Life-Cycle Model

Female labor force participation and labor supply in the United States, as in many other devel-oped countries, has changed dramatically over the last 30 years. If one contrasts the labor supply behavior of the cohorts of women born in the 1930s (such as Elizabeth Dole), 1940s (Hillary Clinton), and 1950s (Oprah Winfrey) in its various dimensions, two main features emerge. First, comparing the Elizabeth Dole cohort to the Hillary Clinton one, we can see a substantial shift of the age profile of labor supply: the Clinton cohort worked more than the Dole cohort. However, the shape of the age profile does not change much. In particular, in both profiles we observe low participation (relative to other ages) corresponding to child rearing years. When comparing the Hillary Clinton cohort with the Oprah Winfrey one, we see that the low participation rates associated with the “fertility years ” are no longer present. The aim of this paper is to construct a life-cycle model of labor supply and saving that could explain these dramatic changes and, in particular, the difference between the Clinton and Winfrey cohorts. We explore the extent to which realistic changes to some specific parameters and exogenous variables of this model can generate the patterns observed in the data. Or, to use a different perspective, we want to quantify the size of changes in these variables that would be needed to explain the observed patterns. We build a model of the participation and savings decisions of households across the life cycle and calibrate this model by matching simulated participation and wage profiles to observed participation and wage profiles. The main change in female labor supply behavior in the data is on the extensive margin. For this reason, we focus on participation choices. Households ar