Relative Income Concerns and the Rise in Married Women's Employment

52 Pages Posted: 12 Jul 2000 Last revised: 15 Oct 2022

See all articles by David Neumark

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Date Written: February 1995

Abstract

We ask whether women's decisions to be in the labor force may be affected by the decisions of other women in ways not captured by standard models. We develop a model that augments the simple neoclassical framework by introducing relative income concerns into women's (or families') utility functions. In this model, the entry of some women into paid employment can spur the entry of other women, independently of wage and income effects. This mechanism may help to explain why, over some periods, women's employment appeared to rise faster than could be accounted for by the simple neoclassical model. We test the model by asking whether women's decisions to seek paid employment depend on the employment decisions of other women with whom relative income comparisons might be important. In particular, we look at the effects of sisters' employment on women's own employment. We find strong evidence that women's employment decisions are positively related to their sisters' employment decisions. We also take account of the possibility that this positive relationship arises from heterogeneity across families in unobserved variables affecting the employment decision. We conduct numerous empirical analyses to reduce or eliminate this heterogeneity bias. We also look at the relationship between husbands' relative income and wives' employment decisions. In our view, the evidence is largely supportive of the relative income hypothesis.

Suggested Citation

Neumark, David and Postlewaite, Andrew, Relative Income Concerns and the Rise in Married Women's Employment (February 1995). NBER Working Paper No. w5044, Available at SSRN: https://ssrn.com/abstract=225823

David Neumark (Contact Author)

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Andrew Postlewaite

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