TY - JOUR AU - Neumark,David AU - Postlewaite,Andrew TI - Relative Income Concerns and the Rise in Married Women's Employment JF - National Bureau of Economic Research Working Paper Series VL - No. 5044 PY - 1995 Y2 - February 1995 DO - 10.3386/w5044 UR - http://www.nber.org/papers/w5044 L1 - http://www.nber.org/papers/w5044.pdf N1 - Author contact info: David Neumark Department of Economics University of California at Irvine 3151 Social Science Plaza Irvine, CA 92697 Tel: 949-824-8496 Fax: 949/824-2182 E-Mail: dneumark@uci.edu Andrew Postlewaite University of Pennsylvania Department of Economics 3718 Locust Walk/CR Philadelphia, PA 19104 Tel: (215) 898-7350 Fax: (215) 573-2057 E-Mail: apostlew@sas.upenn.edu AB - We ask whether women's decisions to be in the labor force may be affected by the decisions of other women in ways not captured by standard models. We develop a model that augments the simple neoclassical framework by introducing relative income concerns into women's (or families') utility functions. In this model, the entry of some women into paid employment can spur the entry of other women, independently of wage and income effects. This mechanism may help to explain why, over some periods, women's employment appeared to rise faster than could be accounted for by the simple neoclassical model. We test the model by asking whether women's decisions to seek paid employment depend on the employment decisions of other women with whom relative income comparisons might be important. In particular, we look at the effects of sisters' employment on women's own employment. We find strong evidence that women's employment decisions are positively related to their sisters' employment decisions. We also take account of the possibility that this positive relationship arises from heterogeneity across families in unobserved variables affecting the employment decision. We conduct numerous empirical analyses to reduce or eliminate this heterogeneity bias. We also look at the relationship between husbands' relative income and wives' employment decisions. In our view, the evidence is largely supportive of the relative income hypothesis. ER -