Welcome to Econ 325 Economics of Gender

1. Welcome to Econ 325 Economics of Gender Week 5 Beginning February 19

2. Monday, February 19 • I have not received topics from some of you • Was due Friday • Don’t forget your appointments with me. • Study Chapter 4 • Expect ICA

3. Leadership Q & A • Steve Forbes • Tomorrow • 2:00-3:00 p.m. • McDonough Auditorium • I will give bonus points to the best questions • Characteristics of a good question • Relevant to Forbes’ economic proposals • Well researched • Well articulated

4. Return ICAAre the following statements true or false? 1) The labor force consists of employed workers only. 2) According to the U.S. Census Bureau you must work 35 hours or more per week in order to be considered a full-time worker. 3) Workers who are on strike are not considered to be employed by the U.S. Census Bureau. 4) The U.S. Census Bureau classifies those who would like to work but have given up searching as unemployed

5. ICA Are the following statements true or false • The labor force participation rate of American men has experienced a downward trend in the last few decades. • In 1999, a 19 year old American woman was more likely to participate in the labor force than a 35 year old American woman.

6. Labor Supply Decision Assumptions • One individual • Has 16 hours per day • Needs to decide on how many hours to work (produce market good or income) and how many hours to stay home (do nothing or produce home good) • W = wage rate (value of market good per hour) • W* = hourly value of staying home

7. The Budget Constraint • Various possible combinations of market good and home good • Example: • Mary is married and her husband gives her $20 a day • Mary can find a job that pays $5/ hour • Draw Mary’s budget line • Market Good • Hours of non-market good • Vertical intercept • Horizontal intercept • Kink • What does the slope measure?

8. Indifference Curves • Combination of market good and home good that Mary likes equally • What does the slope measure? • $ value of market good you will be willing to give up for one more hour at home and still be as happy as before. • Why is it downward sloping? • Why does the slope decrease? • The more hours Mary spends at home the __________ the hourly value of staying home.

9. ICA • Mary and Jan just had babies. All aspects of Mary and Jan’s lives and their personalities are the same except that • Mary lives in an area where baby sitters are hard to find. • Jan lives in an area where baby sitters are easy to find • Draw Mary’s and Jan’s indifference curves

10. Wednesday, February 21 • Who was there yesterday? • I have not received topics from some of you • Was due Friday • Don’t forget your appointments with me. • Study Chapter 4 • Expect ICA

11. Return ICA 4 • Mary and Jan just had babies. All aspects of Mary and Jan’s lives and their personalities are the same except that • Mary lives in an area where baby sitters are hard to find. • Jan lives in an area where baby sitters are easy to find • Draw Mary’s and Jan’s indifference curves

12. Labor Force Participation Decision • Graph of budget line and indifference curve • Slopes? • Slope of budget line = opp. cost of home good = W • Slope of indifference curve = value (benefit) of one hour of home good = W*

13. Search for the optimal labor force participation • As long as the value of one hour at home > cost of it  increase hours at home • If the value of one hour at home < cost of it  decrease hours at home • At the optimal level of labor force participation • the value of one hour at home = cost of it • the slope of the indifference curve = the slope of budget line • W = W*

14. What if Mary’s wage rate drops? • Graph • Budget line becomes flatter • Mary’s reservation wage is the lowest W for which Mary will consider to work in the market. • Reservation wage = the value of home good at zero hours of work = the slope of Mary’s indifference curve at zero hours of work.

15. Friday, February 23 • About the paper • Study Chapter 4

16. Let’s try to find the reservation wage again $ of MG I3 W1 When Wage = W1, work 2 hours When Wage = W2, work zero hours W2 is the reservation wage In order for you to work, W > reservation wage I2 I1 W2 HG (hours) 14 16

17. Normal/inferior good • A normal good is a good that you consume more of as your income increases • Example • An inferior good is a good that you consume less of as your income increases • Example • Is home good a normal or inferior good? • Normal

18. Income Effect • What if Mary’s husband gives her $40/ day? • Graph • The higher the unearned income, the fewer hours Mary will work. • Why? • Home good is normal and Mary’s income went up consume more normal good.

19. Does Table 4-3, Page 106 make sense? • Why or why not?

20. What if Mary’s W goes up • Two Effects • Income Effect • for a given hours of work Mary can earn more than before ==> work less • Substitution Effect • opportunity cost of staying home goes up ==> work more

21. Case 1: Substitution Effect > Income Effect • Graph • Mary ends up working more as her wage rate increases.

22. Case 2: Substitution Effect = Income Effect • Graph • Mary’s hours of work do not change as her wage rate increases

23. Case 3: Substitution Effect < Income Effect • Graph (Do this one on your own.) • Mary works less as her wage rate increases.

24. OCA2: Due Monday in class • # 1, page 134 • # 4, page 134. Draw a separate graph for each part and explain. • # 5, page 134. Draw a separate graph for each case and explain. • Jackie receives a raise but her hours of work remain unaffected. Why? Draw a graph and explain.