The strategic aspect of female labor supply

Abstract

Over the past decades there has been an enormous increase in the labor force participation of married women. Whereas overall participation rates in Germany have been falling due to a reduction in life time work (later entry into the labor force as well as earlier retirement), married women’s participation rates for age 25 to 50 have almost doubled from the 1960s up to the 1990s, going from 37% to 70% (Franz 1996 and Statistisches Bundesamt 1997). Over this same period divorce rates have continuously increased as well. The probability of divorce in 25 years of marriage has doubled from 15% for a couple that married in 1960 to 30% for a marriage entered in 1980 (Statistisches Bundesamt 1990). Whether the increasing risk of divorce is caused by higher female labor force participation, as many studies suggest, or whether married women now supply more labor due to the higher risk of divorce, as other studies argue (see for instance Diekmann (1994)), the decision to work certainly involves an aspect of insurance that has been missed by traditional models of household labor supply. It is this insurance aspect that will be incorporated in the theoretical modeling and econometric estimation of female labor supply in the present chapter.