Female Labor Supply in a Developing Economy: Intrahousehold Decision-Making and Non-Monetary Costs

This paper develops a new approach to evaluating how household decision-making patterns shape women’s employment. It examines the role of social norms by providing a framework reflecting the trade-off between household economic surplus and the non-monetary costs of women’s employment. The framework distinguishes between regimes with different relative cost structures: husband-cost-dominant settings under stronger traditional norms and wife-cost-dominant settings under weaker norms regarding women’s work. We apply the model using Indonesian household reports on decision-making involvement. Considering both spouses’ reports provides a more comprehensive analysis than relying on wives’ reports alone, as is standard in literature: spousal reporting discrepancies are non-random, with women tending to overestimate their involvement. The results support the husband-cost-dominant model, implying wives’ employment in Indonesia is shaped by traditional norms to a large extent. The findings also suggest that the non-monetary cost of her employment plays a more significant role than the income effect. Finally, the results highlight the persistence of social norms surrounding Indonesian women's labor supply, both over time and across cohorts.