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Family Economics Writ Large Jeremy Greenwood University of Pennsylvania University of Pennsylvania ScholarlyCommons Population Center Working Papers (PSC/PARC) Population Studies Center 1-2017 Family Economics Writ Large Jeremy Greenwood University of Pennsylvania Nezih Guner Center for Monetary and Financial Studies, [email protected] Guillaume Vandenbroucke Federal Reserve Bank of St. Louis, [email protected] Follow this and additional works at: http://repository.upenn.edu/psc_publications Part of the Behavioral Economics Commons, Family, Life Course, and Society Commons, Inequality and Stratification Commons, Labor Economics Commons, and the Women's Studies Commons Recommended Citation Greenwood, Jeremy; Nezih Guner; and Guillaume Vandenbroucke (2017). "Family Economics Writ Large." University of Pennsylvania Population Center Working Paper (PSC/PARC) WP2017-6. http://repository.upenn.edu/psc_publications/6. This paper is posted at ScholarlyCommons. http://repository.upenn.edu/psc_publications/6 For more information, please contact [email protected]. Family Economics Writ Large Abstract Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a decline in marriage and a rise in divorce; (iv) a higher degree of positive assortative mating; (v) more children living with a single mother; (vi) shifts in ocs ial norms governing premarital sex and married women's roles in the labor market. Macroeconomic models explaining these aggregate trends are surveyed. The er lentless flow of technological progress and its role in shaping family life are stressed. Keywords Assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity tradeoff, premarital sex, quantitative theory, single mothers, social change, survey paper, technological progress, women’s rights Disciplines Behavioral Economics | Family, Life Course, and Society | Inequality and Stratification | Labor Economics | Women's Studies This working paper is available at ScholarlyCommons: http://repository.upenn.edu/psc_publications/6 Family Economics Writ Large∗ Jeremy Greenwoody Nezih Gunerz Guillaume Vandenbrouckex January 2017 Abstract Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a significant decline in marriage and a rise in di- vorce; (iv) a higher degree of positive assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the workplace. Macroeconomic models explaining these aggregate trends are surveyed. The relent- less flow of technological progress and its role in shaping family life are stressed. JEL codes: D58, E1, E13, J1, J2, J12, J13, J22, N30, O3, O11, O15. Keywords: Assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity tradeoff, premarital sex, quantitative theory, single moth- ers, social change, survey paper, technological progress, women's rights. ∗The authors are grateful to Steven Durlauf and four referees for many helpful comments and suggestions. Matt Dalventhal, Yuliya Kulikova, Paolo Martellini, Andrii Parkhomenko, and Heting Zhu provided excellent research assistance. We also thank George Fortier, Judith Ahlers and Lydia Johnson for their help in editing the paper. Nezih Guner acknowledges support from ERC Grant 263600. The views expressed here are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. yUniversity of Pennsylvania, Department of Economics, 3718 Locust Walk, Philadelphia, PA 19104-6297, USA zCEMFI, Casado del Alisal 5, 28014 Madrid, Spain. Email: nezih.guner@cemfi.es. xCorresponding author. Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166, USA. Email: [email protected]. 1. Introduction macroeconomics. Traditionally macroecono- mists have been interested in explaining time “While the economic approach trends. Some of the strongest trends concern to behavior builds on a theory of shifts in the family. Over the course of the individual choice, it is not mainly past century in the United States there was concerned with individuals. It uses a large decline in the prevalence of marriage theory at the micro level as a power- and an increase in divorce, a dramatic drop ful tool to derive implications at the in fertility, an upsurge in educational attain- group or macro level. Rational indi- ment, and a huge rise in married female labor- vidual choice is combined with as- force participation. Social norms about mar- sumptions about technologies and ried female labor-force participation shifted other determinants of opportunities, and attitudes toward premarital sex changed equilibrium in market and nonmar- too. These shifts interest policymakers. Many ket situations, and laws, norms, and questions arise. Should the tax system be de- traditions to obtain results concern- signed to favor, or at least not penalize, mar- ing the behavior of groups. It is riage and/or married female labor-force par- mainly because the theory derives ticipation? Should child care be subsidized? implications at the macro level that What policies would be beneficial to children it is of interest to policymakers and growing up with single or divorced mothers? those studying differences among Should policies be designed to encourage (dis- countries and cultures.” Gary S. courage) child bearing in countries with low Becker (1993, p. 402) (high) rates of fertility? “One of the functions of theo- retical economics is to provide fully To address these questions one needs eco- articulated, artificial economic sys- nomic models, which can serve as Lucasian tems that can serve as laborato- laboratories to conduct policy experiments. ries in which policies that would Some of the macroeconomics models used in be prohibitively expensive to exper- family economics are the subject of this re- iment with in actual economies can view. The review starts in Section 2 with a be tested out at much lower cost.” simple model of married female labor-force Robert E. Lucas, Jr. (1980, p. 696) participation, which is used to analyze the rise in married female labor supply. The model is Think about the important choices that peo- also used in Section 2.2 to study the timing ple make in life. A far-reaching decision con- of births along the life-cycle and to investi- cerns who to marry. Close on the list is how gate the taxation of household income at either many children to have, and how to raise them. the level of an individual or a couple (separate Women, in particular, may be concerned about or joint taxation). The discussion then moves trading off their time between working, spend- onto developing a model of marriage and di- ing it with their children and husbands, and vorce in Section 3. The framework is em- leisure for themselves. What one chooses may ployed to examine the fall in marriage and the be influenced by social norms. Such norms rise in divorce. It is also used in Section 3.2 have prescribed who can work and what is to explain the recent uptick in positive assor- considered illicit behavior by young children tative mating, or the trend of people to marry and adults. Gary S. Becker taught us that someone from the same socioeconomic class. studying this is within the purview of eco- The drop in marriage has been associated with nomics. a swelling of the fraction of children living Aggregating the behavior of individuals to with a single mother. The plight of such chil- analyze the economy at large is the subject of dren is the subject of Section 4. Shifts in social 1 FAMILY ECONOMICS WRIT LARGE 2 norms are considered in Section 5; in particu- housekeeper wife of the past. The world is lar, the shift in norms about married women different now. working and premarital sex. These norms are Almost no married women of working age endogenous in the models presented. Next, (25 to 54) participated in the labor market models of fertility are reviewed in Section 6. in 1900. Today, about 75 percent of them The review focuses on the decline in fertility do (Figure 1). The increase in married fe- in developed countries and the rise in expen- male labor-force participation displays a S- diture by parents on the development of their shaped pattern; the increase was slow initially children. This is Becker’s famous quality- and followed by a period of rapid growth that quantity tradeoff. Attention is also paid to eventually leveled off. Large increases in fe- the enigma of the baby boom and the plunge male labor-force participation also occurred in in fertility during wars. The discussion is re- other developed countries (Figure 2). In con- stricted to addressing facts and issues in de- trast, the labor-force participation rates for un- veloped countries. married women of the same ages increased by Finally, before using an economic model for a much smaller amount over this period. The policy analysis, it must be quantified. Sec- increase was particularly remarkable for mar- tion 7 shows how a macroeconomic model of ried women with young children (less than 6 the family can be matched with stylized facts years old). Their labor-force participation rate from the data, using the baby boom as an il- more than tripled between 1960 and 2010. lustration. These stylized facts are generally moments—means, standard deviations, and 90 correlations—taken from cross-sectional and 80 time-series data. They also may include facts 70 Unmarried from nonstructural regression analysis. The 60 model may be matched with the set of stylized 50 facts using a variety of estimation techniques.
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