Economics of Gender Chapter 6 Assist.Prof.Dr.Meltem INCE YENILMEZ

Marriage and the Family Focus on 3 issues 1) 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 Z f , 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 20 th 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%