Final Econ 3090 Exam
Efficiency with Antidiscrimination Laws
-"Free" allocation of labor skills throughout the market is essential in order for the market to produce the greatest possible output -For example, if a woman is stuck doing a job that does not utilize her skills, due to discrimination, the market is missing out on the output she could have created were she given the opportunity to work at a higher skilled job
Divorce Rate
-16.7out of 1000 marriages end in divorce -declined since the 1900's
Nonmarital fertility rate
-44.3 in 2013 (overall fertility rate was 63) -White: 40.8 -Black: 61.7 -Hispanic: 69.9 -Asian: 21.8
Regression Analysis
-A statistical technique applied using data that is used for estimating the relationship between 2 or more variables -Use this to determine if a models prediction is correct - Quantity Demanded=alpha+BP+mu -B would be a negative number -1/B is slope of D curve when you draw curve because the price is on the vertical access (rise/run) -alpha is the value of quantity demanded when P=0 (intercept) -mu is random error term
Child Services
-Adults get utility from children since they have kids -Quality: amount of resources/time spent on children -Quantity: number of children -Production function: F(Tm,Tf,Z) (Time of mother and father, purchased child goods -Cost of Child Services: C(Wm, Wf, Pz)
Law of Diminishing Marginal Utility
-As you get more X, each extra X adds less to total utility -As X rises, the Marginal Utility of X falls
Economics of Discrimination
-Becker said that some people may "have a taste for discrimination," (prejudice)
Child Services Production Function
-CS=F(Tm,Tf,Z) -T= parental time inputs -Z= purchased child goods -CS production function yields the cost or price of CS function: Pcs= C(Wm,Wf,Pz)
Major LFPR Trends (Claudia Goldin)
-Early on, LF withdrawal at marriage; near-permanent end to paid work -Later, some LF withdrawal delayed until pregnancy; still most never work for pay again -At end, LF withdrawal at pregnancy but more return to paid LF as their children grow older
Statistical Discrimination
-Employer believes that productivity differs, on average, between different groups of people. Note that the employer might be right or wrong about this possibility of an avg. productivity difference. -e.g. discriminating against women because some drop out of LF after having a child
Trends Overview
-Fewer women age 20-24 ever married, more mother only families, fewer births per 1000 women age 15-44, more births to unmarried women, more married women work, more women earn more, more women earn bachelors degrees
Economists Take on Human Capital
-Gary Becker said that any activity with current cost and future returns can be analyzed like any financial investment
Law of Supply
-Increase in Price leads to an increase in quantity supplied, ceteris paribus
Model of Fertility Trends
-Increase in income leads to increase in demand for all normal goods (including CS) -Increase in price of childs goods (Pz), increases price of CS relative to prices of others adult goods, which leads to a decline in the demand for Child Services -Adult goods seem relatively cheaper ---Substitution Effect: like change in relative prices, lead to substitution in adult goods for CS -Effect of Mothers Wage: increase in value of her time increases the price of CS-decreasing demand for CS (substitution effect) -Increase in mothers wage increases purchasing power so increases demand for normal goods, including CS with price of CS being held constant (income effect) -Full Income increased: buy more goods including CS -Effect of Fathers wages: increase in mens wages increases CS -Improved Contraception and Availability of abortion: increase in fertility control
Law of Demand
-Increase in price leads to a decrease in quantity demanded, ceteris paribus - 2 effects (reinforce one another): income effect and substitution effect
Substitution Effect
-Increase in relative prices -substitute away from one good to other goods
Exogenous Variable
-Independent Variable -Explanatory Variable -Predetermined or given
Marginal Value of Leisure Time
-MVTL=∆utility/∆leisure
Race Differences in Marital, Family, and Economic Status
-Married & White: 50.5% -Married & Black: 26.5% -Never Married & White: 26% -Never Married & Black: 46.8% -Poverty Rate: White- 8.8%, Black- 16.3%
Theoretical Model of Fertility
-Maximize utility: U(C,S,A) -A: adult goods, all else besides child services) -Subject to income constraint: mothers income+ fathers income+ unearned income
Women in Economics
-Nobel Prize: Elinor Ostrom (political science) -John Bates Clark Prize: Susan Athey, Esther Duflo, Amy Finklestein -First Female Chair of the US Fed Reserve: Janet Yellen -Nobel Prize Winners: 74 men, 1 woman - only 3%of econ professors are women
Positive Economics
-Objective and fact based -Statements do not have to be correct, but must be able to be tested and proved or disproved
Nonmarital Birth Ratio
-Rising for many years -40% currently -lowest Japan 2% -highest Iceland 60%
Normative Economics
-Subjective and value based -Opinion based, so they cannot be proved or disproved
Law of Diminishing Marginal Returns
-The law of diminishing marginal returns is a law of economics that states an increasing number of new employees causes the marginal product of another employee to be smaller than the marginal product of the previous employee at some point.
Disparate Treatment vs. Impact
-Treatment: intent to discriminate -Impact: not intentional, legal with BFOQ
Beckers Model: Utility Maximization Subject to Constraints
-U=U(CS,A) -Full Income Constraint: Yf=(Wm*T)+(Wf*T)+V -V indicates all unearned income
Three Uses of Time
-Utility= U(C,L,G) -consumption goods, leisure time, home produced goods -best choice depends on wages, prices, and non-labor income
Compensating Differentials
-Wage differences that compensate for differences in good or bad job characteristics across occupations; also incorporates differences across individuals in tastes for these job characteristics -e.g. risk of injury, physical comfort, job flexibility -men tend to carry these jobs that have high risk of injury, etc
MMPI- male marriage pool index
-William Julius Wilson -when men are unable to support a family, women are unwilling to take them as husbands -# of men per 100 women -split into age and race brackets
Effect of Changes in Womens Wage Rate on LFP
-a higher woman's wage, ceteris paribus, increase MVTm (Marginal value of Time with paid work) because it is an increase in w/p (real wage) -when out of the LF, and increase in woman's wage carries a substitution effect but no income effect -substitution effect increases probability of LFP -Conclusion: rising value of real wages for women tends to lead to an increase in LFP
Duncan Index
-aka Index of Dissimilarity -summary measure of an economy's degree of occupational segregation -based on number of occupations and the proportion of men or women in each occupation -0= perfect integration -100= perfect segregation S = 1/2∑|Mi - Fi| -M and F are the percentage of males and females in the labor force who work occupation i -Duncan Index=S= percent of men or women who would have to change occupation to eliminate segregation -the greater the number of occupation categories the great the segregation index, therefore greater "evidence" of segregation
Total Fertility Rate
-at peak of boom: 3.5 children -at bottom of bust: 1.7 children -in 2014: 1.86 children
Fertility Rate
-births per 1000 women of children bearing age -62.9 in 2014
EEOC
-cannot initiate claims, only responds to those already filed
Comparative Statistics
-change in ceteris paribus factors underlying demand, supply or both in the marriage market
Increase in Female LFP
-changes in husbands income, women's wages, child LFP, increase in household productivity -high earning husbands=relatively high earning wife (and same for low earning) -the more women earn, the less they want to work -the less women earn, the more they want to work -Rising husbands income- reduces wives' LFP because their value on leisure increases -a higher women's wages increase, the marginal value of paid work an makes them more likely to work for pay -when out of labor force, an increase in women's wage is a substitution effect, not an income effect -having more children: increases household production and the marginal value of time in the house, shifts time from leisure and paid work, to household production, less likely that female will work in paid labor market because marginal value of paid work is less than marginal value of time
Time Use Model Utility Maximization
-compare marginal values -increase paid work by one hour as long as valuation of that extra paid time exceeds value of that extra leisure time
Selection Effect
-correlation and the apparent benefits of marriage simply reflects the kind of men and women who are married, rather than the impact of marriage
Labor Demand
-decided by firms
Labor Supply
-decided by individuals
Trends in Fertility
-decline 1870's-1930's -Baby Boom 1945-1964 -Baby Bust big decline in the 1960's and late 1970s -Slight increase then near stability through 2007 -Impact of Great Recession: dipped below replacement rate (ZPG), predicted mostly to recover as of 2014
Derived Demand
-demand for labor depends on the demand for the product that the workers are producing
Endogenous Variables
-dependent variable -choice variable -chosen inside model
Theory
-describes the relationship between dependent variable and independent variable(s)
Cohort
-different groups of individuals, observed at different time periods, all of whom were born in same decade but not the same individuals
No-Fault Divorce
-divorce law that allows marriages to be terminated without consent from both partners -started in 1970's -meant that couples could obtain a divorce without ascribing a fault such as adultery
Means Tested Transfer
-dollars distributed from the government to individuals and families determined by the families income -TANF: temporary assistance for needy families -AFDC: aid to families with dependent children -SNAP: (food stamps) subsidized nutritional assistance program -EITC: earned income tax credit -Medicaid: health insurance for low assistance program Program Structure: B=program benefits, Y=family income, G=guarantee (benefit amount if family income is 0), t=implicit tax rate B=G-tY
Pure Price Effect: Comparative Statistics
-effect of an increase in Pz (ceteris paribus) that causes an increase in the overall price of CS -increase in price of child goods is an increase in child services relative to prices of other adult good, which leads to a decline in the demand for child services -this is seen as substituting away from CS towards other adult goods -∆CS*/∆Pz<0 -like a change in relative prices--> substituting A for CS
Pure Income Effect: Comparative Statistics
-effect of an increase in full income (ceteris paribus) that comes from an increase in V -increase in income leads to an increase in the demand for all normal goods -∆CS*/∆V>0
Regression-based research
-effect of children on LFP -research by Boushey -LFPi= α + βXi + πChildreni + µ -coefficient on children tends to be negative and has been falling over time
Sources of Discrimination
-employers, employees, customers,
Equal Pay Act of 1963
-equal pay for equal work -first federal law dealing with sex discrimination -stated it is illegal to pay different wages to men and women with the same job that have the same skill, education, and experience -only covers wage discrimination
Affirmative Action
-every firm with a gov contract of at least $50,000 must develop an affirmative action plan -includes numerical goals and timetables for achieving them
Time Allocation Model with 3 Uses of Time
-extended to reflect more realistic portrayal of time with women entering labor force U=U(C,L,G) C= consumption goods, L= leisure time, G= Household goods production Contraints: -Budget: pC=wM+V -HH Goods Prod.: G=g(H,Z) -Time: M+L+H=T
Income Effect
-feel less wealthy -decrease demand for ALL goods
Economic Model of Womens Time Use
-female choices about how to spend her time capturing main elements of real world -Utility=U(C,L) -C=consumption goods, L=leisure time -Two constraints: budget=wages*paid work+non labor income, Time=paid work+leisure -factors that effect time are: market wage, market price of other goods, non-labor income, and individual preferences for work/leisure
Divorce Imperfect Information
-getting married without fully knowing the individual
Elimination of Discrimination Will Happen When:
-increased competition (firms hiring women have lower labor costs than firms hiring only men) -enough potential firms with 0 discrimination -freedom of firm entry permitting new employers with lesser taste for discrimination to enter the industry -this ignores the other 2 types of discrimination
Specific On the Job Training
-increases productivity at just this firm where the training occurs -learning a skill that is only specific to that firm -contributed more to lifetime wage growth -contributes to gender wage gap due to difference in women's intermittent work
General On the Job Training
-increases worker productivity at this firm as well as any other firm -learning a skill that can be taken to any firm
Economics is about Choosing
-individuals are rational utility maximizers -have a goal to be happy -People have information and make consistent/purposeful choices -Factor in budget and time constraints
Supply and Demand Shifts
-labor demand curve is downward sloping because as the wage increases, firms hire fewer workers since they are more expensive -labor supply curve is upward sloping because as the wage increases, more individuals are will to work for pay
Labor Market
-labor supply and labor demand interact to determine the equilibrium wage rate -price in this market is wage and quantity is the number of workers
Earned Income Tax Credit
-largest cash assistance program in the US for low and moderate income families with earnings. -refundable tax credit -improves work incentives for lower educated individuals -very effective policy
Teen Fertility
-major trend began in the mid 1970s -teen pregnancy rate is twice of teen birth rate due to 1/3 end in abortion, 1/6 end in miscarriage -teen fertility rate in US is more than double most developed countries -teen births have fallen -shotgun weddings decline cause increase in non marital fertility
Constrained Optimization
-making choices when options are limited -use economic choice models to explain fertility, marriage and labor supply
Marriage Protection Effect
-married couples look out for each other and take care of each other
Marriage and Health
-married individuals are happier and healthier -that happiness benefits the marriage
Male Marriage Premium
-married men earn 10-20% more than single men
Solution to Choice Models
-maximize total utility -equate utility on the margin for last trade-off of X and Y
Trend in College Grad Rates by Gender
-men and women graduate from high school in equal numbers -currently women are more likely to be college grads than men -men decreased and women increased, crossing around 1990 -women have grown in professional degrees and are taking jobs in dentistry, medicine, law, and business -sharp rise from women due to women's movement in 1960, Title IX which prohibits discrimination on basis of sex, plus women's ability to control their reproductive lives
Labor Force Participation Rate (LFPR)
-most widely used measure of work activity for different population groups -it is the proportion of individuals, aged 16+ who are either employed or unemployed -LFPR=(E+U)/Population -LF=employed+unemployed
Should I increase paid work by 1 hour, thus, decrease leisure time by 1 hour?
-must value extra hour of labor more than that hour of leisure
Gary Becker
-nobel prize winner -applied marriage to economics for the first time -explains that most people marry due to expected gains -
% of families headed by a single mother
-now fewer than half of women report being married with a spouse present -more single mothers today than ever before
Labor Supply Elasticity
-responsiveness of labor supply to changes in the wage: can be positive, negative, or zero (depending on relative magnitudes of the income and substitution effects)
Selection Bias
-sample obtained is not representative of population
Mothers Wage: Comparative Statistics
-see CS equation and find the two places that contain the woman's wage -an increase in Wm is an increase Pcs: this increase in the value of her time is an increase in the price of CS so this is an increase in the price of child services relative to other goods which leads to a decrease in demand for CS -substitution effect comes from a change in relative prices -∆CS/∆Wm (Yf fixed) < 0 -an increase in Wm is also experienced like an increase in purchasing power so will increase demand for all normal goods including CS -Income Effect: ∆CS*/∆Wm (Pcs fixed) > 0
Comparative Statics
-shows how the best choice of an endogenous variable is affected by a change in an exogenous variable
Human Capital
-skills that workers possess and that determine their labor productivity -3 main producers: families, schools, firms, -investments in HC include OJT, and education
welfare
-social security act of 1935 -TANF (temporary assistance for needy families) -less gains from marriage for african american women
Gender Wage Gap Using Birth Cohorts
-some of the gender wage gap will go away once the earlier cohorts age their way out of the data, leaving more and more female workers with full (or nearly full) lifetime work histories
Montgomery and Powell Research
-studied students who took the GMAT and whether they finished their graduate degree and how much they were making 3 years after taking it -used female dummy variable -Discovered that getting an MBA served as a positive signal of work commitment that helps women overcome discrimination
Trends for Median Age First Married
-the age is getting older and older -years ago the age was younger and younger -20.3 in 1960 -27 in 2014
International Trends
-the divorce rate is much higher in the US than all other countries -we also have a much higher trend of people that have never been married
Breakeven Income
-the level of family income at which the benefit amount has been reduced to 0 (G/t)
Trends in % Married
-the percent of women married with a spouse has significantly decreased over the years; 1950=70%, Now=less than 50%
Trends for Never Married
-the trend is increasing, which makes sense because the total % married has been decreasing
Neoclassical Economics
-theories to explain what we see -testing theories with data -focus on positive vs. normative
Opportunity Costs
-things you could be doing instead of training, or going to class (such as working a paid job)
Zero Population Growth Fertility Rate
-total fertility rate that results in the population not growing or shrinking
Annual Divorce Rate trend
-trend is lower now than it was years ago -this is because it used to be very easy to get divorced
Human Capital- Direct Costs
-tuition, fees for training, etc
Cohabitation
-two individuals who aren't married but live together
Fertility
-utility maximizing framework with household production approach to show how "best choice" is made with regard to fertility
Random Assignment
-when medical researchers want to determine the effect of a new drug, they run a clinical trial -
Occupational Crowding
-when men and women segregate into certain jobs entirely
POSSLQ's
...
Race Differences
...
Women and Social Security
...
Unemployment Rate
=unemployed/LF -must be actively seeking work to be unemployed (excludes discouraged workers)
Household Production Function
G=G(T,Z) G= amount of household goods produced (meals, children, etc) T= all other inputs (purchased food, etc) -Shows quantity of output that is produced from quantity of inputs
Equity with Antidiscrimination Laws
If a certain type of person is not being hired because of certain religious beliefs, race, or sexual orientation, laws need to be created to enforce the labor market to treat all participants equally
Rule for Picking Best Use of Time
Keep increasing work by one hour as long as MVTM > MVTL
Best Choices for Expanded Time Allocation
L*=L(w,pV) C*=C(w,p,V) G*=G(w,p,V)
Marginal Value of Time
Leisure: =∆U/∆L Household Work: ∆U/∆H Market Work: = ∆U/∆M -all linked together
Marginal Revenue for Product of Labor
MRPl=p*MPl -p=price of output produced by additional labor -Law of Diminishing Marginal Productivity of Labor: Marginal Productivity falls and labor increases -firms hire as long as w is less than or equal to the MRP of last worker hired and so the MRPl is the firm's demand for labor curve
Effect of Husbands Income on Wives' LFP
MVTM = MUc(C) x w/p Ch= womens consumption level given husbands income - high for women with high earning incomes, low for women with low earning husbands Case 1: For a woman with high CH, the marginal utility of goods a woman can provide is low... woman is less likely to work Case 2:: For a woman with low CH , her MUC is high so MVTM(1) is high and she is more likely to work Conclusion: rising husbands income, ceteris paribus, tends to reduce wives LFP
Marriage Rule
Sm+Sf=Zmf Z= single S=married Males enter market if Sm > Zm Females enter market if Sf > Zf
Progressive Taxes
Tax rates go up as family income goes up
Law of Diminishing Marginal Utility
The marginal utility of time in the market decreases (via a decline in the marginal utility of consumption) as time in the market increases (even though total utility increases when C increases)
Time Use Model
U=U(C,L) Two Constraints: -Budget: pC= wM+V -Time: M+L=T M=paid work, L=leisure time, C=other consumption goods, p=price (exogenous) Factors that effect this model: market wage, market prices of goods, non labor income (V), individual preferences L*=L(w,p,V), M*=M(w,p,V), C*=C(w,p,V)
Utility Function
U=U(X,Y) -X&Y represent 2 goods chosen measures welfare and satisfaction
Mainstream Economics
constrained optimization, neoclassical economics
Oaxaca Decomposition
lnY = a + b1YrsEduc + b2WorkExp + b3Race + b4Female + u
Gender Earnings ratio/gap
ratio= womens median earnings/mens median earnings gap= 1-gender earnings ratio -has to deal with occupational segregation (which jobs are mens jobs and which are women's jobs)
Proportional taxes
tax rate is the same regardless of level of family income
Regressive Taxes
tax rates decline as family income goes up
Title VII of the Civil Rights Act of 1964
"To refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin" -amended to include gov and union members, pregnancy, and sexual harassment