The cross-country relationship between married women’s employment and income follows a U-shaped pattern, first declining, and eventually rising with economic development (Mammen and Paxson, 2000). Sinha (1967) and Durand (1975), and more recently, Goldin (1994), hypothesize that the rise of non-agricultural employment initially favors men and this shift, together with rising husbands’ incomes, lead women to withdraw from employment. The income effect of rising husband’s earnings weakens, however, as women’s relative market opportunities increase with further economic development, and as women’s schooling levels catch up to those of men. The story is one of improving labor market status of women through development, evidenced by a weakening income effect and its corollary, a strengthening substitution effect, on women’s employment decisions.
In this paper we use household-level data from 14 Latin American countries to evaluate the hypothesis of a weakening income effect. The within-country variation allows us to clearly distinguish the effect of husband’s income from country-level factors related to stages of economic development. In the first part of our investigation, we test whether husband’s income effect differs across countries, holding constant women’s characteristics. Since husband’s income is endogenous if spouses make joint labor supply decisions, we instrument husband’s income with his percentile rank in the wage distribution. Although more difficult due to the problems associated with measuring women’s wages, we also investigate whether the effect of own wages differ across countries, holding constant husband’s income.
In the second part of our investigation, we correlate the country-specific income and wage coefficients to country-level variables that proxy for economic development such as per-capita GDP and industrial structure. We also examine two other factors that may be particularly relevant for Latin America in the 1990’s—the gender gap in schooling, and foreign direct investment.
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Goldin, Claudia (1995). "The U-Shaped Female Labor Force Function in Economic
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Women's Human Capital. Chicago: University of Chicago Press.
Mammen, Kristin and Christina Paxson (2000). “Women’s Work and Economic Development”, Journal of Economic Perspectives, Vol. 14. Fall.
Sinha, J.N. (1967). "Dynamics of Female Participation in Economic Activity in a
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