theory of rational choice

• Household production function:– G = G(T, Z).– G: amount of HH goods produced.– T: first input: time.– Z: amount of all other inputs.– Similar to a firm’s production function: Q = Q(K.L).

Supply and Demand Analysis

• Law of Demand– Qd = F(P; other P; Y; Preferences)– Negative slope.

• Law of Supply– Qs = F(P; input prices; technology)– Positive slope.

• Equilibrium– Occurs naturally– Excess supply– Excess demand

Comparative Statics of Supply and Demand

• Change in ceteris paribus factor– Shift demand curve• Tastes, preferences, income, prices of substitutes and

complements, changes in population

– Shift supply curve• Prices of inputs, weather, technology, number of firms

Empirical Methods:Regression

• Regression Analysis: A statistical technique for estimating relationship between two or more variables– One dependent variable and one or more independent

variables– Example: Prediction from a demand function– Write as regression equation:– Qd = + P + • Qd/P = ; (1/ is slope of D curve)• is value of Qd when P = 0; (intercept)• is random error term

Marriage and the Family—An Economic Approach

• Why look at marriage first?– Different impact for women: identity; like occupation.– Important economic institution: Major determinant of

income distribution– Marriage as “economics as choice:” even if key

determinant is love– Nobel Prize Winner Gary Becker: The family can be

viewed as a miniature factory making both consumption and investment decisions.

Overview of Marriage and Family Structure

• Changing family structure over time:– Single parenthood– Rising divorce rates– Rising rates of re-marriage– Same sex unions

Family Structure

• Biggest change in family structure occurring among households with children– 1960: over 90% kids in 2-parent households.– 2006: about 71% kids in 2-parent households.

• Definitions: – Family Household: 2+ persons sharing household that are

related by marriage, blood, adoption.– Non-family Household: 1+ unrelated (like college

students living together).– Householder: single adult, heading a household

How can Economics be Used to Explain Marriage?

• Must be variation in marriage and divorce so that we have something to explain with our theory

• Must be benefits to marriage (and divorce)• Must be costs involved (transaction costs

and foregone costs)• Individuals must act rationally

Risks of Specialization

• Life-cycle changes: advantage changes as individual ages (kids grow up), etc.

• Specialization divorce

• Women who specialize and then re-enter the paid workforce find earnings potential has fallen. This is risky given high probability of divorce.

– Reduces incentives to specialize.

– Both occur simultaneously:

• divorce specialization;

• specialization divorce.

An Example of Specialization and Exchange

• Two activities: – Paid work (w) – Home work (H)

• Two people: Mr. M and Ms. F• Each has own “prices” that show productivity in

each activity (or, value of time in each activity). w = value of paid work. H = value of home work

• Interpretation of w and H: w = what earn per hour in market; H = value of home cooked meal prepared in an hour.

Economies of Scale

• Essentially: It costs less per person if two people live together: This lowers the per-person (average) housing cost, food cost, etc.

• Average cost as # persons . • So, need one refrigerator whether one person or 5 people live

in a house.• Example: Official poverty threshold incorporates this idea:

– Threshold for 2 people is NOT twice the threshold for one person.

A Supply & Demand Model of Marriage

• Uses Becker Model: Productivity as a proxy for utility.– How marital status choice is made– How gains of trade are divided between a husband and

wife

• Need basics (M = male; F = female):– Output:

• For single person: ZM and ZF

• For married-couple HH: ZMF

– Share of Output:• Amount of ZMF to husband = SM

• Amount of ZMF to wife = SF

Details on the Marriage Market

• NOT assuming that SM = SF

• Note: SM + SF = ZMF

• Marriage “rule”:– Marry if expect to be better off:– Male: marry if SM ZM

– Female: marry if SF ZF

• Implies that for a married couple:– SM + SF ZM + ZF

– So: ZMF ZM + ZF – Gains to marriage exist for most individuals.

The Effects of Changes in Supply & Demand

• Three examples: 1) Change in sex ratio 2) Women’s improved labor market opportunities 3) Effect of birth control, etc.

• Change in sex ratio: – Differences by age, race and education– Effect of a in sex ratio:

• # women with no # men• Shift parallel part to the right• See slope (same % in #women ; smaller # at low SF; larger # at high

SF).

Other Changes in Supply & Demand

• Increase in women’s wages:– Will ZF (well-being while single)

– Shifts S upward: • Each woman now willing to marry at a higher value of SF than before.

• No change in the vertical point

• More effective birth control:– ZF and ZM

• start with S2 and D2

• AIDS: start with S1 and D1