household interaction impact on married female labor supply
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Household Interaction Impact on Married Female Labor Supply. Zvi Eckstein and Osnat Lifshitz. Introduction. 2. Introduction (Cont.). 3. The Model: Household Dynamic Game. Two types of household

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Presentation Transcript
The Model: Household Dynamic Game
  • Two types ofhousehold
    • 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.
model choices
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.
dynamic program
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
budget constraint
Budget constraint

The household budget constraint:

wage and probabilities
Wage and probabilities
  • Mincerian wage functions for each j = H, W
  • Endogenous experience
  • Logistic form for job offer probability
probability of having an additional child
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.

probability of divorce
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.

main result
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)


PSID - 863 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.
estimation smm
Estimation: SMM

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 results
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
probability of family type
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.
counterfactual 100 of families are classical
Counterfactual: 100% of Families are Classical
  • Decrease of female employment ~ 3.5%
  • No impact on males
counterfactual 100 of families are modern
Counterfactual: 100% of Families are Modern
  • Increase of female employment ~ 6%
  • No impact on males
  • Employment difference from males ~ 11%.
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