Explaining Changes in Female Labour Supply in a Life-Cycle Model

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  • 1 January 2004
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      • Published in RePEc
Abstract
Female labour force participation and labour supply, in the US, as in many other developed countries, has changed dramatically over the last 30 years. If one compares cohorts of women born in the 1930s (such as Elizabeth Dole), 1940s (Hillary Clinton) and 1950s (Oprah Winfrey), two main features emerge when considering labour supply in its various dimensions. First, comparing the Elizabeth Dole cohort to the Hillary Clinton one, we can see a substantial shift of the age profile of labour supply. However, the shape of the profile does not change much. In particular, in both profiles we observe a low participation corresponding to child rearing years. When comparing the Hillary Clinton cohort with the Oprah Winfrey one, we see that the low participation rates associated with the 'fertility years' are no longer present. The aim of this paper is to propose a life cycle model of saving and labour supply that could account for these dramatic changes. We explore whether changes to some specific parameters and exogenous variables of this model can generate the patterns observed in the data. Or, to use a different perspective, we want to quantify the size of changes in unobservable factors needed to explain the observed patterns. The main change in labour supply behaviour in the data is on the extensive margin. We consider a number of possible determinants of these changes in participation. First, wages may have increased relative to the fixed cost of participation. For example, the costs of child-care may have fallen. This would lead to greater participation at all ages and especially among mothers of infants. Second, on-the-job learning or the return to experience may have increased. As argued by Olivetti (2001), this increases the opportunity cost of reduced labor supply. Third, the depreciation of skills that occurs if an individual is not participating may have increased. Finally, we look at other possible explanations, such as a delay in the arrival of the first child
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