Knowledge that Transforms

This paper looks at some of the methodological issues that arise in modeling the effects of children on household behavior and presents some estimates for selected areas. For our purposes household behavior will be taken to refer to household decisions on labor supply the allocation of expenditure to different periods... and the decision as to what to do with the difference between income and expenditure....I shall be concerned mainly with the effects of dependent children...[and] I restrict attention largely to Western societies. (EXCERPT)

The author would like to acknowledge support for prior work on this topic from the U.S. Department of Health and Human Services, and helpful comments from three anonymous referees, Rebecca Blank, Howard Chernick, John Fitzgerald, Irwin Garfinkel, Peter Gottschalk, Edward Gramlich, David Greenberg, Judith Gueron, James Heckman, V. Joseph Hotz, Robert Hutchens, Michael Keane, Frank Levy, Larry Mead, Michael Murray, Robert Plotnick, Anuradha Rangarajan, Philip Robins, Howard Rolston, Jeffrey Smith, and Daniel Weinberg. All opinions and errors are those of the author alone.

The article studies the U.S. earning trends since 1950 and gives explanations for the inequality in earnings. Both slow growth and increased inequality appear in the comparison of adult male earnings distributions for 1979 and 1987. Trends in women's earnings paint a somewhat brighter picture. Women, like men, have experienced slow hourly wage growth and growing wage inequality. But in terms of annual earnings, both factors have been offset by changes in hours worked. The result is a significant increase in the proportion of women who earn $20,000 a year or more. A combination of shifts in supply and shifts in demand is necessary to explain the observed trends between these groups. A critical aspect of supply shifts was the entry into the labor market of the well-educated baby boom generation. Demand shifts can be characterized as a long-term trend toward increasing relative demand for highly skilled workers. The growth in within group earnings inequality has many potential explanations, but it is not well understood and contains opportunities for future research.