FEMALE LABOR SUPPLY AND MARITAL-STATUS DECISIONS - A LIFE-CYCLE MODEL

This paper studies the interdependence between and the determinants of life-cycle marital status and labour force participation decisions of women. A dynamic utility maximization model is presented and estimate d using longitudinal data on women from the Panel Study of Income Dyna mics. The MLE method employed, involves solving a dynamic programming problem. Further, a minimum distance estimator is proposed which allow s for the incorporation of wage data in a computationally simple way. The estimates are used to predict changes in the life-cycle patterns o f employment, marriage and divorce due to differences in education, ra ce, the female's earnings and her (potential) husband's earnings. The estimation results indicate that the utility gains to marriage are dec reasing in the female's wage rate and increasing in her (potential) hu sband's earnings, while the opposite is found for gains to working. Ig noring the endogeneity of marital status decisions is shown to lead to an underestimation of own and husband's;wage effects on female labour supply.