1. Chapter 3 Labor Force Participation

2. Are people poor because they don’t work? 81.3% of male headed households participate in the labor force More than 50% of females headed households participate in the labor force What does it mean to be in the labor force?? –Employed or actively seeking work –May not be collecting a wage

3. Sub-employed Discouraged worker –Stop looking because frustrated –No longer counted as unemployed –Can be contagious Underemployed –Accept any job –Usually in secondary labor market Unemployed –Not working but attached to labor force

4. Why are people sub- employed?? Conservatives –Poor are unwilling to take any job –Have unrealistic job expectations Liberals –Poor lack the opportunity or education to get jobs that will assure a decent standard of living

5. Official Definition of Unemployed A person 16 years or older is unemployed if he/she –Is not currently working –Has actively looked for work during the previous four weeks –Is currently available for work

6. Types of Unemployment Frictional –Arises from normal operations of the labor market –Labor markets are dynamic and information is not perfect –In between jobs Seasonal –Can’t work due to seasonal patterns

7. Structural –Imbalance between skills have and those demanded by labor market –Lack of proper training –Monetary and Non-monetary costs Cyclical –Demand deficient unemployment –Associated with the business cycle –Aggregate Demand: total amount of goods and services demanded by all people –Aggregate Supply: Total amount of good and services supplied by all people

8. GDP (in trillions) Price 25 AD’ AD AS Unemployment because need 3 trillion less units of the good

9. Natural Rate of Unemployment Frictional + Seasonal + Structural + Cyclical Estimated at 5% Can this figure ever be zero? –No…why?? –Cyclical is the only type of unemployment that could even in theory be zero

10. Costs of Unemployment Economic –Inefficient because not using all our resources –Okun’s Law For every 1% increase in unemployment there is a 2.5% decrease in GDP –If we are inefficient where are we on the PPC?? Inside the curve Social –Loss of self respect, erosion of stable family, more crime, homelessness, discrimination

11. Roger and me Pick out as many costs of unemployment as you can…the person with the most will get extra credit!!!

12. Relative Importance of Income Sources Differ for poor and non-poor –Average incomes differ by $27,396 –Part of this gap is closed by in-kind transfers –Gap can be closed by labor market earnings –Poor either not work enough or are paid too little

14. Nonparticipants If you don’t work you run the risk of poverty…but not a simple relationship –½ of nonparticipants are children under age 16 –20 million are retired –8 million are over 16 but full time students –10 million are institutionalized, sick or disabled –23 million are women who consider themselves homemakers –6 million are others who just don’t work

15. Remember duration is important ½ of those who experience unemployment stay unemployed for greater than 5 weeks

16. Review Poor families receive most of their income from work –Labor force participation is key Many are sub-employed –Discouraged worker, underemployed, unemployed

17. Is reducing poverty a societal goal? Public Policy affects Aggregate Demand –If increase AD more jobs –No need for more products = surplus –Expensive for the firm –Must layoff workers to compensate Is there an opportunity cost of unemployment??? –Yes….inflation

18. Phillips Curve Statistical Relationship between unemployment and inflation –Not a series of equilibrium points Shows the Short Run tradeoff between unemployment and inflation Can relate to Aggregate Supply Curve

19. Aggregate Supply AS Quantity Price

20. What are the relationships?? Between Prices and Inflation? –Positive –Inflation is the rate of change of prices Between Quantity produced and Unemployment? –Negative –Produce more??? You need more people (unemployment decreases)

21. Phillips Curve Unemployment Inflation Natural Rate Of Unemployment Expected Rate of Inflation

22. More Phillips Curve… Negative relationship between inflation and unemployment What would happen on the Phillips Curve if Aggregate Demand would increase? –Move up the curve –Because unemployment would decrease What would happen on the Phillips Curve if Aggregate Demand would decrease? –Move down the curve –Because unemployment would increase

23. Long Run Phillips Curve Represents equilibrium Vertical at the natural rate of unemployment Inflation Unemployment Natural Rate

24. In-class exercise 9 The Phillips Curve

25. Phillips Curve worked until the early 1970s Due to Stagflation –High rates of unemployment and inflation from supply shocks AS AS’ AD Quantity Price P2P2 P1P1 Q1Q1 Q2Q2

26. Summary Price increased –Inflation did what?? Increased Quantity decreased –Unemployment did what?? Increased Phillips Curve says they should move in the opposite direction!!

27. So… Phillips Curve still used by economists but less faith is put in it Politicians disagree about it also… –Conservatives Slope is steep –Liberals Slope is flat Important in decision whether or not to fight inflation

28. Inflation Unemployment Conservatives (Republicans) Fight Inflation Liberals (Democrats) Don’t Fight Inflation Big decrease in inflation with only Small increases in unemployment Small decrease in inflation but Big increases in unemployment

29. Chapter 4 The Working Poor

30. Is it possible to eliminate poverty by providing everyone a job? Statistics say no!! Most of the poor population work –Don’t work enough –Work part time or part year New problem –Low wages

31. Where do wages come from? Interaction of the Supply and Demand for Labor Where does demand for labor come from? –Firms What are the important variables? –Wages and number of workers What relationship do these variables have? –Negative

32. What happens when wages increase? Higher costs for the firm –What happens to prices? –increase –What happens to output? –decrease –What happens to the number of workers needed? –decreases Change from using labor to capital

33. What factors affect the demand for labor? Demand for the product –Increase??? More output needed so more workers needed Price of inputs –Increase??? Costs increases so less output produced and less workers needed Available technology??? –Increase??? More capital used so less workers needed

34. What determines the Supply of Labor? Workers What is the slope? –Positive or Zero depending on whether it is the market or firm Market Labor Supply –Positive Slope –If wages of secretaries increase (ceteris paribus) more people want to be secretaries

35. Firm Labor Supply –Horizontal –If all firms were offering similar wages and everyone had enough workers…. How many workers will want to work at a lower wage? –NONE What if firms want to offer a higher wage? How many workers will they get? –Infinitely many…but the firm already had enough »Higher wages will only increase the costs to the firm Everyone offers the same wage…which is??? –MARKET EQUILIBRIUM WAGE

36. # workers Wage LdLd LdLd LsLs LsLs MarketFirm

37. What about between occupations?? A decrease in the L s of one occupation could increase the L s in another occupation Remember –A decrease in L s is a shift to the left –An increase in L s is a shift to the right

38. In-class exercise 10 What happens as workers change occupations?

39. # workers Wage LdLd LdLd LsLs LsLs SalesComputer Ls’Ls’ Ls’Ls’ W1W1 W2W2 W1W1 W2W2 N2N2 N2N2 N1N1 N1N1 Equilibrium Wages Can Change Overtime!!

40. Since L d is downward sloping, if wage gets too high will the firm stop hiring workers? NO…workers add to output and revenue

41. Marginal Product of Labor (MP L ) Additional output that can be produced by a firm when they hire one additional worker What is the goal of the firm?? –Maximize profits –Profits = Revenue – Costs

42. So… Employ up to the point where the additional revenue (Marginal Revenue) just equals the additional cost (Marginal Cost) of that worker If MR > MC what should the firm do –Hire another worker If MC > MR what should the firm do –Don’t hire

43. Does does MP L look like either of these? MP Number of Workers

44. MP HireDon’t Hire Stop Hiring MR=MC MR>MC MR<MC

45. Marginal Revenue Product of Labor (MRP L ) Value of the additional output produced MRP L = MP L * P

46. What about the cost side? What is the MC or additional cost per worker? –Wage Want to hire until revenue made by the last worker = cost of the last worker –Hire until MR = MC What is the MR?? –MP L * P Hire until MP L * P = wage

47. In-class exercise 11 Hire or Not???

48. Why is the wage rate too low?? MP L * P = wage MP L is too low –MP L poor < MP L non-poor –Too little education –Not enough skills or experience Price too low –Farmers during a good harvest because everyone is probably having a good harvest

49. Where does income come from? Wages Capital/assets Government transfers If first two do not equal some “required minimum” then the third entered

50. Summary: The poor have lower wages because… Low Marginal Revenue Product of Labor –Low levels of training/education –Low price of the output –Work in markets with restricted demand –Work in markets with high labor supply –Work in non-unionized markets Discrimination

51. What can we do?? Increase productivity –Subsidize education –Job placement Guaranteed minimum income Government intervention in the labor market But…give people something for free and it decreases the incentive to get it on your own.

52. Chapter 11 Welfare Programs

53. Movie: Ending Welfare as We Know It Homework: Detail the changes that the Clinton Administration tried and the impacts of these changes on the families depicted

54. Chapter 11 Welfare Programs

55. What is the history of helping the poor? Great Depression brought high unemployment –Enacted income security programs as part of the New Deal Late 1950s and Early 1960s Kennedy set fighting poverty as a major goal –Highlighted by the Civil Rights March in August 1963 1964 Johnson declared poverty as part of his Great Society plan –Goal: reducing poverty, eliminate discrimination, and begin training programs

56. Late 1960s – Early 1970s Nixon supported a cash and food stamp program for the poor Republicans pushed harder for the cash transfers

57. Income transfer payments Money income transferred from the government to the poor Two types: –Social insurance programs Benefits given on a basis of previous service or contribution (social security or unemployment) –Means-tested program Benefits given on the basis of need

58. Basic Idea Give money to the poor and it will eliminate poverty Monetary transfers are referred to as welfare or public assistance In 1987 48 billion dollars would have been necessary to put everyone in poverty above the poverty standard

59. Problems Exclusive reliance –People will never escape poverty if the government gives freely –Lead to perpetual poverty No work incentive

60. Cash Assistance Programs Supplementary Security Insurance –For the elderly, blind or disabled Temporary Aid To Needy Families (TNAF) –Provide families whose father is absent or disabled –1961 Congress permitted but didn’t require aid to be extended to two parent families –1968 Supreme eliminated the no man in the house requirement –Was called Aid to Families with Dependent Children (AFDC) Changed July 1, 1997

61. General Assistance –Given by each state –Assistance for the needy

62. How much does each give?? ProgramNumber of recipients Average monthly payment SSI5.3 million364 TANF14.1 million137 GA1.2 million150

63. Is this amount adequate??? A mother with two children receives about $10,200 in benefits. This is about ½ of the poverty standard Is this fair? –SSI gives more than 2.6 times more than TANF Other Problems –With TANF most male headed households don’t qualify –Deserving vs. non-deserving

64. Family Disincentive Issue Targeting female heads of households may create more female headed families –Females may leave home to create a separate household –May increase likelihood of separation or divorce –May increase likelihood of having more children New programs designed to help reduce this problem –Fathers may leave to increase eligibility

65. Work Disincentive Issue Until 1967 there was no incentive to work –Every $1 earned in the labor market, welfare benefits decreased by $1 Marginal Tax Rate was 100% What is the Marginal Tax Rate? –Tax on the last (additional) dollar earned Program was changed in 1967 to try to fix the problem. –Marginal tax rate decreased to 67%

66. Before 1967 A mother with 3 children could receive $400 per month ($4800 a year) and was able to find a part time job paying $5 per hour for 10 hours a week for 48 weeks. How much would her benefits decrease if she took the job? How much does she earn at her job? –5*10*48 = 2400 Original benefits – amount earned from job = new benefit amount –4800 – 2400 = 2400 How much is she actual earning per hour from her job? –$0.00 per hour

67. Changes in 1967 Marginal Tax Rate was decreased to 67% Disregarded the first $1080 of income earned in the labor market –$720 per year for work release expenses –$360 per year for other general expenses

68. Did it make a difference? Basic structure:

69. In-class exercise Did it make a difference? A mother with 3 children could receive $400 per month ($4800 a year) and was able to find a part time job paying $5 per hour for 10 hours a week for 48 weeks. How much would her benefits decrease if she took the job?

70. Solution Earnings: 2400 New benefits: 4800 – (2400-1080)*.67 = 3915.60 Total Earnings: 2400 + 3915.60 = 6315.60 Additional Income: 6315.60 – 4800 = 1515.60 Dollar Per hour earned: 1515.60/480 = $3.15

71. Does this really give the incentive to work?? Earn $3.15 per hour of $5 per hour job Include in child care, transportation, and other necessities and you now earn under $2 per hour But…income increased from $4800 to $6315.60 –30% increase in income

72. In-class exercise 11 Is there an incentive to work??

73. Now Graphically Hours of work Total Income Gross Income income Basic support level Benefits A B D E CW

74. What were those points? A: individual doesn’t work at all B: hit income equal to 1080  benefits will begin to decrease C: decrease in benefits due rising income D: income increasing at a slower rate due to Marginal Tax Rate of 67% E: income before 1967 when Marginal Tax Rate was 100% W: increase in income as more hours are worked

75. Conflicting Welfare Goals Maybe we should decrease the Marginal Tax Rate to 33% or even zero. –What happens to the dollar per hour earned as we decrease the Marginal Tax Rate? Increases Redo in-class exercise 11 with a Marginal Tax Rate of 33% –Why don’t we do this?? What will pay for the program?

76. Welfare has three distinct goals Provide income Provide work incentives Achieve cost minimization

77. Breakeven income Point at which the individual loses all cash benefits From exercise 11 what would be the breakeven income level? –(7500/.67)+1080 = 12,274.03 If the marginal tax rate would decrease what would happen to the breakeven income? –increase

78. Where did this come from? What are the new benefits at the breakeven income level? –Zero Old benefits – (income-1080)*.67 = 0 Solve for income –(old benefits/.67) = income - 1080 –(old benefits/.67) + 1080 = income

79. Now adding in the in-kind programs Food Stamps –Coupons which people use to purchase food –Average benefit in 1999 was $272 per month for a family of four –$9.07 per day for the family to eat three meals –$3.02 per meal for the family –$0.76 per meal per family member –Small amount per meal but increases the standard of living for the family

80. Medicaid –Medical insurance program for the poor –Annual benefit averages about $2,000 per family of four Housing Assistance –Averages $2,000 per family per year –Subsidizes rent (based on income) If a family of four were eligible for all three… –Gain $7,264 in addition to any cash transfers that they were eligible for

81. But… Not all in-kind benefits increase a family’s standard of living Not everyone is eligible for all three in-kind programs Now…adding these to our graph

82. Hours of work Total Income Gross Income wage Basic support level Benefits A B D E C W A* B* E* D*

83. What were those points? A*: start at higher level to reflect in-kind and cash transfers B*: Cash benefits, food stamps, and housing assistance beings to decrease after disregarded income is earned D*: lose all food stamps and housing assistance E*: lose all benefits (cash and in-kind)

84. When do we lose benefits? Medicaid –Must earn < 133% of the poverty line –How much can you earn if the poverty line is $12,000? $15,960 Cash transfers –Marginal Tax Rate is 67% In-kind transfers –Marginal tax rate is 33%

85. New work incentive problem Between B* and D* –Marginal tax rate of cash transfers?? 67% –Marginal tax rate of in-kind transfers?? 33% –If gain both, what is the marginal tax rate?? 100% –No incentive to work again

86. What has been tried? Negative income tax –Guaranteed income –Simple program because give on basis of need –Monetary and non-monetary costs (time)

87. Impacts Family structure –No incentive to split up family, but incentive to form household early to become eligible for aid –+ and – impacts Work incentives –Labor force participation decreased –5% by males, and 22% by females –Negative impact When do you file??

88. Guaranteed Jobs (Carter administration) Everyone willing and able to work will be found a job Positive impacts –Decreases need for welfare, provides a work incentive, and promotes family stability Negative impacts –Very expensive –Who is able to work? –People move in and out of poverty…who do you help first?

89. Workfare (Regan administration) Force the poor to work to keep their benefits Point…give back to the community that is providing for you –Community service What about non-participants?? –Didn’t really make a difference

90. Edfare Force the poor to do “something” that will help them move off of welfare –Teach people hot to search for a job –States control Too much difference between states –California Start with a 3 week job search If no job…enroll in training program If still no job…perform community service

91. Family Support Act of 1988 20% of states nonexempt TANF recipients must be in edfare programs by 1995 States required to put workfare programs in place –One parent must provide 16 hours of community service a month Recipients can continue receiving Medicaid and subsidized housing for one year after leaving the poverty roles

92. What are the objectives of an income transfer program? Adequacy –People who can and can’t work have access to adequate income levels Target Efficiency –Target those who are most in need Administrative Efficiency –Achieve goals at minimum cost

93. Horizontal Equity –People in similar circumstances should be treated equally –Problem: State run programs Vertical Equity –Give before judge –Those with greater needs should receive more Work Incentives –Should be in the interest of those to work to do so

94. Family Stability Incentive –Should promote initial family structure Independence –Progress should be to move people off the program Coherency –Should be understandable and able to be controlled

95. Anti Poverty Effects Goal: alleviate economic distress by those with no or low incomes How find?? –Compare pre- and post-transfer poverty rates –Estimate degree to which transfers decreased the poverty gap Findings: people remain poor after transfers BUT poverty gap is decreased Programs are effective!!

96. Chapter 5 Age and Health

97. Does not working = poverty? NO!!! –½ of those who are poor are retired or disabled 3.5 million people over 65 are considered poor 11% of the poor are not expected to work What are they called? –Nonparticipants

98. Elderly are less likely to be poor than the non-elderly Poverty Rate Elderly12.5% Age 18-6413% Under age 1818.7%

99. 70% of the poor elderly are women Why?? –Men of that generation worked –Men’s life expectancy is shorter Women – 80.1 Men – 74.8 –Women gain benefits from their husband’s job but they are cut

100. Poverty rate for elderly has been decreasing ½ of the rate in 1970 Still considered a serious problem –Less able to get a full time job –Why? Firm’s don’t want to train Less productive Less flexible frame of mind Won’t be able to work 40 hour weeks

101. Thus…working is really not an option

102. Life expectancy has been increasing YearTotalMaleFemale 200477.674.880.1 200076.373.579.1 199575.772.479.0 199075.471.878.8 198574.771.178.2 198073.770.077.4 197572.668.876.6 197070.867.174.7 196069.766.673.1 195068.265.671.1 194062.960.865.2

103. What are the leading causes of death?

105. Sources of Income 10% of the elderly participate in the labor force 90% are voluntarily removed from the labor market –Some of the “voluntarily” is forced early retirement –If lose job it is harder to find a new job

106. Are there alternatives to working? Savings What would you guess the median net worth of an individual 60-65 would be?? –120,000 What composes most of this?? –Ownership of homes

107. Remember… This is a group of Nonparticipants Important to look at why??? –Makes the relationship of not working = poverty not as direct

108. Chapter 6 Family Size and Structure “The Feminization of Poverty”

109. Female headed households have been increasing over the last 20 years Why? –Increase in the number of single mothers Out of wedlock births Adoptions –Increase in the number of divorces Divorce rate in the U.S. is 52%

110. Changing Family Structure Two parent families is not the norm anymore Why? –Increase in Divorce/Separation –Out of Wedlock Births –Death of a Spouse On average White FHH due to divorce On average Black FHH due to out of wedlock births

111. Questions to address Why has there been a rapid increase in FHH? –Not necessarily a conscious choice Why do FHH have high poverty rates?

112. Causes of Growth in FHH Increased labor force participation by females –1950 – 30% –1990 – 57.7% –Working outside the home decreased the dependence on men’s wages –Women are less likely to stay in an unhappy marriage

113. Gary Becker’s Theory of Marriage Decision to marry is influenced by the expected gains of the union Historically –Females worked at home –Males worked in the labor market –Why???

114. Comparative Advantage When you can perform the act at a lower opportunity cost than the others involved THE FOLLOWING SEVERAL SLIDES ARE NOT IN THE SLIDE PACKET…..

115. It is a matter of trade Do we trade things of equal value? –NO!! –Trade to gain more of what we value Would you trade me a dollar for a dollar? In order to make a trade you have to come out ahead Trade should create wealth –Productivity

116. Productivity?? Trade doesn’t always produce something Example –Jack has a basketball, and Jim has a baseball glove –Jack wants a glove, and Jim wants a basketball –Trade takes place –Wealth has been created –New arrangement makes each happier

117. What happened here?? Basketball and Baseball Glove are scarce resources Each traded for a more valuable good Each incurred a cost –Opportunity cost –Next best alternative foregone –What you gave up to do what you are doing What is the opportunity cost of Jim’s trade? –Baseball glove What is the opportunity cost of Jack’s trade? –basketball

118. When will trade happen? When the value of exchange is greater than ONE So…trade when the benefits > costs

119. Example GusHarry Lawn40 minutes120 minutes Garden80 minutes120 minutes Gus and Harry’s garden and lawn look EXACTLY the same upon completion Harry offers to do ¾ of Gus’s garden if Gus mows Harry’s entire lawn Should Gus agree to the trade??

120. YES!!! For Gus –Mow his own lawn (40 minutes) –Mow Gus’s lawn (40 minutes) –Do ¼ of his garden (80*.25 = 20 minutes) –Total (100 minutes)  saved 20 minutes For Harry –Own garden (120 minutes) –¾ of Harry’s garden (120*.75 = 90 minutes) –Total (210 minutes)  saved 30 minutes Both get everything done and have more leisure time

121. Law of comparative advantage The principle that, given the freedom to respond to market forces, people will tend to export goods for which they have comparative advantage and import goods for which they have comparative disadvantage, and that they will experience gains from trade by doing so.

122. Producing and trading Two people: Elizabeth and Brian Each produce two goods: Bread and Apples Elizabeth  10 loaves of bread and 10 apples Brian  5 loaves of bread and 15 apples Elizabeth Apples Elizabeth Bread 200 10 020 Brian ApplesBrian Bread 010 155 300

123. Comparative Advantage Should both produce apples and bread or should they specialize? What does specialize mean? –Produce the good that you do best –Produce at a lower costs than other person(s) can –Called comparative advantage –Looks at opportunity cost What was that? What you have to give up Give up less?? Have the comparative advantage

124. What are the opportunity costs? Elizabeth –If only produce bread how many apples does she give up? 10 apples –If only produces apples how much bread does she give up? 10 loaves of bread Opportunity Costs –10 Bread = 10 Apples –1 Bread = 1 Apple Elizabeth Apples Elizabeth Bread 200 10 020

125. What are the opportunity costs? Brian –If only produce bread how many apples does she give up? 15 apples –If only produces apples how much bread does she give up? 5 loaves of bread Opportunity Costs –5 Bread = 15 Apples –1 Bread = 3 Apples –1/3 Bread = 1 Apple Brian Apples Brian Bread 010 155 300

126. Should we specialize? Elizabeth  1 Bread = 1 Apple Brian  1 Bread = 3 Apples  1/3 Bread = 1 Apple Who produces apples cheaper? What does cheaper mean? Lower opportunity cost (give up less) Brian!!! Give up only 1/3 loaves of bread Who produces bread cheaper? Elizabeth!!! Give up only 1 apple

127. Here is the deal Elizabeth produces only bread (20 loaves) Brian produces only apples (30 apples) Trade 8 loaves of bread for 12 apples Breakdown of end result –Elizabeth Bread? 12 loaves (20 - 8 traded) –Elizabeth Apples? 12 apples (0 + 12 traded)

128. Brian Bread –8 loaves (0 + 8 traded) Brian Apples –18 apples (30 -12 traded) Are they better off??

129. No Specialization or Trade Specialization and Trade Gains from trade Elizabeth Bread Elizabeth Apples Brian Bread Brian Apples

130. Are they better off?? No Specialization or Trade Specialization and Trade Gains from trade Elizabeth Bread 10 Elizabeth Apples 10 Brian Bread 5 Brian Apples 15

131. Are they better off?? No Specialization or Trade Specialization and Trade Gains from trade Elizabeth Bread 1012 Elizabeth Apples 1012 Brian Bread 58 Brian Apples 1518

132. Are they better off?? No Specialization or Trade Specialization and Trade Gains from trade Elizabeth Bread 1012+2 Elizabeth Apples 1012+2 Brian Bread 58+3 Brian Apples 1518+3

133. Both are Better off!!

134. Can you do it?? United StatesUnited Kingdom ClothingFoodClothingFood 400600 20 3010 040020 1. Draw the production possibility curves for both countries. (Clothing on y-axis) 2. Which country has the comparative advantage in clothing? Food? 3. The United States and United Kingdom are negotiating a trade of food and clothing between the countries. If the terms of trade is 25 units of clothing for 15 units of food, should both counties agree?

135. Homework 4 Comparative Advantage

136. Homework Two countries produce two products – digital cameras and vacuum cleaners. With the same factor resources evenly allocated by each country to the production of both goods. Who has the comparative advantage in each? If the trade is 420 vacuum cleaners for 840 digital cameras, do the countries agree to the trade? UK Camera s UK vacuum US Camera s US vacuum s 0120002200 600 24001000 800033600

137. Back to Becker’s Theory of Marriage Men had a comparative advantage in the labor market Why?? –More human capital, skill, and experience –Higher wages –Opportunity cost of not working is higher Women had a comparative advantage in home production Why? –Wages in the labor market would be lower –Less experience, less human capital –Less costly for them to stay out of the labor market –Opportunity cost is lower Because of comparative advantage marriages stayed together

138. Why are marriages breaking up now? Increase in labor force participation of females caused –Increases in human capital, skill level, and experience –What happened to the wage? Increased –What happened to the opportunity cost of not working? Increased –Women not receiving as much benefit from the union as in the past

139. Female LFP also has increased divorces… Working wife may lead the man to feel inadequate as a provider Alters the power of the relationship Conflict of home duty allocation

140. Declining Wages and increased unemployment of men Median earnings for a full time male worker has declines since 1973 Why??? –Labor pool has increased Ls’ Ls Ld # workers Wage W2 W1 12

141. Welfare Benefits Some blame for contributing to marital instability and out-of-wedlock births Transfer payment reduce the cost of bearing another child Problem –People are poor because they have no money –Tensions due to money are #1 reason for divorce –Is it the benefits that you can gain or the fighting because you have no money that causes divorce? Issue has not been resolved

142. The Supply of Marriageable Men William Darity Jr. and Samuel L. Myers wrote “Changes in the Black Family Structure” FHH among African American Families is due to the unfavorable marriage market Why? –Unemployed –Jailed –Drug addicts –killed

143. Females are left with only a few “good” men to choose from Probability of marriage is low

144. Changes in Social Norms & Attitudes Out-of-wedlock birth stigma has disappeared Past –Get pregnant…total embarrassment Now –Get pregnant…join a support group –Single parent is now an acceptable alternative to duel parent households

145. Why do FHH experience poverty more?? Low earnings capacity –Women earn less than men (wage gap is about 40%) –Less OJT, HC, less experience –Enter labor force later in life (less seniority) –More part time workers Inadequate or non-existent child support –61.5% of families eligible for child support receive it –Most receive ½ of the awarded amount

146. Low welfare benefits –Poverty rates would be lower if transfers were bigger –Widows receive two times the amount of FHH –Deserving versus non-deserving

147. Consequences of Poverty in FHH Children can grow up with –Limited resources –Poor nutrition levels –Inadequate medical services –Low investments in human capital Intergenerational transmission of poverty