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

1. Economics of GenderChapter 5Assist.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 • Qd = F(P; other P; Y; Preferences) • Negative slope. • Law of Supply • Qs = 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: • Qd =  + P +  • Qd/P = ; (1/ is slope of D curve) •  is value of Qd 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.) • Qd =  + 1P + 2Y + 3Pref +  • 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 (R2)

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: ZM and ZF • For married-couple HH: ZMF • Share of Output: • Amount of ZMF to husband = SM • Amount of ZMF to wife = SF

21. Details on the Marriage Market • NOT assuming that SM = SF • Note: SM + SF = ZMF • Marriage “rule”: • Marry if expect to be better off: • Male: marry if SM  ZM • Female: marry if SF  ZF • Implies that for a married couple: • SM + SF  ZM + ZF • So: ZMF  ZM + ZF • Gains to marriage exist for most individuals.

22. Basics of the Supply & Demand Model • Price term, SF: • 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 SF ZF. • SF ranges from very low to very high; when SF low, very few women willing to marry. • When SF 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 SF; larger #  at high SF).

24. Other Changes in Supply & Demand • Increase in women’s wages: • Will  ZF (well-being while single) • Shifts S upward: • Each woman now willing to marry at a higher value of SF than before. • No change in the vertical point • More effective birth control: •  ZF and  ZM • start with S2 and D2 • AIDS: start with S1 and D1