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Lock in and Switch: Asymmetric Information and New Product Diffusion

In the last century, the evolution of female labor force participation has been S-shaped: It rose slowly at first, then quickly, and has leveled off recently. Central to this dramatic rise has been the entry of women with young children. We argue that this S-shaped dynamic came from generations of women learning about the relative importance of nature (endowed ability) and nurture (time spent child-rearing) in determining children's outcomes. Each generation updates the beliefs of their parents, by observing others' outcomes. When few women participate in the labor force, most outcomes are uninformative about the effect of labor force participation and participation rises slowly. As information accumulates and the effects of labor force participation become less uncertain, more women participate, learning accelerates and labor force participation rises faster. As beliefs converge to the truth, participation flattens out. Learning offers a rational explanation for the differences in employment preferences that have been the focus of a large empirical literature. Survey data, wage data and participation data support our story and distinguish it from alternative explanations.

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File URL: http://w4.stern.nyu.edu/emplibrary/diffusionApr07.pdf
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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 07-11.

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Date of creation: 2007
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Handle: RePEc:ste:nystbu:07-11
Contact details of provider: Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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