Explaining Changes in Female Labour Supply in a Life-cycle Model

In this paper we study the life cycle labour force participation of three cohorts of American women: those born in the 1930s, 1940s and 1950s. We first document the large shifts in labour supply behaviour among these three cohorts as well as changes in some likely determinants of labour supply. Our focus is on the increase in the labour supply of mothers between the 1940s and 1950s cohorts. We construct a life cycle model with endogenous female labour force participation, consumption and saving choices to search for an explanation. The dynamics of labour supply depends on child costs (relative to earnings), returns to experience and the rate of depreciation of human capital when out of the labour market. We calibrate the model to match the behaviour of the middle cohort and investigate which changes in the main determinants of labour supply could have accounted for the substantial increase in labour supply in the early part of the life cycle observed for the youngest cohort. We conclude that shifts in the cost of children relative to life time earnings are the most likely explanation. ∗We would like to thank participants to the NBER Summer Institute Workshop on th