Households' Labor Supply Elasticity

This paper examines the influence of the family structure on the labor supply of husband and wife, using the formulation of a dynamic search model, assuming two types of family - modern and conservative. The conservative families follow the classical approach, where the family is a patriarchal institution, the head of the family is the husband who is the main breadwinner, while the wife is the secondary supporter. This approach is modeled by a Stackelberg Leader game where the wife’s job-search decisions follow the already known outcomes of her husband’s job-search strategy. The modern family is defined by a symmetric Nash strategic game. The husband and wife simultaneously decide upon their search policies given their anticipations about their partner’s decision. The paper formulates a finite-horizon dynamic discrete choice model for the labor-supply decision of the household with separate utility functions for the husband and wife. These utility functions are identical for both types of family, leaving the type of game as the sole differentiator between them. The model’s simulations show that this distinction has a significant influence on the couple’s labor supply: the participation rate of conservative women is lower than the one of modern women, and correlates strongly and negatively with the husband’s participation rate, a relation that is weak in modern families. The paper also contains a macro economic survey of the participation rates of women in Israel, based on the CBS labor force and income surveys. The increase of 20% in women’s participation rate in the past thirty years was led by the group of married women aged 25-55 with children, whose participation rate climbed by more than 30%.