Using Economic Theory and Empirical Evidence in Arguing Policy

ECONOMIC RHETORIC: USING ECONOMIC THEORY AND EMPIRICAL EVIDENCE IN ARGUING POLICY
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Economic Rhetoric: Using Economic Theory and Empirical Evidence in Arguing Policy
Increasing female labor force participation is one the most outstanding economic developments of the last few decades. All over the globe, labor force participation among adult women rose substantially in the last century, although men continue to be more likely to participate in labor markets than women. These gender gaps in participation rates has narrowed substantially in recent decades with the expansion of “family-friendly” work policies such as part-time work entitlements and parental leave. In America, women’s participation in the labor market (age 16 and older) jumped from 34% in 1950 to nearly 57% in 2016. This increase in female labor participation is important because it not only drives America’s economic growth and development, but it also increases overall industry wages. However, the historical increases in female labor force participation have slowed down in recent years. For instance, the US recorded the sixth highest female labor participation in 1990 when compared to 22 other OECD countries but by 2010, the country had fallen behind to 17th position.[Esteban Ortiz-Ospina, Sandra Tzvetkova, and Max Roser, “Female Labor Supply,” Our World in Data, March 2018, https://ourworldindata.org/female-labor-supply.]
Various economists have attributed the remarkable historical expansion of female labor force participation in the decades before 1990 to an increase in the participation of married women. The rapid upward trend observed in labor force participation of women in America, especially between 1955 and 1990, was mainly powered by the trend among married women to work outside home. The reason for gender differences in labor markets has been linked to the fact that women spend a substantial amount of their time on domestic charges. Women work as much as men but they are not considered economically active because a significant part of their time is spent on unpaid care work.[Ibid.]
Some of the drivers of female labor force participation include maternal health, the number of children per woman, childcare and other family-oriented policies, labor-saving consumer durables, social and cultural factors, as well as structural changes in the economy. Even though the female labor force participation rate has increased over the decades as more women pursue higher education in greater numbers, significant gender wage gaps remain, especially for women of color. There are a multitude of factors that drive the gender wage gap including differences in industries worked, differences in years of experiences, differences in hours worked, and gender-based pay discrimination. On the other hand, economic theories posit that a larger women workforce actually lowers wages as more people compete for job opportunities.[Sandra Tzvetkova and Esteban Ortiz-Ospina, “Working Women: What Determines Female Labor Force Participation?,” Our World in Data, 2017, https://ourworldindata.org/women-in-the-labor-force-determinants.]
However, studies show that for every 10% increase in women working, there is a 5% increase in overall wages for both men and women: some studies even show increases of up to 13%. It has been argued that the rise in median wages as more women participate in the labor force is because it increases the country’s overall productivity and introduces a diverse set of complementary skills, especially in the service sector. Women also replace less productive men as demonstrated by declining male labor force participation rates in past decades and increasing wages for men that remain in the market. Studying changes in women’s labor supply behavior is important because it helps us understand the factors that determine female labor force and ways we can increase women participation in labor markets. More importantly, the study area improves our understanding of how female labor force participation affects the economy and especially wage growth for both genders.[Amanda Weinstein, “When More Women Join the Workforce, Wages Rise — Including for Men,” Harvard Business Review, April 23, 2018, https://hbr.org/2018/01/when-more-women-join-the-workforce-wages-rise-including-for-men.]
Literature Review & Innovation
“Changes in the Labor Supply Behavior of Married Women: 1980-2000” by Francine D. Blau and Lawrence M. Kahn studies married women’s labor supply from 1980 to 2000 using March Current Population Survey data. Unlike other studies of female labor supply, the paper is one of the first to focus on married women, a group that has largely driven the rapid rise in female labor participation over the decades and also the most thought-provoking group to investigate in a family context. By being the first to focus on married women exclusively, this methodology can be termed as an innovation. Besides, unlike previous studies that were rife with measurement errors and omitted variables, the paper is one of the first to perform instrumental variable (IV) analyses of static labor supply models to overcome the econometric difficulties of estimating female labor supply.[Francine D. Blau and Lawrence M. Kahn, “Changes in the Labor Supply Behavior of Married Women: 1980–2000,” Journal of Labor Economics 25, no. 3 (July 2007): 393–438, https://doi.org/10.1086/513416.]
“Labor Supply Response to the Earned Income Tax Credit” by Nada Eissa and Jeffrey B. Liebman inspects the effect of the Tax Reform Act of 1986 (TRA86) on the labor force participation and hours work of single women with children by comparing labor supply differences between single women with children and single women without children. The paper was the first to study the impact of Earned Income Tax Credit (EITC) expansion on the labor force participation of single workers using multiple control groups to control for any contemporaneous shocks. Similar papers failed to use multiple control groups and were therefore ineffective at fully capturing productivity. Therefore, using multiple control groups was an innovation and so was controlling trend differences between single workers to accurately measure the actual impact of EITC tax reforms on labor force participation of single women. “Changes in Relative Wages and Family Labor Supply” by Paul J. Devereux investigates the behavioral responses of married couples to the wage changes of husbands and wives using repeated cross-sections from the 1980-1990 census when large changes in relative wages were observed.
Other papers did not use U.S. data to estimate models of family labor supply or a larger study...