1. Economics of Gender Chapter 5 Assist.Prof.Dr.Meltem INCE YENILMEZ

2. Economic Tools and Economic Thinking Microeconomic Approach A. Constrained optimization B. Comparative statics Functions A. Utility function B. Household production function Total and Marginal Functions Supply & Demand Empirical Methods A. Regression analysis B. Natural experiments

3. 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*

4. 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.

5. 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).

6. Supply and Demand Analysis Law of Demand – Q d = F(P; other P; Y; Preferences) – Negative slope. Law of Supply – Q s = F(P; input prices; technology) – Positive slope. Equilibrium – Occurs naturally – Excess supply – Excess demand

7. 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

8. 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: – Q d =  +  P +   Q d /  P =  ; (1/  is slope of D curve)  is value of Q d when P = 0; (intercept)  is random error term

9. More on Regression Multiple regression: Adds in more independent variables Want to add in as many relevant Xs as we can (so now have  1,  2, etc.) Q d =  +  1 P +  2 Y +  3 Pref +  – Where Y is income If we leave out an important X, then the estimated values of  and  are “biased”

10. More on Regression Types of variables: – Continuous – Dummy: yes/no – Natural logs: ln(wage) so b on education is a percentage return to education Sampling error: – To what group do the results relate? Goodness of fit: – What percent of variation across individuals in dependent variable is explained by the regression-measured by the R- squared (R 2 )

11. 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.

12. Overview of Marriage and Family Structure Changing family structure over time: – Cohabitation – Single parenthood – Rising divorce rates – Rising rates of re-marriage – Same sex unions

13. 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

15. Specialization Do women really have an advantage in home production and why? This model implies that specialization is efficient and therefore a good thing.

16. 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.

17. 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.

18. 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.

19. Risk Sharing and Public Goods as Benefits to Marriage Risk-sharing: lowers the cost of job loss if two people share expenses. – Good example of how cohabiting college students differ from “partners.” Public goods: type of goods that can be consumed by  1 person without  utility from consumption. – Example: watching a TV program. – Institutional advantages: Tax benefits Access to spouse’s health coverage.

20. 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: Z M and Z F For married-couple HH: Z MF – Share of Output: Amount of Z MF to husband = S M Amount of Z MF to wife = S F

21. Details on the Marriage Market NOT assuming that S M = S F Note: S M + S F = Z MF Marriage “rule”: – Marry if expect to be better off: – Male: marry if S M  Z M – Female: marry if S F  Z F Implies that for a married couple: – S M + S F  Z M + Z F – So: Z MF  Z M + Z F – Gains to marriage exist for most individuals.

22. Basics of the Supply & Demand Model Price term, S F : – What a woman must receive to be willing to marry and what a man is willing to pay to be married. Restate marriage “rule” and resulting shape of S curve: – Marry only if S F  Z F. – S F ranges from very low to very high; when S F low, very few women willing to marry. – When S F very high: all women willing to marry; curve becomes vertical since no more single women. – Shows positive relationship between price and quantity supplied. Law of Supply

23. 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 S F ; larger #  at high S F ).

24. Other Changes in Supply & Demand Increase in women’s wages: – Will  Z F (well-being while single) – Shifts S upward: Each woman now willing to marry at a higher value of S F than before. No change in the vertical point More effective birth control: –  Z F and  Z M start with S 2 and D 2 AIDS: start with S 1 and D 1