Published in:
American Economic Review 2013 103 (1) p.p. 472-500.
Abstract:
Married women's labor force participation has increased dramatically over the last century. Why this has occurred has been the subject of much debate. This paper investigates the role of culture as Learning in this change. To do so, it develops a dynamic model of culture in which individuals holdheterogeneous beliefs regarding the relative long-run payoffs for women who work in the market versus the home. These beliefs evolve rationally via an intergenerational learning process. Women are assumed to learn about the long-term payoffs of working by observing (noisy) private and public signals. They then make a work decision. This process generically generates an S-shaped figure for female labor force participation, which is what is found in the data. The S shape results from the dynamics of learning. I calibrate the model to several key statistics and show that it does a good job in replicating the quantitative evolution of female LFP in the US over the last 120 years. The model highlights a New dynamic role for changes in wages via their effect on intergenerational learning. The calibration shows that this role was quantitatively important in several decades.