Labor Supply and Household Dynamics

Abstract

Using the Panel Study of Income Dynamics, we provide evidence that to understand household decisions and evaluate policies designed to affect individual welfare, it is important to add an intertemporal dimension to the by-now standard static collective models of the household. Specifically, we document that the observed differences in labor supply by gender and marital status do not arise suddenly at the time of marriage, but rather emerge gradually over time. We then propose an intertemporal collective model that has the potential of explaining the observed patterns.

Static and Intertemporal Household Decisions

“…Mazzocco, Ruiz, and Yamaguchi (2014b) examine the relationship between marital status, labor supply, and household production. The paper is motivated by evidence documented in Mazzocco, Ruiz, and Yamaguchi (2014a) using the PSID, which indicates that marital decisions affect labor supply and household production choices.…”

“…These issues are of particular importance when analyzing the impact of large-scale reforms like those discussed in the introduction: assuming exogenous threat points in such contexts will generally generate misleading implications. Papers that structurally estimate collective models, such as, for instance, Bronson (2015); Gemici and Laufer (2012); Mazzocco, Ruiz, and Yamaguchi (2014b); and Voena (2015) deal with these issues by first solving the model by backward induction for each possible period and state of nature and then by simulating forward the path followed by a given individual. An alternative method for dealing with these issues is to use an equilibrium approach.…”

“…But it enables us to describe the main features of the LIC model without having to deal with the cumbersome notation that would be required by a model with an arbitrary number of periods and states of nature. For a general version of the LIC model, one can read, for instance, Mazzocco (2001); Ligon (2002); Aura (2005); Mazzocco (2007); Gemici and Laufer (2012); Mazzocco, Ruiz, and Yamaguchi (2014b); Voena (2015); or Bronson (2015).…”

“…This definition is the most commonly used in papers that study dynamic household behavior. For instance, it is used in models that test and estimate intertemporal collective models, such as Aura (2005); Mazzocco (2007); Gemici (2011); Mazzocco, Ruiz, and Yamaguchi (2014b); Bronson (2015); and Voena (2015), as well as in models based on search, such as Jacquemet and Robin (2013) and Gousse (2014). An alternative definition is considered in Lundberg and Pollak (1993).…”

Youth Idleness in Indonesia

“…Among school graduates, the duration of unemployment is a particular interest of the previous study; either theoretically explained how labour supply and demand operated (Salant, 1977;Mazzocco et al, 2014) or its empirical trend such as a case of Indonesia (Manning & Sumarto, 2011). Much of the previous studies dealt with the economically active young population, but was less concerned with the economically inactive young population (Note 7).…”