THE ROLE OF LABOR AND MARRIAGE MARKETS, PREFERENCE HETEROGENEITY, AND THE WELFARE SYSTEM IN THE LIFE CYCLE DECISIONS OF BLACK, HISPANIC, AND WHITE WOMEN*

Authors

  • Michael P. Keane,

    1. University of Technology Sydney, Australia; University of Pennsylvania, U.S.A.
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  • Kenneth I. Wolpin

    1. University of Technology Sydney, Australia; University of Pennsylvania, U.S.A.
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    • 1

      Keane is also visiting research professor, Arizona State University. The authors are grateful for support from NICHD under grant HD-34019, from the ARC under grant FF0561843, and several grants from the Minnesota Supercomputer Institute. An early version of this work appeared under the title “Public Welfare and the Life Cycle Decisions of Young Women.” Please address correspondence to: Michael P. Keane, ARC Federation Fellow, School of Finance & Economics University of Technology Sydney, City Campus, P.O. Box 123, Sydney, Australia. E-mail: Michael.Keane@uts.edu.au.


  • *

    Manuscript received January 2008; revised December 2008.

Abstract

Using data from the NLSY79, we structurally estimate a dynamic model of the life cycle decisions of young women. The women make sequential joint decisions about school attendance, work, marriage, fertility, and welfare participation. We use the model to perform counterfactual simulations designed to shed light on three questions: (1) How much of observed minority–majority differences in behavior can be attributed to differences in labor market opportunities, marriage market opportunities, and preference heterogeneity? (2) How does the welfare system interact with these factors to augment those differences? (3) How can new cohorts that grow up under the new welfare system (Temporary Aid for Needy Families) be expected to behave compared to older cohorts?

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