1 Household Interaction Impact on Married Female Labor Supply Zvi Eckstein and Osnat Lifshitz

2 Introduction

3 Introduction (Cont.)

4 Two types of household  Classical (C): Husband is Stackelberg leader. Every period after state is realized the husband makes the decision before the wife, and then she responds.  Modern (M): Husband & Wife play Nash. Husband & wife are symmetric, act simultaneously after state is realized, taking the other person actions as given. Both games are solved as sub-game perfect. The Model: Household Dynamic Game

5 Model Choices Employment; Unemployment; Out of LF Initially UE or OLF - two sub-periods  Period 1: Search or OLF  Period 2: Accept a potential offer E or UE Initially E – one period  Quit to OLF  Fired to UE  Employment in a “new” wage.

6 Dynamic program Max Expected Present Value  Utility functions are identical for both C and M  Characteristics of husband and wife different Game solved recursively backwards to wedding

Utility Functions: The periodic utility of the husband or the wife:  is utility from total household consumption.  is leisure  is a specific function for utility from children 7

Utility Functions for each employment state: Wife: Husband: 8

9 Budget constraint The household budget constraint:

10 Wage and probabilities Mincerian wage functions for each j = H, W Logistic form for job offer probability Endogenous experience

Probability of Having an Additional Child The probability of having an additional child is given as (Van der Klaauw, 1996): function of the woman's employment state in the previous period, the woman's age and education and those of her husband, current number of children and the age of the youngest child. is the standard normal distribution function. 11

Probability of Divorce The probability of divorce: function of how long the couple has been married (t), current number of children, the female's education and the employment states of the woman and her husband. 12

13 Main Result Wives work more in M than C family because:  Husband earnings and offer rates are larger  In M family she faces more uncertainty (Husband employment and earnings are uncertain when she makes the decision independently)

14 Data PSID couples who got married between 83-84, start from the date of the wedding. 10 years (40 quarters) sample (at most). During the sample period:  36.3 percent of the couples divorced or separated  14.5 percent left the sample for other reasons  after 10 years 49.2 percent of the couples remained in the sample.

15 Data – Descriptive Statistics

16 Data – Descriptive Statistics

17 2 sets of moments:  Individual choice of (E; UE; OLF) by duration since marriage, those choices include the transition probabilities.  Average predicted and actual wage for men and women by duration since marriage. Estimation: SMM

18 Estimation Results 90% of choices are correctly predicted 61% is estimated proportion of C families Husbands in C & M have similar labor supply Wives work 10% more in M families

19 Fit: Employment rate

20 Fit: Average Wage

21 Predicted Employment Classical and Modern Households

22 Predicted Employment by husband state Classical and Modern Households

23 Probability of Family type Posterior probability of M family is:  Negatively correlated with: husband age at wedding, number of children, husband is black or Baptist.  Positively correlated with: couples education, wife age at wedding; husband is white, Catholic; potential divorce.

Main Estimated Parameters 24

Counterfactual: 100% of Families are Classical  Decrease of female employment ~ 3.5%  No impact on males

Counterfactual: 100% of Families are Modern  Increase of female employment ~ 6%  No impact on males  Employment difference from males ~ 11%.

27 Counterfactual: Full Equality: 100% Modern Families and Identical Wages & Job Offer Probabilities for Men and Women  Males employment decreases by 1.4%  Females employment increases by 12.9%.  Difference between males & females employment (3.2%) due to higher risk aversion and higher cost/utility from home for females

28 Concluding remarks