Changes in women's hours of market work: The role of returns to experience

Abstract

Over the past several decades, married women's hours of market work increased significantly in the US. I argue that changes in behavior by married women with children account for much of this change. In particular, the pattern of married women's work hours has changed substantially over the life cycle. In the past, married women in childbearing age tended to specialize in childrearing and home production activities at the expense of engaging in market work. Now they do not curb the hours they work in the market. What factors contribute to this change in behavior? In this paper, I focus on relative changes in returns to experience as an explanation. I use PSID data for the 1970s and the 1990s to estimate the extent to which relative returns to experience have changed. I then use a life-cycle model with human capital accumulation and home production to quantitatively assess the consequences of this increase for married women's hours of work over the life cycle. The estimates of the human capital production function show that women's marginal returns to experience increased by 25% across decades, whereas men's increased by only 6%. I show that this relative change accounts for 96% of the observed variation in married women's hours of work. Moreover, according to the model, the increase in returns to experience accounts for roughly half of the increase in the female/male wage ratio that is found in the data. I also show that a decline in the gender wage gap, holding returns to experience constant, accounts for only 18% of the total increase in hours of work. As a consequence, it cannot explain the change in the shape of women's life-cycle profiles. Although the focus of the analysis is the labor supply behavior of women, the model also allows predictions about the behavior of men and single women. These predictions are consistent with the data.