Are macro-economists mistaken in ignoring bargaining between spouses? This paper argues that models of intra-household allocation could be useful for understanding aggregate labor supply trends in the US since the 1970s. A simple calculation suggests that the standard model without bargaining predicts a 19% decline in married-male labor supply in response to the narrowing of the gender gap in wages since the 1970s. However married-men's paid labor remained stationary over the period from the mid 1970s to the recession of 2001. This paper develops and calibrates to US time-use survey data a model of marital bargaining in which time allocations are determined jointly with equilibrium marriage and divorce rates. The results suggest that bargaining effects raised married men's labor supply by about 2.1 weekly hours over the period, and reduced that of married women by 2.7 hours. Bargaining therefore has a relatively small impact on aggregate labor supply, but is critical for trends in female labor supply. Also, the narrowing of the gender wage gap is found to account for a weekly 1.5 hour increase in aggregate labor supply.

This paper examines the interactions between household formation, inequality, and per capita income. We develop a model in which agents decide to become skilled or unskilled and form households. We show that the equilibrium sorting of spouses by skill type (their correlation in skills) is an increasing function of the skill premium. In the absence of perfect capital markets, the economy can converge to different steady states, depending upon initial conditions. The degree of marital sorting and wage inequality is positively correlated across steady states and negatively correlated with per capita income. We use household surveys from 34 countries to construct several measures of the skill premium and of the degree of correlation of spouses' education (marital sorting). For all our measures, we find a positive and significant relationship between the two variables. We also find that sorting and per capita GDP are negatively correlated and that greater discrimination against women leads to more sorting, in line with the predictions of our model.

African American motorists in the United States are more likely than white motorists to have their cars searched by police checking for illegal drugs and other contraband. The courts are faced with the task of deciding on the basis of traffic-stop data whether police are basing their decisions to stop cars on the race of the driver. We develop a model of law enforcement for a population with two racial types who also differ along other dimensions relevant to criminal behavior. We discuss why a simple test commonly applied by the courts is inadequate when the econometrician observes only a subset of the characteristics observed by the policemen. Next, we show how to construct a test for whether di¤erential treatment is motivated purely out of e¢ciency grounds, i.e. to maximize the number of arrests, or re‡ects racial prejudice. The test is valid even when the set of characteristics observed by the policemen are only partially observable by the econometrician. We apply the tests for discrimination to traffic stop data from Maryland. Finally, we present a

Look at the dramatic change in family structure that has occurred recently, illustrated in Figure 1. In the United States, 23 percent of children lived with an unwed mother in 1998, compared with only 8 percent in 1960.1 Of this 15-percentage-point increase, about 6 percentage points are due to a rise in the rate of divorce; the remaining 9 percentage points arise from an increase in out-of-wedlock births. Why care about this change in the structure of families? The lot of children living with a single mother is bleak. About 70 percent of those children in a family with a never-married mother were living near or below the poverty level in 1995. The corresponding figure for children being raised by a divorced mother was 45 percent. Associated with the increase in number of single mothers has been a rise in the percentage of the population on welfare. In 1960 only 1.7 percent of the population was on AFDC (Aid to Families with Dependent Children), while in 1995 about 5.2 percent were. Most mothers who received AFDC were single; 71 percent were in 1993. Also, AFDC mothers tended to have more children (2.6 on average vs. 2.1 for the population as a whole in 1993). It is interesting to note that there is evidence suggesting that more entrances into and exits out of welfare are connected with a shift in family structure rather than with a change in employment status. For instance, of the first-time entrances into welfare during 1983-1991 about 21 percent were associated with an out-of-wedlock birth, 23 percent were connected with a divorce or separation and 21 percent were linked with a reduction in the mother's work hours. Last, real AFDC benefits rose by about 70 percent between 1945 and 1977. They were about 25-percent higher in 1995 than in 1945. Could this have contributed to the rise in single motherhood? The task here is to outline a general-equilibrium model in which, at any point in time, some individuals will marry, others will divorce, and yet others will choose to have out-of-wedlock births. While the model is still prototypical in nature, it will be shown how such a framework can be used to address public-policy questions, in particular, the impact of welfare on family structure and the well-being of the economy.