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Friday, March 31, 2006

Marriage Market Decisions of Black, Hispanic, and White Women

Having raised the issue of differences in marriage rates for whites and blacks in Marriage is for White People in a post based upon a Washington Post column, I thought I'd follow up with the abstract and part of the introduction to recent academic research on this issue for those who want to probe a bit deeper into these issues:

The Role of Labor and Marriage Markets, Preference Heterogeneity and the Welfare System in the Life Cycle Decisions of Black, Hispanic and White Women, by Michael P. Keane and Kenneth Wolpin, PIER WP 06-004: Abstract Using data from the NLSY79, we structurally estimate a dynamic model of the life cycle decisions of young women. The women make joint and sequential decisions about school attendance, work, marriage, fertility and welfare participation. We use the model to perform a set of counterfactual simulations designed to shed light on three questions: (1) How much of observed minority-majority differences in behavior can be attributed to differences in labor market opportunities, marriage market opportunities, and preference heterogeneity? (2) How does the welfare system interact with these factors to augment those differences? (3) How can new cohorts that grow up under the new welfare system (TANF) be expected to behave compared to older cohorts?

I. Introduction

The large differences in economic and demographic characteristics of majority (white) vs. minority (black and Hispanic) women are well documented. To get a picture of the extent of these differences, consider data drawn from the 1990 survey year of the NLSY79, when respondents were between the ages of 25 and 33. At the time of that survey, (i) the mean schooling of white women (13.4 years) exceeded that of black women by .6 years and that of Hispanic women by 1.3 years, (ii) 65 percent of white women, but only 32 percent of black women, and 55 percent of Hispanic women, were married and living with their spouse, (iii) the white women had borne, on average, 1.2 children, while blacks and Hispanics both had 1.7 children on average, (iv) 74 percent of the white women, 66 percent of the black women and 67 percent of the Hispanic women were employed, and (v) in the year prior to the survey, 4 percent of the white women, 20 percent of the black women and 11 percent of the Hispanic women had received some AFDC payments.

In this paper, we provide quantitative estimates of the relative importance of labor market opportunities, marriage market opportunities and preference heterogeneity in explaining these large minority-majority differences. We also ask whether government welfare programs interact with these three factors to augment these differences. Finally, we provide estimates of how recent major changes in welfare rules, such as the major expansion of the Earned Income Tax Credit (EITC) in 1994-96, and the 1996 welfare reform legislation establishing the Temporary Aid for Needy Families (TANF) program can be expected to alter the life cycle behavior of women entering adulthood in the new regime. In order to perform these assessments, we develop and estimate a life-cycle model that incorporates all the key behaviors of interest: welfare participation, labor supply, marriage, fertility and schooling.

Our work builds on a number of distinct literatures. One set of studies is concerned with the incentive effects of welfare programs. ... The bulk of these studies are based on static models of behavior, although the behavioral model underlying the statistical work is not always made explicit. Attention to the role of government welfare programs in accounting for minority-majority differences in labor supply and marital status is surprisingly rare.

A distinctly different literature, spanning both economics and sociology, has focused on minority-majority differences in rates of marriage, usually without considering the specific role of welfare. Wilson (1987) postulated that the much steeper decline since the 1960's in the marriage rate of black women relative to that of white women was due to a fall in the pool of marriageable, i.e, employed, black men. Since then, numerous empirical studies based on economic models of marital sorting have attempted to determine the importance of marriage market opportunities, including the availability and characteristics of potential spouses, in explaining the minority-majority difference in marriage rates.

Finally, we contribute to the literature on structural estimation of dynamic discrete choice models of female labor supply (see Blundell and MaCurdy (2004) for a recent survey). Almost all of that literature treats labor supply as the only choice, assuming that schooling, children and marital status are predetermined states. And, unlike here, welfare participation is generally ignored. ...

The model that we estimate significantly extends these diverse literatures. We augment the choice set to include schooling and fertility in addition to work, marriage and welfare participation. This extension enables a more complete analysis of existing anti-poverty programs. For instance, the EITC not only provides a subsidy to low earners, but, because the subsidy is much larger if one has children, is also strongly pronatalist. Thus, the program may have important effects on fertility, effects that would interact with decisions made jointly about marriage, schooling, work, and welfare participation.

In addition to considering a larger set of choices, the modeling framework with respect to these choices is generally richer. In our model, women make sequential decisions in each 6 month period, starting at age 14, about school attendance, work, fertility, and, starting at age 16, marriage. Employment may be either part- or full-time. In each period, with some probability a woman receives a part-time wage offer and, likewise, with some probability a full-time wage offer. In modeling fertility, it is assumed that a woman receives utility from children, but bears a time cost of rearing them that depends on their current age distribution. Sequential decisions about school attendance are governed by direct preferences and by the additional human capital, and thus wages, gained from schooling.

The marriage market is modeled in a search context. In each period a woman receives a marriage offer with some probability that depends on her current characteristics and on her past welfare participation. ... If the marriage offer is accepted, the husband’s actual earnings evolve over time stochastically. The woman receives a fraction of the total of her  earnings and her husband’s earnings. If a woman is not married, there is some probability, determined by current characteristics, that she co-resides with her parents. In that case, she receives a fraction of her parents’ income that also depends on her characteristics.

Finally, we allow for unobserved permanent components of preferences and endowments that are person specific, as well as differences in preferences and endowments between minority and white women and across U.S. State of residence. Differences in labor market opportunities arise due to both differential skill “endowments” (at age 14) and discrimination against minorities. Minority women face different distributions of husband earnings than do white women, as well as different preferences for marriage (which may reflect, in part, differences in characteristics of the available men other than earnings capacity). And, there are also differences in preferences for leisure, school, fertility and welfare participation.

It is worth emphasizing that the welfare system could not by itself create differences between minority and white women in behavior (barring explicit differences in how the system treats them), unless there exist differences in preferences and constraints of the type that we allow for. But, if differences in preferences and constraints do exist, the welfare system can either enhance or mitigate their role in generating outcome differences. ...

Our estimates reveal that there are important differences among white, black and Hispanic women in their structural parameters. For example, black women value marriage the least and Hispanic women the most, but both of them draw from potential husband’s earnings distributions with lower means than white women. Minority women also receive lower wage offers for given schooling and employment histories than do white women. Black women are estimated to have the lowest welfare stigma, followed in order by white women and Hispanic women.

We perform a number of counterfactual experiments to determine the extent to which differences in the behaviors of minority women can be accounted for by differences in structural parameters. As an example, we find that if minority-majority wage offer distributions were equalized (eliminating differences in both age 14 endowments and wage discrimination), the black-white gap in employment would disappear. However, while marriage rates would also rise for black women, due the increase in their desirability as mates, only about 20 percent of the gap in the marriage rates would be eliminated.

We also consider the behavioral impact of counterfactual experiments in which welfare benefits and rules are altered. For example, eliminating all welfare (for women, based on their estimated type, that are most prone to be on welfare) would increase employment of minorities much more than of whites, essentially equalizing employment among the three groups. Thus, it appears that welfare exaggerates the differences in employment between whites and minorities that would arise solely due to differences in labor and marriage market opportunities and in preferences. ...

    Posted by on Friday, March 31, 2006 at 11:42 AM in Academic Papers, Economics, Unemployment | Permalink  TrackBack (0)  Comments (5)

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