Inequality and household labor supply

Available from: 
October 2013
Paper author(s): 
Maria Jose Prados (University of Southern California)
Stefania Albanesi (Federal Reserve Bank of New York)
Topic: 
Gender Economics
Labor
Poverty - Inequality - Aid Effectiveness
Year: 
2013

The entry of married women into the labor force and the rise in women’s relative wages are amongst the most notable economic developments of the twentieth century. However, since the early 1990s, the growth in these indicators has stalled, especially for college graduates. This paper links the decline in married women’s participation and wages relative to trend since the early 1990s to the growth of the skill premium, which substantially accelerated in those years. Our hypothesis is that the growth in wages for highly educated men generated a negative wealth effect on the labor supply of their female spouses, reducing their labor supply and their wages relative to men. We develop a model of household labor supply which can qualitatively reproduce a negative effect on wives’ participation of a rise in husbands’ earnings. We show that a calibrated version of the model can account for more than half the decline relative to trend in married women’s participation in 1995-2005, and more than two thirds for college women. The model can also account for one third of the rise in the gender wage gap for college graduates relative to trend in the same period.

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Research section: 
Lacea 2013 annual meeting
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