Université de Lausanne
Ecole des HEC
Département d'économétrie et d'économie politique

DEEP-EPFL Seminars in Macroeconomics

Mercredi 12 septembre 2007, 12h15
Internef, Dorigny, salle 122

José TAVARES
(Universidade Nova de Lisboa, Portugal )

Female Labor Force Participation and the Macroeconomy

Abstracts of two papers:

Women Prefer Larger Governments: Growth, Structural Transformation and Government Size
(Tiago V. de V. Cavalcanti & José Tavares)
The increase in income per capita is accompanied, in virtually all countries, by two changes in the structure of the economy, namely an increase in the share of government spending in GDP and an increase in female labor force participation. This paper suggests that these two changes are causally related. We develop a growth model where the structure of the economy is endogenous so that participation in market activities and government size are causally related. Economic growth and rising incomes are accompanied by a greater incentive for women to engage in labor market activities as the opportunity cost of staying at home increases. We hypothesize that government spending decreases the cost of performing household chores such as, but not limited to, child rearing and child care so that couples decide to engage further in the labor market and chose a higher tax rate to finance more government spending. Using a wide cross-section of data for developed and developing countries, we show that higher participation by women in the labor

market are indeed positively associated with larger governments. Furthermore, we investigate the causal link between the two variables using as instrumental variables a unique and novel dataset on the relative price of home appliances across OECD countries and over time. We find strong evidence of a causal link between participation in the labor market and government size: a 10 percent rise in participation in the labor market leads to a 7 to 8 percent rise in government size. This effect is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998). The inclusion of an endogenous choice of government spending allows a considerable extension of the model in Galor and Weil (1996) so fertility can either rise or fall and phenomena like the baby boom and baby bust in Greenwood, Seshadri and Vandenbroucke (2005) can be addressed. In addition, the paper has important implications for the analysis of the secular as well as cross-country determinants of government size.

The Output Cost of Gender Discrimination: A Model-Based Macroeconomic Estimate
(Tiago V. de V. Cavalcanti & José Tavares)
Gender-based discrimination is a pervasive and costly phenomenon. To a reater or lesser extent, all economies present a gender wage gap, associated ith lower female labor force participation rates and higher fertility. This paper resents a growth model where saving, fertility and labor market participation re endogenously determined, and there is wage discrimination. The model is alibrated to mimic the performance of the U.S. economy, including the gender wage gap and relative female labor force participation. We then compute the output cost of an increase in discrimination, to find that a 50 percent increase in the gender wage gap leads to a decrease in income per capita of a quarter of the original output. We then compile independent estimates of the female to male earnings ratio for a wide cross-section of countries to construct a new economy, in line with the benchmark U.S. economy, except for the degree of discrimination. We compare the level of output per capita predicted by this model economy with the actual output per capita for each country. Higher discrimination leads to lower output per capita for two reasons: a direct decrease in female labor market participation and an indirect effect through an increase in fertility. We find that for several countries a large fraction of the actual difference in output per capita between the U.S. and the different economies is due to gender inequality. For countries such as Ireland and Saudi Arabia, wage discrimination actually explains all of the output difference with the U.S. Moreover, we find that the increase in fertility due to discrimination is responsible for almost half of the decrease in output per capita, and equivalent to the direct decrease in output due to lower female participation. Our basic model suggests the costs of gender discrimination are indeed quite substantial and should be a central concern in any macroeconomic policy aimed at increasing output per capita in the long-run.

Site web du séminaire (avec texte en ligne): http://www.hec.unil.ch/deep/evenements-english/e-sem-all-2007-08.htm