Returns to human capital and explaining the recent decline of married women's labor supply: a cohort approach

Abstract

This dissertation emphasizes the importance of a cohort approach in dealing with some important issues in the education and the macro labor market. Essay One investigates the effects of changes in various determinants of labor supply on the dramatic changes from the older (the 1950s and earlier) cohorts to the younger (the 1960s and later) cohorts in life-cycle labor supply behavior, and ultimately provides a model-based quantitative explanation of the recent decline in the aggregate labor supply of married women. On the basis of the Current Population Survey data, it first documents that, while life-cycle labor supply profiles are bell-shaped for the older cohorts, they are roughly flat for the younger cohorts, and from the mid-thirties of the life-cycle, the younger cohorts continue to supply less labor than the 1950s cohort does. Then, in a life-cycle model of women's labor supply, the behavioral changes are explained by a combination of changes in various labor supply determinants, with the opportunity cost of childbearing being the dominant contributor. A calibration of the model demonstrates that of the 3.32 percentage points of married women's aggregate labor supply, 67 percent is explained by the increased opportunity cost for the younger cohorts, and the rest is accounted for by a combination of changes in the tax code, business cycle conditions, and preferences, among others. Essay Two focuses on how returns change as individuals increase human capital investment over the course of their work career. On the basis of those respondents in the National Longitudinal Survey of Youth (NLSY) who change jobs with an intervening period of education reinvestment, the conventional assumption of linearity of log wages in years of schooling is strongly rejected. The estimated marginal rate of return generally rises in the former education level, and reaches the maximum at 15 years of the former level (therefore 16 years of education after reinvestment), where an additional year of investment is associated with a rise in real hourly rate of pay by approximately 20 percent. The current cohort-based evidence is more helpful than existing evidence from cross-sectional data to individuals making schooling decisions.