Essays on Home Sector and Labor Force Participation in Macroeconomics

Abstract

This dissertation consists of three chapters. The first two chapters study the surge in marketization – the purchase of services from the market that would otherwise be produced at home – in the US has been attributed to decreases in the marginal cost of personal services through increased productivity. Chapter 1 shows that low-skilled labor is the largest input to the production of these personal services, and thus low-skilled wage movements contribute to marginal cost declines. I build a model to study the economic forces that shape households’ resource allocation in a heterogeneous skill economy. My quantitative exercise shows that the combination of Skill-Biased Technological Change along with an increase in the relative supply of skill can account for more than 60% of marketization.Chapter 2 studies the role of increasing marketization of home production in shaping the earning distribution in the US from 1980 to 2019. I discover that the wage and employment share in the bottom distribution is largely contributed by the home service occupation. I then propose a model embedding a home sector to the skill-biased technological change framework. Combining the SBTC and the marketization force, the model is able to qualitatively capture the U-shape of employment share and wage change. In particular, marketization is necessary in order to explain the decline in home production time. The third chapter studies the cyclicality of labor force participation. In this paper, I take a closer look at the dynamics based on demographic characteristics. My findings suggest that groups more attached to the labor force by convention exhibit larger volatilities in the inflows. This empirical regularity provides a direction that future work could aim at to properly account for the fluctuation of movements into non-participation.