The Family
as an
Economic Unit
The Neoclassical Model
of Specialization & Exchange
Basic underlying assumption:
The family is a unit whose adult members
make informed and rational decisions that
maximize the well-being of the family.
Family well-being or utility is maximized by selecting
the combination of commodities from which the
family derives the greatest satisfaction.
These commodities are produced by combining home
time of family members with goods and services
purchased in the market using labor market
earnings.
One such commodity might be a family evening at
home watching a movie on TV. This commodity
requires a TV and the time of the family members
spent watching it.
Law of Comparative Advantage
The total output of a group, an economy, a
group of nations or a family will be greatest
when the output of each good is produced
by the person (or firm or nation) with the
lowest opportunity cost.
It is frequently the case that women are relatively more
productive in the home and men are relatively more
productive in the market.
This can be true because men and women are traditionally
raised with different expectations and receive different
education and training.
It may also be the case that women are discriminated
against in the labor market and that discrimination lowers
their market earnings.
Moreover, the traditional division of labor is likely to
magnify differences in the household and market skills of
men and women because both types of skills tend to
increase with experience.
While the preceding factors tend to produce gender
differences in comparative advantage for homemaking
versus market work, it is not necessarily the case that the
traditional division of labor is the optimal arrangement.
Raising children according to gender rather than
individual talents and discriminating against women
workers in the labor market introduces distortions.
To the extent that women’s relative advantage for
homemaking is socially determined and reflects unequal
access to market opportunities, the traditional division of
labor is not always efficient or desirable.
In the following discussion, we assume that
women have a comparative advantage in
housework relative to men, because we are
exploring a reality in which women generally
have primary responsibility for homemaking.
This does not imply that the traditional division
of labor is inevitable or that it will persist
indefinitely into the future.
Example of gains
from specialization & exchange
Consider two people: Dave and Diane.
Dave
Dave makes $10 an hour in the labor market.
Alternatively, with an hour he can produce
$5 worth of home production (perhaps a
mediocre dinner).
So for Dave, the opportunity cost of $10
worth of home production is two hours of
market work, which is worth $20.
For Dave the opportunity cost of $10 worth of
market goods is one hour of home
production, which is worth $5.
Diane
Diane makes $15 an hour in the labor market.
Alternatively, with an hour she can produce
$15 worth of home production (perhaps a
very good dinner).
So for Diane, the opportunity cost of $10 worth
of home production is 2/3 of an hour or 40
minutes of market work, which is worth $10.
For Diane, the opportunity cost of $10 worth of
market goods is 2/3 of an hour or 40 minutes
of home production, which is worth $10.
Suppose Dave and Diane both work and
perform home production.
Value of Market
Goods
Value of Home
Production
Total
Value
6 hrs x $10 = $60
2 hrs x $5 = $10
$70
Diane 7 hrs x $15 = $105 1 hrs x $15 = $15
120
Total
$190
Dave
$165
$25
Comparison of opportunity costs
Person
Dave
Diane
Opp. cost of Opp. cost of
$10 of home $10 of mkt
production production
$20
$5
$10
$10
So, we can see that Dave has a lower opportunity cost of
market production and therefore a comparative advantage in
market production. Diane has a lower opportunity cost of
home production and therefore a comparative advantage in
home production.
The law of comparative advantage indicates that
their total production should be greater if there is
specialization and Dave does more work and less
home production and Diane does less work and more
home production.
Suppose Diane reduces her market work by 1 hour &
increases her home production by 1 hour, while
Dave does an additional 2 hours of market work
instead of his 2 hours of home production.
By having Dave only do market work, in which he has a
comparative advantage, and having Diane do the home
production, in which she has a comparative advantage, they have
increased their total production value by $10, from $190 to $200.
Value of Market
Goods
Value of Home
Production
Total
Value
Dave
8 hrs x $10 = 80
0 hrs x $5 = $0
$80
Diane
6 hrs x $15 = $90
2 hrs x $15 = 30
120
Total
$170
$30
$200
Note that it is comparative advantage, not absolute
advantage, that makes possible the gains from
specialization and exchange.
In the example we used here, Diane had an absolute
advantage over Dave in both market and home
production. In an hour she could make either $15
of market production or $15 of home production,
while Dave, in a hour, could only make $10 of
market production or $5 of home production.
Let’s look at the story using a graph.
Mkt Production ($)
Dave
80
40
Home Production ($)
Suppose each person has 8 hours a
day to allocate to market and/or
home production. Remember, in a
hour Dave can make either $10
dollars of market production or $5
of home production. So if he only
does market work, he’ll have $80
worth of production, and if he only
does home work, he’ll have $40
work of production. So Dave’s
production possibility frontier has
a slope of -2, which is the rate at
which he trades market production
for home production.
Mkt Production ($)
120
Diane
120
Home Production ($)
Remember, in a hour Diane can
make either $15 dollars of market
production or $15 of home
production. So if she only does
market work, she’ll have $120
worth of production, and if she
only does home work, she’ll have
$120 work of production. So
Diane’s production possibility
frontier has a slope of -1, which is
the rate at which she trades market
production for home production.
Mkt Production ($)
200 M
Y
If Dave & Diane combine
production and they both do
only home work (pt. H), they’ll
have $160 of production. If they
both do only market production
(pt. M), they’ll have $200 of
production.
H
160
Home Production ($)
Mkt Production ($)
200 M
Y
Starting from H, with both
doing only home work, if they
were to exchange some home
time for market time, it would
be some of Dave’s time they
trade first since we found earlier
that he has a lower opportunity
cost of market production & a
higher opportunity cost of home
production. So they’re
initially trading at his
H
tradeoff rate (slope = -2).
160
Home Production ($)
Mkt Production ($)
200 M
80
Y
120
Home Production ($)
If they trade all of Dave’s home
production time for work time
but none of Diane’s, they will be
at Y. They have $120 of home
production and $80 of market
production.
H
160
Mkt Production ($)
200 M
80
At points between
H & Y, Diane does
only home work and
Dave does both home
& market work.
Y
120
Home Production ($)
H
160
Mkt Production ($)
200 M
At points between Y & M,
Dave does only market work
and Diane does both home
work & market work.
80
Y
120
Home Production ($)
H
160
Mkt Production ($)
200 M
Y
At points between Y & M, they
are exchanging Diane’s home
production time for her market
time, so the slope of the
production possibility frontier
(PPF) is based on her tradeoff
rate of –1. That’s why the PPF
is flatter at the top than at the
bottom.
H
160
Home Production ($)
Mkt Production ($)
200 M
Y
What determines the point on
the PPF at which they operate?
That depends on their tastes,
that is, their preferences for
market goods versus home
goods.
To understand that, we need the
concept of indifference curves.
H
160
Home Production ($)
Indifference Curve:
A curve that shows the consumption
alternatives that yield the same level
of satisfaction or utility.
In other words, a couple is indifferent
between the points on the indifference
curve.
Characteristics of indifference
curves:
Mkt Production ($)
1) Downward sloping
(negative slope)
2) Two curves cannot
intersect.
U4
U1
Home Production ($)
U3
U2
3) Each point on the graph has
exactly one indifference
curve passing through it.
4) Utility is greater for curves
that are higher and further
to the right.
5) Usually assumed to be
convex.
Mkt Production ($)
A
8
Indifference curves are downward
sloping because you can be equally
happy with fewer goods from market
production if you have more goods
from home production. At point B
you have fewer goods from market
production than at point A, but you
have more goods from home
production.
B
3
U1
4
10
Home Production ($)
Mkt Production ($)
Indifference curves can not
intersect, because that would
imply that the point of
intersection gives two different
levels of satisfaction.
Point A gives the satisfaction
associated with U1 but also the
satisfaction associated with U2.
A
U2
U1
Home Production ($)
Mkt Production ($)
Each point on the graph has
exactly one indifference curve
passing through it.
For any point you can pick,
there is one indifference curve
passing through it.
Home Production ($)
Mkt Production ($)
Each point on the graph has
exactly one indifference curve
passing through it.
For any point you can pick,
there is one indifference curve
passing through it.
A
Home Production ($)
Mkt Production ($)
Each point on the graph has
exactly one indifference curve
passing through it.
For any point you can pick,
there is one indifference curve
passing through it.
A
U1
Home Production ($)
Mkt Production ($)
Utility is greater for curves that are
higher and further to the right.
Indifference curve U1 has a lower utility
or satisfaction level than U2
U1
Home Production ($)
U2
Mkt Production ($)
Utility is greater for curves that are
higher and further to the right.
Indifference curve U1 has a lower utility
or satisfaction level than U2,
and U2 has a lower utility level than U3
U1
Home Production ($)
U3
U2
Mkt Production ($)
Utility is greater for curves that are
higher and further to the right.
Indifference curve U1 has a lower utility
or satisfaction level than U2,
and U2 has a lower utility level than U3,
and U3 has a lower utility level than U4.
U4
U1
Home Production ($)
U3
U2
Mkt Production ($)
110
B
100
A
Indifference curves are usually assumed
to be convex.
This means that the magnitude of the slope
decreases as you move from left to right.
At a point like A, where market goods are
relatively plentiful and home goods are
relatively scarce, it would take a fairly large
amount of market goods ($10) to induce a
couple to give up a little bit of home goods
($2) and still remain equally well off.
U1
8 10
Home Production ($)
Mkt Production ($)
8
5
At a point like C, where home goods are
relatively plentiful and market goods are
relatively scarce, it would only take a small
amount of market goods ($3) to induce a
couple to give up even a fairly large amount
of home goods ($12) and still remain
equally well off.
This seems realistic because when
goods are scarcer they are usually
valued more highly.
D C
U1
100 112
Home Production ($)
Now we can combine the production
possibilities frontier (PPF) with the
indifference curves to see what
choices a couple would make.
A couple will choose a point where
they have the highest level of
satisfaction that they can achieve
given their PPF.
Mkt Production ($)
B
C
U4
U3
A
Home Production ($)
U1
U2
No points on U4 are
attainable.
Notice that both
point A on U1 and
point B on U2 make
full and efficient use
of resources, but they
do not maximize the
couple’s satisfaction.
The couple is best off
at point C on U3 .
Mkt Production ($)
B
C
U4
U3
A
Home Production ($)
U1
U2
In this particular
case, Dave does
only market work
and Diane does
both home work &
market work.
The couple has
relatively strong
preferences for
market goods.
Mkt Production ($)
U1
U4
U2 U3
A
Home Production ($)
In this case, the couple
would be best off at
point A on U3 .
Here, Diane does only
home production and
Dave does both home
work & market work.
The couple has
relatively strong
preferences for home
goods.
In this intermediate case, the
couple would be best off at
point A on U3 .
Here, Diane does only home
production and Dave does
only market work.
Mkt Production ($)
A
U4
U2
U1
Home Production ($)
U3
There are other advantages to forming a family,
besides gains from specialization and exchange.
These advantages include
1. Economies of scale
2. Public goods
3. Externalities in consumption
4. Opportunities for marriage-specific investments
5. Risk pooling and
6. Institutional benefits
Economies of scale
Housing for two people does not cost twice as
much as housing for one.
It does not take twice as long to prepare meals
for two people as it does to prepare them for
one person.
Public goods
A public good has the
characteristic that the
consumption of the item by
one person does not diminish
the amount available for
consumption by others.
For example, if there is a
movie on television, the
amount of consumption and
satisfaction an individual
obtains from the movie is
probably not reduced if
another person is watching it
too.
Externalities in consumption
When two people
care for one another,
one partner may
derive satisfaction
from the enjoyment
and happiness of the
other.
Opportunities for marriage-specific investments
Marriage-specific investments
refers to the development of skills,
knowledge, and other items that are
worth more in the marriage than if
the marriage were terminated.
The prime example is the rearing of
children. Children provide their
parents with considerable
satisfaction. However, they may
form an obstacle to forming a new
relationship with another partner.
Risk pooling
If one spouse becomes
unemployed, the
couple can rely on the
other spouse to cover at
least part of the
household expenses.
Institutional benefits
These benefits include
coverage by a spouse’s
health insurance, pension
benefits, and Social
Security benefits.
There are also potential problems
associated with specialization of
market and household production.
Market/Household Specialization - Problem 1
It is unlikely that one person has a comparative
advantage in all household tasks. It is therefore
likely that both members of a couple will do some
household production.
Furthermore, if the level of utility or disutility of
work is influenced by the amount performed, it may
be preferable that both members of a couple do both
market and household production.
Market/Household Specialization - Problem 2
An individual’s comparative advantage may not
remain constant over the life cycle.
The value of home production for women is greatest
during the child-rearing years and declines as the
children grow up and become more self-sufficient.
In addition, labor market earnings increase with
experience and decline as skills depreciate during
periods out of the labor force.
So a woman pays a high price in terms of career
advancement and earnings when she exits the labor
force to care for children and then re-enters the labor
force later.
Market/Household Specialization - Problem 3
There are costs of interdependence.
When each spouse is able to manage a household
and earn a living, the family will not be devastated if
the “breadwinner” is laid off or if the “caregiver”
becomes seriously ill.
Each will also be better equipped to manage alone in
the case of divorce or death.
Market/Household Specialization - Problem 4
When there are differences of opinion, the
“breadwinner” tends to dominate and the
homemaker’s wishes become subordinate.
In families where husband and wife have
similar earning power, they are more likely
to make major decisions jointly.
Market/Household Specialization - Problem 5
Spouses who are not employed
are less likely to have the
financial means to leave an
abusive relationship.
Bargaining Models of Families
The neoclassical model of the family assumed that
families operate efficiently and without friction
either because there is a consensus on preferences or
because decisions are made by an altruistic family
head and are accepted by the other members.
Bargaining models do not make this assumption and
allow for differences of opinion.
Bargaining Models of Families – cont’d
In these models, the bargaining power of each
spouse is determined by his/her threat point, the
level of well-being that each would attain if they
cannot reach a cooperative solution within the
marriage.
The final solution to a problem is likely to more
closely reflect the preferences of the party with the
stronger threat effect, who is better able to walk
away from the deal.
Bargaining Models of Families – cont’d
•
•
•
•
Factors affecting threat points include
an individual’s control of resources outside the
marriage,
laws defining division of marital property,
the probability of remarriage, and
eligibility rules for benefit levels under welfare
programs.
Perspectives on the Family
of Other Schools of Thought
Other perspectives on the family include the
Marxist and Radical Feminist approaches.
Like the bargaining models, they focus on the
role of power and the potential for exploitation.
Marxists
Marxists see the capitalist economy as one in which
capitalists wield power over workers who do not
own the means of production and are therefore
forced to sell their labor for low wages.
They see women as doubly exploited because they
supply unpaid services in the family and that enables
capitalists to pay workers low wages.
Radical Feminists
Although radical feminists recognize the existence of
emotional ties and some unified interests within the
family, they see the family as the locus of struggle
and women’s oppression.
They see the usual household division of labor as not
merely the result of private decisions but to a great
extent influenced by patriarchal tradition.
Nonmarket Work
Economists have traditionally focused their attention
on market work.
However, much work is performed outside the
market, both in the household and in the voluntary
sector.
Such work contributes substantially to the well-being
of individuals, their families, and society at large.
Although the division of labor remains quite
unequal, the difference in the allocation of
time to market work and nonmarket work has
narrowed over time.
Let’s look at some of the numbers.
First, consider
hours spent per
week in market
work.
Men do more hours
of market work than
women do.
Interestingly, though,
when employed
married women are
compared to married
men with employed
wives, the difference
is relatively small.
Now, consider hours
spent per week in
unpaid work
(housework, grocery
shopping, and care of
household members).
Women do more
unpaid work than
men.
This is also true
when married women
are compared to
married men.
While the gap is
smaller, employed
married women still
do more unpaid work
than married men
with employed
wives.
Allocation of housework
in various types of households
In both married couple households and households of
cohabitating men and women, women do considerably
more housework than men, but the gender gap is wider
among married couples.
It has also been found that there is less specialization
among partners in gay and lesbian couples.
Volunteer Work
Volunteer activities are defined as tasks performed
without direct reward in money or in kind that
mainly benefit others rather than the individuals
themselves or their immediate family.
Patterns of Volunteering
Women volunteer at
higher rates than men.
Whites are more likely to
volunteer than Blacks and
Asians. Hispanics seem to
have relatively low rates
of volunteering.
College graduates are
more likely to volunteer
than individuals with less
education.
Women who are employed
part-time are more likely
to do volunteer work than
women who are employed
full-time.
Gender Differences
in Types of Volunteer Work
Women contribute more time to health
organizations and educational institutions, while
men do more volunteer work for civic and political
organizations, as well as sport and recreational
organizations.
Changes in the
Demographic
Composition
of the U.S.
Population
Changes in the race and ethnic
composition of the population
are the result of changes in the
patterns of immigration and
differences in birth rates among
various groups.
The percent of the U.S.
population that is Hispanic is
increasing the most.
The percent that is non-Hispanic
black is also increasing.
The percent that is non-Hispanic
white is decreasing.
Intermarriage among race and ethnic groups
has become more common.
In 2010, 6.9% of married couple households
had a householder and spouse of different
races.
Also, 4.3% of married couple households
had one spouse who was Hispanic and the
other was not.
From: https://www.census.gov/prod/cen2010/briefs/c2010br-14.pdf .
The “Typical”
American Family?
It is clear that the
American family today
is very different from
the 1950s television
characterization of the
American family,
which was invariably
white and consisted of
a homemaker wife and
breadwinner husband
with two or three
children and a dog.
“Why do Women Do the Lion’s Share of
Housework?: A Decade of Research”
Literature Review by Lachance-Grzela & Bouchard (2010)
Research shows that over time, the average time
spent by women on household tasks has decreased,
the time spent by men has increased, and the total
time spent on household labor has declined.
However, in spite of women’s increased
commitment to the labor force, they continue to
perform the vast majority of the housework.
The drop in total housework done may be partially
attributable to a trend toward smaller families,
changes in household technology, and availability of
market substitutes.
Stereotypically female tasks include routine
tasks that are on-going, nondiscretionary, and
very time-consuming.
They include laundry, cooking, cleaning up
after meals and doing the dishes.
Stereotypically male tasks include intermittent
tasks that are done only occasionally and are
more flexible and less time-consuming.
They include household repairs, car
maintenance, and yard work.
The literature reveals that the distribution of
household labor is influenced by multiple forces.
From the microeconomic perspective, relative
resources (such as income), time availability, and
gender ideology are all important predictors of
the gap between men’s and women’s household
labor.
The greater the proportion of couple income that
the wife earns, the less housework she does and
the more her husband does.
The wife’s hours of market work increase her
husband’s housework and decrease her own
housework.
The husband’s hours of market work decrease
his own housework and increase his wife’s
housework slightly.
Wives with a more egalitarian gender attitude do
less housework, but their husbands’ housework
hours are unaffected.
So the gap between housework done by the wife
and the husband is reduced.
Husbands with a more egalitarian gender attitude do
NOT do more housework, but their wives do less.
So, again the gap between housework done by the
wife and the husband is reduced.
However, women still tend to do the bulk
of housework even when they display the
personal characteristics that favor a more
egalitarian division of household labor.
Research has also explored the division of
household labor from the macroeconomic
perspective, examining the issue across countries.
It has been found that couples in more genderegalitarian societies (such as Canada, Sweden, the
U.S.) tend to divide housework more equally than
those living in less gender-egalitarian societies
(such as Chile, Italy, Japan), even when holding
constant their individual characteristics.
Women in the most gender-equal nations perform
an average of 15 hours of housework per week,
whereas those in the less equal nations perform
around 27 hours of housework per week.
Combining macro and micro perspectives,
researchers have suggested that national-level
variations in gender equality may play a
moderating role in the relationship between
micro-level factors (relative resources, time
availability, and gender ideology) and the
division of household labor.
That is, national levels of gender equality
influence women’s ability to use gains made at
the individual level to negotiate a more equal
division of housework.