Transcript Chapter 3: Marriage

Chapter 3: Marriage
• Why look at marriage first?
1) different impact for women:
 identity; like occupation.
• 2) important economic
institution: major determinant
of income distribution.
• 3) marriage as “economics as
choice”: even if key
determinant is love.
• 4) family like a miniature
economy
Overview of Marriage
and Family Structure
• Different ways to describe
– What is a family?
– What if uncle lives with you?
• Changing family structure
over time:
–
–
–
–
Cohabitation
Single parenthood
Rising divorce rates
Rising rates of re-marriage
Changing Marital Status
Over Time
• 2000: 51% married
25% never married
12.6% divorced/separated
• 1950: 67% married
19% never married
2.4% divorced/separated
• See Table 1 in text
Marriage Patterns
• See Figure 1 in text:
– Key: age at first marriage rising over
time; still most individuals do marry.
• Median age at first marriage:
– 1960 = 20.3 years
– 2000 = 25
• To note: median versus mean
(average).
• Predicted proportion of marriages
that will end in divorce: over 50%.
Marriage by Age and
Education Level
• See Table 2.
• Biggest drop % married for
individuals with less than HS
education.
• Young adults also have big
decline marriage.
“New” Family
Structures
• POSSLQs: Persons of opposite
sex sharing living quarters:
relatively new phenomenon; so
precise data new too.
• Since 1977: this % has
quadrupled (now 7.5% of # of
married couples)
• Same-sex couples: hard to
identify in data: approx. 3% to
10% of # of married couples
• Data issues.
Family Structure
• Biggest change in family structure:
HH w/kids.
– 1960: over 90% kids in 2-parent HHs.
– 2000: about 67% kids in 2- parent HHs.
• Definitions:
– Family HH: 2+ persons sharing
household that are related by
marriage,blood,adoption.
– Non-family HH: 1+ unrelated (like
college students living together).
– Householder: single adult heading a
HH.
Marriage Theory:
Background
• Recall stats: still most marry
eventually but:
– Marriages don’t last as long and
– Individuals spend more of adult life not
married.
• Theory: must explain its underlying
strength as well general decline in
importance.
• Three different approaches:
– Marriage like a little factory (emphasize
production): traditional economics
approach.
– Marriage like little city (public goods).
– Marriage like two persons bargaining.
Gains from Marriage
• Only marry if expect to be better
off than if stay single.
• Use model from international trade:
benefits of specialization and trade.
• Economic model: based on man and
woman with different productivity in
home and paid labor market. Show
gains from “trade” and show how
these gains are  over time as
productivity differences decline.
• Focus on productivity while single
versus joint productivity while
married; similar to focus on utility.
• Model of traditional marriage; less
appropriate in current times.
Marriage Theory:
continued
• Key: only have gain to marriage if
there IS a difference in productivity
between the two individuals.
• So: gains to marriage derive from
the relative differences in market and
non-market productivity; I.e.,
because they have differences in
productivity, they gain from being
able to specialize in one of the two
activities then “trading” with one
another.
• This is like a difference in relative
prices of their time in the two
different activities.
Numerical Example
• Two activities:
– paid work (w);
– home work (H)..
• Two people:
– Example 1: John and Jane.
– Example 2: Dave and Diane.
• 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.
• Interpret:
w = what earn per hour in market;
represents value of market goods can
produce with 1 work hour.
H = value of home cooked meal also
prepared in one hour; proxy for “home
wage rate.”
Two Types of
Productivity Advantage
• Some advantage required for there to
be gains from trade.
• Absolute advantage: One type of
comparative advantage:
– Jane is more productive in one activity
and John more productive in the other
activity.
• Comparative advantage: a relative
advantage.
– Compare relative productivities using
the relative productivity inequality.
Ex.: Dave has lower H and w than Diane,
but his w relative to his H is  Diane’s
wage relative to her H  so pays for
him to specialize in market work.
Dave(w)/Dave(H)  Diane(w)/Diane(H).
Absolute and
Comparative Advantage
• Absolute Advantage:
– John: w = $10; H = $5.
– Jane: w = $5; H = $10.
– John has AA in market work and Jane
has AA in home work.
• Comparative Advantage:
– Dave: w = $10; H = $5.
– Diane: w = $15; H = $15.
– Diane has AA in both but CA in home
work.; Dave has CA in mkt work.
– Dave(w)/Dave(H) = 10/5
– Diane(w)/Diane(H) = 15/15
– Dave’s  Diane’s so Dave CA: mkt.
– If reverse and put H in numerators, see
it shows Diane’s CA in home work.
Opportunity Cost:
Absolute Advantage
• Every hour spent in home production
is 1 hr NOT spent in market work.
• OC of 1 hour market work is the
value of the 1 hour of lost home
time.
• Absolute Advantage:
– To compare, use $10 of mkt goods- can
be divided evenly by 10 and 5.
– John’s OC of gaining $10 in mkt goods
(1 hr) is the foregone $5 meal.
– Jane’s OC of gaining $10 in mkt goods
(2 hrs) is $20 in meals
– Key: calculating OC for each for $10 in
mkt goods; this is one hour for John but
two hours for Jane.
– OC of mkt work is lower for John.
Opportunity Cost and
Comparative Advantage
• Comparative Advantage:
– To compare, use $30 value of mkt
goods (since can be divided evenly for
both 10 and 15).
– Diane’s OC of gaining $30 in mkt
goods (2 hours) is 2*15 = 30.
– Dave’s OC of gaining $30 in mkt goods
(3 hours) is 3*5 = 15.
– Dave has lower OC for mkt goods so he
will work in market while Diane will
work in home.
• Theory of Comparative
Advantage: Spouse will choose the
activity for which he/she has the
lower opportunity cost or the greater
relative productivity.
Exercise
• Given: Paul: w = $9; H = $6.
•
Sara: w = $6; H = $3.
• Paul and Sara choose to get married
and specialize according to their
comparative advantages.
• As a married couple, what is Paul’s
CA and what is Sara’s CA?
– 1. Show using the relative productivity
inequality for each person.
– 2. Show using the opportunity cost
method for each person.
• Hint: Use $36 in market goods to compare.
Specialization
• Question: Do women really
have advantage in home
production and why?
• This model implies that
specialization is efficient and
therefore a good thing.
• Criticism: NOT clear if
specialization is “good” choice
and in reality, individuals differ
in preferences too so perhaps
won’t see full specialization.
Downside to
Specialization
Life-cycle changes: advantage changes as
individual ages (kids grow up), etc.
Specialization   divorce even under
extreme circumstances (e.g. domestic
violence).
When gives up one activity entirely, then
productivity in given up sector will fall.
• I.e., if I stay home with the kids for 10
years, when I re-enter the paid workforce,
my earnings potential will have fallen.
– This is risky given high probability of divorce.
– Reduces incentives to specialize.
– Both occur simultaneously:
• divorce   specialization;
•  specialization   divorce.
Other Economic
Benefits to Marriage
• Principal-Agent Issues: Best way to
explain: plant owner and manager:
– Principal: Owner wants to max profits;
– Agent: Manager may have other
explicit goals, like max output, min
injuries, etc.
– So principal can only get what he wants
if he knows all about manager’s job and
can monitor properly
• 2 ways to get HH produced goods:
– 1) Could hire out: but employee might
not do good job and hard to monitor.
– 2) Could marry: now “worker”(really a
partner now) has personal stake in
quality of work. Works best when
marriage based on love, trust, etc.
Economies of Scale
• Essentially: costs less per person if
two people live together: lowers perperson (avg.) housing cost, food cost
• Avg. cost  as # persons .
• So, need one fridge if one person or
5 people.
• Example: Official poverty
threshold incorporates this idea:
– Threshold for 2 people is NOT twice
the threshold for one person.
More Benefits
• Risk-sharing: lowers cost of job
loss if two people share expenses.
– Good example of how cohabiting
college students differ from “partners.”
• Public goods:type of good that can
be consumed by  1 person without
 utility from consumption.
– Watching a TV program.
• Institutional advantages:
• Tax benefits
• Access to spouse’s health coverage.
Marriage Market:
S & D
• Uses Becker Model: uses
productivity as proxy for utility.
– How marital status choice is made;
– How gains of trade are divided between
husband and wife?
• Need basics (M=male; F=female):
– Output: Z (Happiness, Love, etc.)
• For single person: ZM and ZF
• For married-couple HH: ZMF
• Z: productivity/utility//happiness; like a
single composite good.
– Share of Output: S
• Amount of ZMF to husband = SM
• Amount of ZMF to wife: = SF
Further Details:
Marriage Market
• Note: SM + SF = ZMF.
• Marriage “rule”:
– Marry if expect to be better off:
– Man: marry if SM ZM.
– Female: marry if SF  ZF.
• Implies that for married couple:
– SM + SF  ZM + ZF.
– So: ZMF  ZM + ZF:
• NOT assuming that SM = SF.
– Gains to marriage for most
individuals.
Basics of S & D 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.
• Quantity term:# men, # women
• 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 (w/Zf fixed)
• Law of Supply
Marriage Model
(continued)
• To complete model, need demand
curve (of men) FOR wives.
• Need SAME price:
– Know: When SF high, SM very low.I.,e.,
when pay a lot to wife via SF, portion
left over for husband via SM is small.
– So man prefers low SF (and so high
SM).
• Yields negative relationship
between man’s willingness to marry
and price of marriage (I.e., amount
of productivity within marriage that
must go to wife).
• Consistent with Law of Demand.
– See Figure 3.10.
Marriage Market
Equilibrium
• Horizontal axis: # men or women
willing to marry.
• Vertical axis: price (SF): what
woman gets; what man pays.
• Equilibrium:
– not determined by negotiations within
each single marriage;
– general terms set by market (like social
norms);
– interpret: “..this is what married life is
like for men and women.”
• NOT showing how pick specific
partner, rather, shows:
– general decisions regarding marriage.
– how men/women treated within
marriage.
More on Equilibrium
• Marriage market equilibrium:
– unique price SF* that sets S = D.
• Explain equilibrating process as
with any market:
– If price too low as at SFL:
• Qd  Qs: more men looking than women
willing to marry;
• shortage;
• so men bid up price.
– If price too high as at SFH : Qs  Qd.
• At equilibrium:
– See N*
– # unmarried men
– # unmarried women.
Exercise
• 1. Sketch and label completely a S
and D model for marriage.
• 2. Using the Law of Supply, explain
the slope of the S curve.
• 3. Moving down to the right on the
demand curve, at some point, as the
price falls further, the demand does
not change. Why?
• 4. What is the marriage rule? (Hint:
use the terms ZF and SF.in your
answer)
• 5. List one ceteris paribus factor for
the supply curve.
• 6. Where/How does love enter this
model?
Effect of Changes
in S & D
• Comparative statics examples:
– 1) change in sex ratio
– 2) women’s improved L mkt
opportunities
– 3) Effect of birth control, etc.
• Change in sex ratio:
–
–
–
–
See Table 3.3 in text;
Shows differences by age and race.
Also: differences by education.
Effect of  in sex ratio:
•  # women w/no # men
• Shift vertical part over to right
• See  slope (same %  in #women ; smaller
#  at low SF; larger #  at high SF).
• See Figure 3.12.
Other Changes in S & D
• Increase in women’s wages:
– Will  ZF (well-being while single).
– Shifts S upwards:
• each woman now willing to marry at higher
value of SF than before.
• see Figure 3.13;
• no change vertical point.
• More effective birth control:
–  ZF and  ZM
– See Figure 3.14:
• start with S2 and D2
• AIDS has opposite effect.