Economics of Gender

Chapter 6

Assist.Prof.Dr.Meltem INCE YENILMEZ

Marriage and the Family

• Focus on 3 issues1) Race differences in marriage and family structure:

- changes over time; - economic explanations.

2) Male marriage premium

3) Divorce:

- economic analysis;

- economic consequences.

• Three Possible Explanations:

1)  Changes in marriage markets

2)   Changes in wage rates

3)   Role of the welfare system• Probably all 3 have played a role for women; some

for all women, some for specific groups of women.

More on Changing Marriage Markets

• Male Marriageable Pool Index (MMPI): ratio of the number of employed men to the number of women (calculated separately by race and age; also could be calculated by education)

• MMPI = [# employed men / # women]• Balance in marriage market: if MMPI 1, poor

prospects for women• At birth: MMPI = 1 (approximately).• But what if MMPI falls?

Falling MMPI

• Reasons for MMPI:

1) decline in the number of employed men

2) increase in  incarceration rates

3) increase in mortality rates • All of the above have disproportionately

affected black men

Women’s Wage Rates and Race Differentials in Marriage

• Gains from the trade model: – As women’s wages rise, differences in market productivity between

men and women falls so gains are reduced.– Data supporting this possible cause of lower marriage rates: sex wage

differences less for blacks than whites.

•  Supply and Demand model: – As women’s wages rise, their supply of marriage curve shifts left,

reducing marriage rates.

• Also, as women education, they delay fertility. So like-educated men face worse marriage prospects as well.

The Welfare System

• Key: “production” while single.– Supply and Demand model: if Zf , then likelihood of

marrying falls.•  History of Welfare– Social Security Act of 1935: created ADC (became

AFDC); now TANF.– Beneficiaries: poor mother-only families.– In 1935: mostly widows (deemed “deserving” of support)– Today: monthly benefits are quite low

Marriage and the Earnings of Men

• Marriage wage premium: – On average, married men earn more than unmarried men. – Hard to disentangle source of premium.– Has persisted throughout most of the 20th century and exists

in other countries as well.

• Three theories: 1) Married men not more productive, just paid more because

employers know they support families. 2) Marriage productivity effect (from specialization); 3) Selectivity effect: more productive men more likely

to marry.

• What about married females’ wages?– Family pay gap:

• Lower wages for married women.• Lower wages for mothers.

• The divorce rate started increasing in the 1950s.• Current divorce probabilities:

– Within 5 years: 20% disrupted.– Within 10 years: 33% disrupted.– Within 20 years: 50% disrupted.

• Disrupted= divorce or separation• Rate per thousand people actually peaked in 1981, and has been declining

over the ensuing quarter century. • The divorce rate in 2008—16.7 divorces per 1000 marriages.

Economic Analysis of Divorce

• If marriage results from gains to trade, then divorce is the opposite; couples will divorce if they’ll be better off divorced than married.

• Imperfect information and costly search– Can’t know everything about a potential spouse before

marriage– Search is costly

• Utility from search is maximized by balancing marginal costs and benefits of search

– Information that surfaces after marriage may be positive or negative; if the latter, divorce may result

The Coase Theorem

• The Coase Theorem: If transaction costs are small or nonexistent, then a change in property rights does not change resource allocation but does influence wealth.

• The Coase Theorem relies on four strong assumptions: – Costless bargaining– Symmetric information– Transferability

The Coase Theorem (continued)

• If we put the Coase Theorem in the context of divorce:– “transaction costs” are costs that are incurred when

obtaining the divorce– “property rights” refer to which person in the couple gets to

decide whether he or she wants to divorce.

The Economic Consequences of Divorce

• In general: – Decline in financial well-being of females and

increase in well-being of males.• Most believable estimates:–Women: divorce results in family income decline

of 27%–Men: divorce results in family income increase of

10%