The Allocation of Time between the Household & the Labor MarketPowerPoint PresentationWhat is the age-eligible population?Slide 4Unemployment Rate # of unemployed people = ------------------------------------ # of people in the labor force # of unemployed = ------------------------------------------ # of employed + # of unemployedExampleWho is in the age-eligible population but not in the labor force?Slide 8Slide 9Slide 10Slide 11LFP Rates of Men by Race/EthnicitySlide 13Slide 14LFP Rates of Women by Race/EthnicitySlide 16Slide 17The Labor Supply DecisionDeterminants of Demand for nonmarket timeBudget ConstraintBudget Constraint: C = wh + VSlide 22Slide 23Family of Indifference CurvesDeterminants of the Slope of the Indifference CurveAbility to SubstituteSubstituting goods for timeTastes and PreferencesSlide 29Impact of nonlabor income on labor force participationChange in the Wage RateWhat is the effect of an increase in the wage rate on hours worked?If the wage increases …Graph of Income & Substitution EffectsIncome Effect < Substitution EffectIncome Effect > Substitution EffectThe Impact of Economic Conditions on Labor Force ParticipationApplications of the TheoryTaxes and the Decision to WorkSlide 40Child Care Tax CreditsSlide 42Analyzing Trends in LFP of WomenSlide 44Historical Patterns in Women’s LFPSlide 46Slide 47Slide 48Analyzing Trends in LFP of MenSlide 50Historical Patterns in Men’s LFPChanges in Marriage, Divorce, Fertility & the FamilyThe relation between women’s labor force participation & marriage ratesSlide 54While there are both positive & negative effects of women’s labor force participation on marriage, the negative effect appears to be larger.Slide 56Slide 57Slide 58Cohabitation: Opposite-Sex Unmarried CouplesCohabitation: Gay & Lesbian CouplesChildren of Gays & LesbiansFertilitySlide 63Total Fertility Rate (TFR)Slide 65The Allocation of Time between the Household & the Labor MarketAge-EligiblePopulationEmployedUnemployedNot in the Labor ForceLabor ForceLabor Force DefinitionsLFP rateunempl rateWhat is the age-eligible population?It consists of all people who are 16 years or older and not institutionalized.So a boy who is 15 years old and has a paper route is not included in the age-eligible population.However, a woman who is 85 years old is included, unless she is in a nursing home (institutionalized).Other institutionalized individuals who are not part of the age-eligible population are those who are in jail.The Labor Force consists of the Employed and the Unemployed Who are the employed?•Those who worked for pay during the week of the survey. This includes both part-time and full-time workers.•Those who did not work because of vacation, illness, etc.•Those who work 15 hours or more as an unpaid worker in a family business. Who are the unemployed?•Those on layoff waiting to be recalled.•Those not working, but actively seeking a job.•Those waiting to report to a new job within 30 days.Unemployment Rate # of unemployed people = ------------------------------------ # of people in the labor force# of unemployed = ------------------------------------------ # of employed + # of unemployedExampleSuppose a population has 95,000 employed people and 5,000 unemployed people. What is the unemployment rate?Unemployment Rate # of unemployed = --------------------------------------------- # of employed + # of unemployed 5,000 5,000 = ------------------- = ------------- 95,000 + 5,000 100,000 = .05 or 5 %Who is in the age-eligible population but not in the labor force?People who are neither “employed” nor “unemployed.”For example, homemakers who do not work outside the home are not in the labor force.Full-time students who do not have a job are also not in the labor force.Retired people are also not in the labor force.The percentage of the age-eligible population that is in the labor force (either employed or unemployed).Labor Force Participation RateThe LFP Rate of men has declined. The LFP Rate of women has increased a lot. Trends in Labor Force Participation Rates 1947-2011LFP Rates for Men by AgeMen’s LFP rates have been falling, especially for younger and older men.LFP Rates for Women by AgeWomen’s LFP rates have been rising especially for women aged 25-54.LFP Rates of Men by Race/EthnicityBlack men tend to have lower labor force participation rates than white men.Hispanic men (who can be of any race) tend to have higher labor force participation rates than other white and black men.LFP Rates of Men by Race/EthnicityYear Whites Blacks Hispanics1955 85.4 85.0 na1965 80.8 79.6 na1975 78.7 70.9 80.71985 77.0 70.8 80.31990 76.9 70.1 81.21995 75.7 69.0 79.12000 77.1 72.8 85.32002 76.7 72.1 83.6LFP Rates for Men Aged 25-64, by Race & Education1999 White Black W – B Total 88.8 78.2 10.5By EducationLess than 12 years 77.8 56.4 21.412 years 87.6 79.7 7.813-15 years 90.4 84.8 5.516 or more years 93.5 89.5 4.0The LFP rates are higher for those with more education. Holding education constant, the LFP rates of black men are still lower than those of white men.LFP Rates of Women by Race/EthnicityBlack women tend to have higher labor force participation rates than white women.Hispanic women (who can be of any race) tend to have lower labor force participation rates than other white and black women.LFP Rates of Women by Race/EthnicityYear Whites Blacks Hispanics1955 34.5 46.1 na1965 38.1 48.6 na1975 45.9 48.8 43.11985 54.1 53.1 49.31990 57.5 57.8 53.01995 59.0 59.5 52.62000 58.9 65.4 59.32002 60.0 64.5 59.5LFP Rates for Women Aged 25-64, by Race & Education1999 White Black W – B Total 72.7 75.1 -2.4By EducationLess than 12 years 49.2 54.1 -4.912 years 70.2 73.6 -3.413-15 years 76.9 81.5 -4.616 or more years 81.8 88.0 -6.2The LFP rates are higher for those with more education. Holding education constant, the LFP rates of black women are again higher than those of white women.The Labor Supply DecisionUtility or satisfaction depends on the consumption of nonmarket time and market goods (which are purchased with earnings or other income).The decision to work is a choice between nonmarket time and working for pay. Analyze the decision by looking at the demand for nonmarket time which is a normal good. The remaining hours in a day are available for work.Determinants of Demand for nonmarket timeOpportunity cost (usually the