On the Law and Economics of Marriage and the Family

1. On the Law and Economics of Marriage and the Family ShoshanaGrossbard San Diego State University Presentation in Madrid, May 31 2010 Zaragoza May 2010

2. Economics of Households • Economic Analysis of Households includes • theoretical analysis of how households make decisions • empirical analysis of what explains the behavior of households. • Policy applications, including applications related to the law. • Behaviors analyzed by economists: encompass any outcomes that require a decision by a household or any of its members. • Not limited to outcomes conventionally studied by economists, such as consumption, labor supply, or the supply of loanable funds. • In the spirit of the New Home Economics (NHE) : also includes the study of fertility, health production at home, well-being, number of wives, and type of marriage contract.

3. New Home Economics • Not so new anymore…started by Gary Becker and Jacob Mincer in the 1960s while they were both Professors of Economics at Columbia. • Integrated home production within conventional economic analysis. • New Home Economics today? • Select applications of health economics, including a research program headed by Michael Grossman from the Graduate Center at the City University of New York • Many of the editors and authors publishing in Review of Economics of the Household, a journal that I edit and that is published by Springer. Zaragoza May 2010

4. Focus: applications of household economics related to family law • Ownership in households and what do households own • Real estate • Savings and other accounts. Are they joint? • Marriage contracts • Divorce laws • The value of a housewife Zaragoza May 2010

5. I. Ownership in households • Professor Robert Ellickson is a law professor at Yale University, his article Unpacking the Household: Informal Property Rights Around the Hearth was published in the Yale Law Journal in November 2006: 116 Yale L.J. 226 • My response appeared in the online version of that journal: http://yalelawjournal.org/ (ShoshanaGrossbard, Repack the Household: A Response to Robert Ellickson’s Unpacking the Household) ELLICKSON’S DEFINITION • According to RobertEllickson’s the definition of a household is a dwelling space where occupants usually sleep and share meals. • I will adopt this definition. Zaragoza May 2010

6. According to Ellickson • The law’s purpose: to facilitate the selection of a preferred governance system for the household, including a system that optimally allocates ownership • Two groups are seriously considered by Ellickson as candidates for ownership of the household: • household members who supply capital, and • those who supply labor. Zaragoza May 2010

7. Ellickson’s example of a household • CASE A: a “sitcom household” composed of five occupants: • Dad, a widower; • Granny, Dad’s widowed mother; • Maureen, Dad’s divorced daughter; • Chip, Maureen’s young son; and • Nadia, whom Maureen has hired to serve as a live-in nanny for Chip. Zaragoza May 2010

8. Ellickson’s reasons for letting capital owners own the household • four reasons why household members who contribute at-risk capital are more optimally suited for household ownership than suppliers of labor: • They tend to (1) be few in number and stable in identity; • (2) bear risks better; • (3) be more homogeneous in their interests; and • (4) place high value on rights of control (because they are highly vulnerable to opportunism). Each reason is problematic. Here I just mention 2 problems Zaragoza May 2010

9. Ellickson’s second justification is particularly problematic • “An occupant who has specialized in (..) housework already is somewhat invested in the dwelling she occupies. Particularly if she has little financial capital, for reasons of diversification she may prefer not to have a share of the ownership … • “For example, if Granny and Nadia were co-owners of the Sitcom House and neither had much in the way of savings, they might be overly cautious about taking on more household debt to finance the replacement of a leaking roof.” • This implies that were Dad and Nadia, the live-in nanny, to fall in love and marry it is preferable for Dad to remain sole owner of the house. Zaragoza May 2010

10. Problem with Ellickson’s views • Ellickson also argues that suppliers of capital are subject to opportunism by household workers: “a household worker who feels exploited can exit immediately with most of her human capital in tow…” and could subject an asset to “unduly high risks, say, by skimping on maintenance…” • This is problematic because Ellickson fails to consider the incentives that motivate the supply of labor in the home. Zaragoza May 2010

11. Let us take other examples instead of the sitcom household • CASE B “Ozzie and Harriet”, a contemporary couple such as the one that used to be the main characters of a TV show in the US. They have a traditional marriage. • They are married, occupy the same home, and agree on a traditional gender-based division of labor. • According to Prof Ellickson the leaking roof is more likely to be repaired if Ozzie owns the home by himself than if he and Harriet share ownership. • CASE C By contrast, consider “Bill and Hill”, a hypothetical egalitarian couple who have invested little in home production skills, have equal earning power, and whose combined income and assets (besides the home) are comparable to those of Ozzie. They may be willing to take as much risk as Ozzie, assuming they have no costs of coordination. So Ellickson easily sees them as co-owners of the dwelling. Zaragoza May 2010

12. Home ownership as a way to motivate household production • Ellickson implies that young men or women with capital and stay-at-home spouses should buy homes on their own, and that joint ownership is more advisable for Bill-and-Hill than for a comparable Ozzie-and-Harriet. • I disagree: it is not socially optimal to discourage specialization in household production by discouraging ownership by the people who actually do the home production. Zaragoza May 2010

13. Optimal household ownership and the rights of workers in the home • Full-time specialization a la Ozzie and Harriet has become the exception rather than the rule, and when it occurs, it follows less rigid gender lines. • At the same time, most couples in contemporary liberal societies are not of the Bill-and-Hill type, with complete egalitarianism. • Men continue to be the principal breadwinners women the principal workers/managers, even though in many countries a majority of married women are employed most of their adult life. Zaragoza May 2010

14. Some facts about workers in the household • In the US in 2005, only 66.5 percent of all married U.S. women ages 25-29 participated in the labor force, whether full-time or part-time. In contrast, more than 90% of married men in this age group, or slightly older, were in the labor force • In Denmark in the last decade, a survey indicated that of 1398 couples—married or cohabiting—in 1089 couples the husband earned 50% or more of the couple’s earnings. Only in 309 couples (about 22% of sampled couples) did the wife earn the same or more than the husband. This was found in a Scandinavian country that has invested many public resources to create a more egalitarian society. Zaragoza May 2010

15. In light of high participation rates in the labor force on the part of both men and women • Is there enough time left for engaging in household production? • If yes, we do need incentives such as joint home ownership to encourage such production • Let us look at some facts • Joni Hersch, in the book I edited Marriage and the Economy (Cambridge U Press, 2003) summarizes the evidence and concludes that in the U.S. women average far more time than men on home production. This continues to be the case in the last decade in the U.S., as well as in all countries that we have time use surveys for (including Australia, Denmark, France, Italy, and Spain). For example, in the US Nacho study Zaragoza May 2010

16. Motivating work in household production • Given that one spouse typically works more in the household than the other (even if they are both in the labor force). • Parallels with labor economics can be pursued more easily if we first I define two useful concepts: • Work-In-Marriage • Quasi-Wage Zaragoza May 2010

17. Work-In-Marriage • Definition of Work-In-Marriage (WIM): It is labor in the sense that • (1) it is an activity that people have to put up even though it is not their favorite activity (i.e. there is an opportunity cost) and • (2) the activity benefits another person/organization who is willing and able to compensate the worker. (Source: Grossbard-Shechtman Economic Journal 1984) • These two elements are applicable to both ‘work for a firm’ and Work-In-Marriage WIM. In the first case the ‘other who benefits’ is the firm, in the second case, it is a husband or wife, in the case of heterosexual marriage. • Gender symmetric: husbands may work for wives. What is being produced in this WIM? It includes meals, cleaning, homemaking as well as more psychological dimensions. Part of childcare. Zaragoza May 2010

18. Difference between WIM and leisure can be thin • Example: a mother and father take their son to baseball practice, and both enjoy the activity: leisure or WIM? It can be considered WIM if spouse is willing to compensate individual to do it • Ex: father likes soccer and mother does not . Mother takes daughter to soccer practice. Leisure or WIM? Definitely WIM

19. Second useful concept • QUASI-WAGE: Material compensation for work in household production that benefits partner • QUASI-WAGE is the compensation rate for WIM • How are quasi-wages established? • a/ bargaining inside the household • b/ quasi-wages are established in markets. Effect of Demand and Supply. Zaragoza May 2010

20. Exchanging work in household production for access to money • Such exchanges allow Quasi Wages to function as incentives for household production • But the law (at least in the US) often looks down at such exchanges (see the important work of sociologist VivianaZelizer) • Were the law to allow more exchanges of WIM for money transfers within marriage and cohabitation, more WIM would be supplied. • More WIM supplied means more marriages, more couples, more children, more home-cooked meals etc. Zaragoza May 2010

21. Summarizing this argument • More recognition that WIM is a form of labor + more acceptance of the need for quasi-wages to compensate such labor  more WIM will be supplied (in economic terms, the supply of labor is upwardsloping, and this also holds for WIM labor) • More WIM supplied  more home production, more meals, children get better care, more couples, more marriages etc. In this light: • A BASIC PROBLEM OF MODERN SOCIETY MAY BE THAT WE EXPECT TOO MUCH WIM TO BE PRODUCED OUT OF IDEALISM, WITHOUT ADEQUATE COMPENSATION. Zaragoza May 2010

22. Now let us apply this concept of quasi-wage to the ownership question • Ac to Ellickson: “like participants in a business firm, members of a household typically confer ownership on providers of …capital, not on occupants who labor within the home” • This may be true in the case of a sitcom household, but • Many legal systems disagree with Ellickson and have conferred ownership of a household to both the providers of capital and the ones who labor within the home. • I propose to view home ownership as a form of quasi-wage in circumstances when the WIM worker can not afford nice housing and the spouse with higher earning buys a home that not only benefits the WIM worker as a user, but also gives her/him the pride of ownership. Zaragoza May 2010

23. Home ownership and quasi-wage • An optimal governance structure needs to protect workers as well as capital suppliers. • Ellickson reinforces underproduction in household economies by failing to recognize that being offered access to housing by the breadwinning spouse is a form of in-marriage compensation for work in marital household production that motivates supply. Zaragoza May 2010

24. WHO in this case PAYs QUASI-WAGES? • Not governments, but spouses who benefit from the WIM work. • Other examples: • providing health benefits to the WIM worker • Pooling all incomes when the WIM worker earns less (I am currently finishing a paper on this with Jens Bonke from Denmark and Catalina Amuedo from SDSU) • Savings accounts on the name of housewives in Korea Zaragoza May 2010

25. II. Laws related to Divorce and Coverture, a Historical Concept • Elsewhere in the article, Ellickson praises the breakdown of the Anglo-American coverture system that allocated household ownership to men owning land and other equity. • But if he aims at optimizing incentives for capital suppliers, how pleased can he be pleased with the transfer of household ownership from capital-owning husbands to household managing wives? • Let us analyze coverture as a form of artificial ceiling on the quasi-wages of women supplying WIM Zaragoza May 2010

26. Coverture and community property Why is it that in the U.S.A. community property states were significantly less likely to enact legislation to overturn coverture than states following the common law? • Under coverture, a capital-owning husband did not have to worry about loosing control over his capital in case of divorce. In a community property state, the abolition of coverture implied that an Ozzie had to attribute half of the marital assets to a Harriet. Therefore, men resisted the abolition of coverture in community property states more than in common law states. Zaragoza May 2010

27. More generally: quasi-wages and community property • Some quasi-wage payments are paid before marriage, some during marriage, and some upon dissolution of marriage (via divorce or death) • In case of divorce, community property regimes tend to imply higher quasi-wage benefits for WIM workers than common law systems that don’t specify an exact distribution rules and where WIM workers (traditionally wives) often obtain less than 50% of assets acquired after marriage. Zaragoza May 2010

28. Another example of an unexpected effect of community property • Unpartnered births Zaragoza May 2010

29. Conclusions • Will be written Zaragoza May 2010