FAMILY ECONOMICS

AND PUBLIC POLICY,

1800s–PRESENT
How Laws, Incentives, and Social
Programs Drive Family Decision-
Making and the US Economy
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Megan McDonald Way

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Palgrave Studies in American Economic History

Series Editor
Barbara Alexander
Babson College
Babson Park, MA, USA
Since the social upheavals of the 1960s and 1970s and the free-market
resurgence of the 1980s, American society has been enmeshed in a con-
tinuing process of profound change. Economic change has been oriented
around the regulation of business, the information and telecommuni-
cation revolutions, and widening roles played by women and minority
groups. Authors in the innovation area will assess how America arrived at
its current position of technological dominance that is nonetheless under
pressure from institutions that arguably are not well-configured for the
future. Regulatory and legal historians will evaluate the reasons for con-
current regulatory breakdown and overreach in industries ranging from
finance and health care to energy and land use. Finally, researchers work-
ing at the intersection of society and economic history will explore con-
tinuing struggles around issues of gender, ethnicity, and family structure,
and the distribution of income, wealth, and political power. The series
will address topics of interest to scholars, undergraduate and graduate
students, and general readers drawn to the interplay of economics and
cultural issues. Series contributors will be economics and business histori-
ans, or economists working with historians.

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 Megan McDonald Way

Family Economics
and Public Policy,
1800s–Present
How Laws, Incentives, and Social Programs Drive
Family Decision-Making and the US Economy
Megan McDonald Way
Babson College
Babson Park, MA, USA

Palgrave Studies in American Economic History

ISBN 978-1-137-43961-1 ISBN 978-1-137-43963-5 (eBook)
https://doi.org/10.1057/978-1-137-43963-5

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To Rob, Meghan, Robbie, Helen and Joseph, for providing day-to-day data
for my lifelong family economics experiment.
Matthew 14:28–32
 Preface

I would never have become an economist if it were not for my father

making a typical family economics calculation. Before I started my soph-
omore year in college, he threatened not to pay for another semester
unless I took an economics class. He was a federal prosecutor, not an
economist, but he had four kids to educate and he did not want to put
scarce dollars into an expensive education when I was floundering over
choosing a major. If he was not using the words return on investment,
he was certainly thinking in those terms. With some economics on my
resume, I would be more likely to get a job, and I think he suspected I
would like the subject.
I complied with his demand, and for that reason on October 19,
1987 (Black Monday), I was sitting in a Macroeconomics 101 class at
Wellesley College as stock markets were crashing worldwide. There was
no internet or smartphones, so all that most of us had heard about the
crash—if anything at all—was from the rare common-area TV or the
radio. Our professor, a young guy named Len Nichols, came in a little
late, literally bouncing in his running shoes from adrenaline. “Do you all
know what is happening?” he yelled, and then proceeded to explain it,
detailing what it meant to us, to our families, to Wellesley College and its
endowment, to the US economy, and to the world economy to have the
stock market lose almost a quarter of its value in one day.
That was the day I realized that economics could help me understand
an extremely complex world.

vii
viii    Preface

The economics of the family is one lens through which to examine US

economic history, which is relatively short in years but rich and complex
in its development. We have sped through agrarian, industrial, techno-
logical and now “knowledge economy” phases with a fledgling, federalist
system running to keep up. The United States in 240 years increased its
physical territory many times over, giving it access to tremendous natural
resources. The country created a legal and economic system that sup-
ported private property, entrepreneurship, and big business while mak-
ing ambitious public investments in infrastructure. Most significantly, in
my opinion, the US population shot up from a few million in 1776 to
over 320 million in 2017, by natural reproduction, by the attraction of
highly motivated immigrants, and by some terrible human trafficking.
Almost all of these people have lived their lives in the context of family,
and in the context of a public system that has educated, supported, and
cared for many, and ruthlessly enslaved and withheld opportunities from
others. All of these people and their families have had to decide (if they
were allowed to) how to allocate their scarce time and resources in such
a way that they would survive and hopefully thrive. And all of these peo-
ple built the economy that we enjoyed in the 1800s and the 1900s, and
that we enjoy today.
Not everyone appreciates applying market economy concepts to the
family, and many family scholars have ingrained prejudices against the
transactional way economists value people in their models. I understand
that, as I discuss at the beginning of Chapter 2, which delves into the
economic functions and economic models of family. I find it extremely
useful, however, to think analytically about how families decide on what
to spend their money and time, and what I think every scholar would
agree with is that no family wants to waste its resources. Most parents,
for example, look at the income they have coming in, and the children
they have in front of them, and think about how to prioritize their
money and time to achieve the best outcome possible for their family.
Economic models help us understand these allocative decisions, from the
most pedestrian (how much to spend on different goods) to the most
life-changing (how many children to have).
My goal in this book is to present family economic decisions through-
out US history in a way that makes sense of where the US economy and
the families that drive it have been, and what role public policies played
in that journey, as well as where we need to go, and how public pol-
icy could step up to help our families and our country get there. Most
 Preface    ix

of this is just about people, and how policy helps people achieve their
productive potential. Whether we value their productive potential in the
labor market, in their homes, in producing works of art, or in giving
their time to public service or charity—that is for all of us to decide.
A few caveats.
The definition of “family” can be very personal and, for some peo-
ple, controversial. I explain what family means from an economist’s per-
spective in Chapter 2. Each readers’ personal definition will probably be
compatible with this very general definition.
I focus on federal over state laws, policies, and programs in most of
my examples, particularly the more recent ones, because federal policies
tie the population together. Some states have been policy pioneers, and
others have been laggards, and in a future volume it would be interesting
to explore states’ influence on each other and on the federal system in
their treatment of families.
I have neglected much of the economic history of Mexican-American
and other Hispanic families, as well as Asian-American families, in large
part because strict measurements of these populations as distinct groups
were not taken by the US Census Bureau until around 1970. It is eas-
ier to understand African American fertility in US history, for example,
or even Native American, because those populations have been better
tracked. The same is true for many other measures. I have leaned toward
going broad over going deep, which means more attention has been paid
to the dominant group. I hope to balance this out in future work.
This is not a comprehensive study of social programs that affect the
family, so some readers may be surprised that I neglect some important
and well-known programs such as Head Start, for example. My policy
suggestions are also somewhat cursory and give little consideration to
how such policies would be funded. My focus is not on the details nor
the public finance aspect of policy-making. My intent, instead, is to shine
a light on how policies would affect family economic decision-making
and the readiness of families to participate successfully in the twenty-first
century US economy.

Babson Park, USA Megan McDonald Way

 Acknowledgements

For a book about family economics it is appropriate to thank, first and

foremost, my parents, Mary Ann and Brian McDonald, who have poured
resources and love and support into me from the moment I was born
through today. As I have watched them and their careers—federal civil
rights prosecutor, Superior Court judge, homemaker, high-school
Spanish teacher, retired-grandparent-uber-babysitters—I learned eco-
nomic lessons that serve me every day.
Rob Way, my husband, has been infinitely supportive of the work for
this book, as have my children. They all tolerated my absences and late
nights at the office with love and good humor and for that I am very
grateful.
My colleagues at Babson College are always encouraging and inspir-
ing. Babson is a niche player in a big higher education market, and it
is an exceptional one thanks to its faculty and staff. I especially owe an
enormous debt of gratitude to my friend and mentor, Lidija Polutnik,
Chair of the Economics Division for many years before recently handing
this post on to me. I also must thank my colleague, Barbara Alexander,
the editor of this Palgrave series, for giving me the opportunity to con-
tribute this work, and for her invaluable editing.
I learned labor economics, and one of its subfields, family econom-
ics, from Don Cox at Boston College. During my Ph.D. program, I had
the privilege to work with Don as a research assistant on an NIH grant,
“Biological Basics and Intergenerational Transfers.” I am very grateful to

xi
xii    Acknowledgements

have had this exposure to an area of economics that is new and a little
fringe and highly relevant to people’s lives.
Most importantly, given this book’s focus on public policy, I must
thank the taxpayers of the United States, and the federal, state and local
government systems that have invested so much in me and my family.
There is no way to list all the systems that have benefited me, but here
are a few. Specifically, I need to acknowledge:

• The Arlington Public Schools, Arlington, Virginia. I not only

received an excellent primary education at Barrett Elementary
School in the 1970s, but got to rub elbows with a resilient, recently
arrived group of kids from Vietnam, Cambodia and Laos.
• The Miami-Dade County Public Schools, Miami, Florida. Palmetto
Middle School was probably the most diverse school I could ever
have attended, with racial busing, immigrants from everywhere,
rich, poor, deep south and cosmopolitan, all jumbled together. I
knew advanced algebra and how to diagram the most complex sen-
tences by the time I left there.
• The favored tax status that made possible the existence of Cathedral
High School in Springfield, Massachusetts, an enormous Catholic,
diocesan high school run by the Sisters of St. Joseph. It was the
least diverse school I could ever have attended, but I learned that
my meager number of siblings—three—was nothing compared to
my friends who had 5, 6, 7 and even 13 siblings. If I had known my
later interest in the economics of fertility, I would have created case
studies out of them all. I also witnessed four years of concentrated
female brilliance in the form of my math teacher, Sister Marita
Joseph.

The public systems of the United States have also given me student
loans and subsidies to attend Wellesley College, as well as tax breaks to
help me: buy a home; have great health insurance; pay for day care; and
save for retirement. The Town of Norwood, Massachusetts has educated
my children, and provided a fabulous environment for raising a family.
For me, personally, US public policies have provided a ramp leading me
and mine up to economic security and success. I am so grateful, at the
same time that I fervently wish our system worked that way for every
family.
 Contents

1 Introduction: Public Policy and Family Economics

in US History 1

2 Families: Economic Functions and Decision-Making 23

3 The Path of US Fertility: Micro Decisions with Macro

Consequences 45

4 Private and Public Investments in Children: Creating

the Human Capital to Meet US Economic Needs 89

5 Labor Force Participation and Home Production:

Evolving Rights, Roles, and Opportunities
for Women and Men 133

6 The Economics of Changing Family Structures:

The Public Interest in Marriage and Family Formation 171

7 Intergenerational Economics: Public and Family

Support for Retirees in US History and Looking
Forward 205

xiii
xiv    Contents

8 Family Economics, Public Policy, and Inequality:

Diverging Family Fortunes and the Risk
to the US Economy 235

Bibliography 273

Index 299
 List of Figures

Fig. 3.1 US population recorded in decennial censuses, 1790–2010

(Data sources Table 2 of Selected Historical Population Data,
1990 Census; 2000 Census; 2010 Census. Accessed from
https://www.census.gov/) 48
Fig. 3.2 General fertility rate (annual births per thousand women ages
15–44), 1800–2015. Notes (1) Change in smoothness of line
results from higher frequency data after 1910. (2) Prior to
1900, it is unclear from census data if surveyed population
includes non-whites (Data sources 1800 to 1960—US Census
Bureau, Historical Statistics of the Unites States, Colonial
Times to 1970, Bicentennial Edition (1975). 1960 to
2015—National Vital Statistics Reports, vol. 66, no. 1 (2017)) 50
Fig. 3.3 US immigrant population: 1850–2010 (Data sources US
Census Bureau, Census of Population, 1850–2000, and the
American Community Survey, 2010. Includes all immigrants
regardless of legal status) 52
Fig. 3.4 General fertility rate by race: 1980–2015 (Data source Martin
et al., “Births: Final data for 2015.” National Vital Statistics
Report; vol. 66, no. 1. Hyattsville, MD: National Center for
Health Statistics. 2017. Table 1-Birth and Birth Rates by Race) 54
Fig. 3.5 Completed fertility by education, women ages 40–50: 2014
(Data source US Census Bureau—Fertility of Women
in the United States: 2014. Table 6. Completed Fertility
for Women 40–50 Years Old by Selected Characteristics.
https://www.census.gov/data/tables/2014/demo/fertility/
women-fertility.html) 59

xv
xvi    List of Figures

Fig. 3.6 General fertility rate—Hispanic versus non-Hispanic:

1990–2015 (Data source Martin et al., “Births: Final Data
for 2015.” National Vital Statistics Report; vol. 66, no. 1.
Hyattsville, MD: National Center for Health Statistics. 2017.
Table 5—Births and Birth Rates, by Hispanic Origin of
Mother) 71
Fig. 3.7 Population projections by immigration rate assumptions.
2015–2060 (Data source US Census Bureau, Population
Division. Table 1. Projections of the Population and
Components of Change for the United States: 2015–2060
(NP2012-T1). https://www.census.gov/data/tables/2014/
demo/popproj/2014-summary-tables.html) 72
Fig. 3.8 Projected age distribution of the US population: 2014–2060
(Data source Colby, S. L., & Ortman, J. M. (2015).
Projections of the Size and Composition of the US
Population: 2014–2060 (P25–1143). Washington, DC:
US Census Bureau. Retrieved from https://www.census.gov/
content/dam/Census/library/publications/2015/demo/
p25-1143.pdf) 75
Fig. 4.1 Educational attainment of US population: 1940–2016
(Data source US Census Bureau, Educational Attainment
in the United States: 2016. Table A-1 “Years of School
Completed by People 25 Years and Over by Age and Sex:
Selected Years 1940–2016.”https://www.census.gov/data/
tables/2016/demo/education-attainment/cps-detailed-
tables.html) 95
Fig. 4.2 Ratio of private to public educational expenditures: 2013
(Data source Author’s calculations from Digest of Education
Statistics 2016, Table 605.20 “Public and private direct
expenditures on education institutions as a percentage of
gross domestic product, by level of education and country:
Selected years, 2005 through 2013,” National Center of
Education Statistics. https://nces.ed.gov/programs/digest/
d16/tables/dt16_605.20.asp) 101
Fig. 4.3 Educational attainment of population ages 25–29 by race,
ethnic group: 2016 (Data source US Census Bureau,
Educational Attainment in the United States: 2016,
Table 1. “Educational Attainment in the United States:
2016.” https://www.census.gov/data/tables/2016/
demo/education-attainment/cps-detailed-tables.html) 106
Fig. 4.4 Revenues per student by local, state and federal sources:
1920–2014 (Data source Digest of Education Statistics 2016,
 List of Figures    xvii

Table 235.10 “Revenues for public elementary and secondary

schools, by source of funds: Selected years, 1919–1920
through 2013–2014,” National Center of Education Statistics.
https://nces.ed.gov/programs/digest/d16/
tables/dt16_235.10.asp) 111
Fig. 5.1 Labor force participation and college completion rates,
women and men: 1890–2010 (Data sources Labor force
participation 1890–1940—Historical Statistics of the
United States, Colonial Times to 1970 Series D29, U.S.
Bureau of the Census. Labor Force Participation 1940–2015,
Bureau of Labor Statistics Report “Women in the Labor
Force”, April 2017, Report 1065. Educational attainment
data from National Center for Education Statistics, Digest of
Education Statistics 2015 Table 104.10. Rates of high school
completion and bachelor’s degree attainment among persons
age 25 and over, by race/ethnicity and sex: Selected years,
1910 through 2015) 135
Fig. 5.2 Labor force participation of married women with children
under 18: 1880–1990. Notes Civilian non-institutionalized
population age 16 and older. Wording of 1910 Census
occupation question elicited an unusually high positive
response rate (Data source Historical statistics of the United
States millennial edition, Series Ba 425–469) 143
Fig. 5.3 Ratio of women’s median annual earning to white men’s
median annual earnings (Data source Author’s calculations
from Historical Statistics of the United States Millennial
Edition, Series Ba 4512–4520. Median earnings of
full-time workers by sex and race: 1960–1997) 148
Fig. 6.1 Percent of US households by household type: a 1870,
b 1960, and c 2010. Note Cohabiting couples could be
included in non-family households or in female-led or
male-led households depending upon their relationships
to other household members (Data sources Data for 1870
and 1960 from Historical Statistics of the United States,
Millennial Edition, Table Ae 128 (Susan B. Carter et al.,
Historical Statistics of the United States Millennial Edition
Online, ed. Matthew Sobek (New York: Cambridge
University Press, 2006)). Data for 2010 from “Table 2:
Households by Type: 2000 and 2010” in US Census Brief:
Households and Families: 2010 (Daphne Lofquist et al.,
“Households and Families: 2010,” in 2010 Census Briefs
(Washigton, DC: U.S. Census Bureau, 2012))) 174
xviii    List of Figures

Fig. 6.2 Median age at first marriage for men and women:
1890–2016 (Data source U.S. Census Bureau, Historical
Marital Status Tables, Table MS-2, November 2017. https://
www.census.gov/data/tables/time-series/demo/families/
marital.html) 183
Fig. 6.3 Marriage and divorce rates: 1920–2015. Note Data missing
for 1996–1999 (Data source Historical Statistics of the
United States, Table Ae 507–513. Marriage and Divorce
Rates 1920–1995. CDC/NCHS National Vital Statistics
System. Provisional Marriage and Divorce Rates 2000–2015) 184
Fig. 6.4 Non-marital childbirth, single-parent families, and poverty
rates of single-mother and married-parent families:
1960–2010 (Data sources Children born to unmarried
mothers—CDC Data Brief 162, 2014. Children living with
single parent—U.S. Census Historical Living Arrangements
of Children, Table CH-1, 2017. Single-mother and
married-parent families in poverty—U.S. Census Historical
Poverty Tables: People and Families, Table 4, 2017.
Data not available for married families prior to 1980) 186
Fig. 7.1 Historic and projected US population pyramids by 5-year
age ranges: 1980, 2010, 2040 (Data source US Census
Bureau International Data Base, downloaded from
https://www.census.gov/data-tools/demo/idb/
informationGateway.php, December 2017) 207
Fig. 7.2 Percent of women and men ages 65 and older living in
poverty: 1966–2016 (Data source: US Census Bureau,
Historical Poverty Tables: People and Families—1959
to 2016, Table 7. https://www.census.gov/data/tables/
time-series/demo/income-poverty/historical-poverty-
people.html) 213
Fig. 7.3 Single-person households by age group: 2016 (Data source
US Census Bureau, America’s Families and Living
Arrangements: 2016, Table H2. https://www.census.gov/
data/tables/2016/demo/families/cps-2016.html) 219
Fig. 8.1 Average annual income growth across quintiles: 1967 to
1992, 1992 to 2016. Note Amounts below each income
category are average annual earnings in 1967 and 2016,
both expressed in 2016 dollars (Data source US Census
Bureau, Historical Income Tables: Income Inequality.
Table A-2 Selected Measures of Household Income
Dispersion: 1967–2016 https://www.census.gov/data/
tables/time-series/demo/income-poverty/historical-
income-inequality.html) 246
 List of Figures    xix

Fig. 8.2 Income ratios: 1967, 1990, 2016 (Source Author’s

calculation from US Census Bureau, Historical Income
Tables: Income Inequality. Table A-2 Selected Measures
of Household Income Dispersion: 1967–2016 https://www.
census.gov/data/tables/time-series/demo/income-poverty/
historical-income-inequality.html) 247
Fig. 8.3 Percentage of recent high school graduates enrolled in 2-
or 4-year college programs, by income level: 1975–2015.
Note 3-year moving average of enrollment by October
of students ages 15–24 graduating from high school or
receiving GED earlier in calendar year. Low income refers
to bottom 20% of household income, high income refers
to top 20% of household income and middle income refers
to 60% in-between (Data source Digest of Education Statistics
2016, Table 302.30 from National Center for Education
Statistics. Accessed from https://nces.ed.gov/programs/
digest/d16/tables/dt16_302.30.asp) 251
Fig. 8.4 Percent of college students with loans, parents with
Federal PLUS Loans, and cumulative average loan amount
in fourth year of college: 1990, 2000, 2012 (Data source
Digest of Education Statistics: 2016, Table 331.95.
Percentage of undergraduate students ages 18–24 in their
fourth (senior) year or above who ever received federal
loans, nonfederal loans, or Parent Loans for Undergraduate
Students (PLUS), and average cumulative amount borrowed
in 2015–16 dollars, by selected student characteristics
and control and level of institution: 1989–1990,
1999–2000, and 2011–2012) 252
 CHAPTER 1

Introduction: Public Policy and Family

Economics in US History

Introduction
Twenty-first-century families in the United States are charged with tre-
mendous economic responsibilities. They make up the current US labor
force, which is undergoing rapid structural and technological change,
and is responsible for 60–70% of the productive output of the economy.
While they work, families are bearing, raising, and educating the children
who must be prepared to fill their roles in the newly-termed knowledge
economy. They are also looking after a growing population of elderly fam-
ily members. Families are expected to juggle these roles while managing
uncertainty across many aspects of their economic lives. The tradeoffs
facing them as they attempt to allocate their scarce resources to educa-
tional investments, rising healthcare costs and retirement savings, for
example, seem to have increasingly high stakes—make a wrong decision
in one of these areas and someone in the family could end up in poverty,
or at least facing a much diminished standard of living. As they make
these decisions, families are aware of increasing inequality around them
and the sharp distinctions between the haves and the have-nots. And as
they face these responsibilities, the public policy environment that makes
up one part of the context for their lives can seem indifferent, can seem
demanding, or can seem oppressive depending upon the type of fam-
ily they are living in, where they fall on the income distribution and the
color of their skin.

© The Author(s) 2018 1

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_1
2 M. M. WAY

Substitute the term industrial economy for knowledge economy and

the paragraph above could have been written about nineteenth-century
families.
This book describes the evolution of the American family over the last
two centuries using the lens of family economic decision-making, focus-
ing particularly on the interplay between families and the government.
The economic roles played by families have been remarkably consistent
across time, but families themselves have changed and the public policies
they face have changed from the 1800s to the 2000s. Acknowledging
that families’ decisions regarding how they spend their money and care
for their members are influenced by the government provokes a reaction
of discomfort in many people. The government seems impersonal, with
hard, bureaucratic edges that do not fit nicely with our image of fam-
ily. Families are intensely personal, and family decisions are, in theory,
based on a family’s values and the best interests of each of its members.
Yet, every family exists in the context of a political and economic system
which in some cases nudges them (for example, providing subsidized
student loans for college), and in other cases commands them (for exam-
ple, mandating schooling for children ages 5 to 16 or older) to allocate
their scarce resources of money and time in ways that affect the overall
US economy.
Of course, family members vote for the politicians who ultimately
direct the public policies they are subject to and, perhaps, derive advan-
tage from. The creation of policies starts with the voters in a democracy,
although it frequently ends with the appointed judges of a state or fed-
eral Supreme Court, as exemplified by landmark Supreme Court rulings
regarding segregation and same-sex marriage. As this book explores
the relationship between family economic decision-making and govern-
ment policy in US history, it will reveal how families have responded
to the incentives and the constraints established by diverse federal and
state laws, ranging from the regulation of marriage, to labor regula-
tions, to education policies, to retirement programs, and many others.
It will examine how families allocate their resources and how decisions
are made that determine each household’s participation in the labor
market and in other aspects of the market economy. Most importantly,
it will highlight how the interplay of public policy and family economic
decision-making drives the US economy to be innovative and prosper-
ous while at the same time shockingly unequal. Throughout, there will
be suggestions for how policies could be developed that help families
 1 INTRODUCTION 3

succeed economically, and better fulfill their crucial roles in a US econ-

omy that must be prepared for twenty-first-century challenges including
demographic change, climate change, challenges from rising econ-
omies in Asia and Latin America and the rapid development of new
technologies.
First, let’s start with a few historical examples.

Child Labor Laws and Compulsory Schooling—Imposing

Constraints on Families
In the early nineteenth century, the mills of New England were filled
with workers who until recently had participated little in the formal-
ly-employed industrial workforce: children. The industrial revolution,
which had started almost three-quarters of a century earlier in England,
had changed methods of manufacturing in textile and other industries
from small-scale reliance on skilled workers, to large-scale reliance on
machinery tended by less-skilled workers. The fast-moving rivers of New
England were ideal locations for the waterwheels that powered the mills
of Lowell, Fall River, Springfield and Providence. But even though this
region of the United States was the most densely populated, adult male
labor was unable to meet the growing demands of industrialization. The
mills initially employed women and girls, and then increasingly recruited
young children through the 1820s and 1830s. The relatively low physical
demands of industrialized manufacturing made children adequate, if less
than ideal, workforce members. Some mill machinery was even adapted
to the proportions of child-sized operators. Children were not well paid,
but the opportunity cost of their work—the value of the next best use of
their time—was not economically rewarding either. They could partici-
pate with relatively low productivity in farm work, assist with housework,
or possibly be hired out to another family.
Schooling was an option, but barely so for lower- to middle-class fam-
ilies. The common public school system provided literacy and numer-
acy, but it was not a path to significant increases in earnings potential
for those whose families were not already established in commercial
enterprises. Very few secondary schools existed outside of large urban
areas, so schooling beyond age 13 was uncommon, and in most cases
did not result in higher earnings as adults.1 Many New England farming
and urban families appreciated the extra income resulting from sending
4 M. M. WAY

their children to a factory or mill town to work, and in many cases, the
children themselves appreciated the increased independence that came
with earnings.2 Compared to the dangers of farming, for example, the
mills seemed relatively safe, and many children worked side-by-side with
their mothers and older sisters. Stories of exploitation and drudgery had
not yet appeared, immigrants who would compete with child labor had
not yet arrived in large numbers, and advances in technology had not
yet driven industrial machinery to speeds that made factories much more
dangerous places for children. A child laborer’s work in the mills was not
easy, but neither was farm work, and at least mill work paid.
How public policy would treat this new population of industrial work-
ers was a crucial question facing first the states, and eventually the fed-
eral government as well. The well-being of children, family income, labor
availability, company profits, and the transformation of the US economy
from agrarian to industrial—all these issues were at stake. The decision to
allow, or not allow, the use of child labor affected families at the micro-
economic level—determining the well-being of their children as well as
their household income. It also affected the United States at a macroe-
conomic level—impacting the ability of the country to compete in world
markets with nations like Britain.
On the labor-demand side of manufacturing were the new industri-
alists, such as the textile manufacturers of New England. They needed
workers. Access to cheap southern cotton gave New England mills a
source of competitive advantage in the textiles trade over England in the
early 1800s, but without cheap mill labor, this advantage was wiped out
by the high wages required to lure male workers. To restore this compet-
itive advantage, manufacturers turned to women—mostly unmarried—
and children, at wages less than half those of men.3 In 1820, children
under the age of 15 made up about 50% of the textile mill labor force,
and about a quarter of all manufacturing labor in the Northeast.4 While
this percentage decreased through the nineteenth century for a variety of
reasons—such as increased competition from immigrant labor—putting
children to work in fields, wealthy people’s homes, shops, or factories
was the norm for many families and contributed a large percentage of
family income through the early parts of the twentieth century.5
Regulating commerce and, at times, family life, was the government
in a variety of forms, but mostly state and local at this time in US his-
tory. Prior to the 1850s, the legislatures and the regulatory agencies of
New England states did little to restrain the employment of children in
 1 INTRODUCTION 5

manufacturing. Children were under the economic and legal control of

their parents, and it was usually a father’s choice whether his child was to
be educated, employed, or apprenticed to a tradesperson. The state had
relatively little interest in the welfare of children, other than a concern
that children not be delinquent. Factory work served to prevent delin-
quency quite well. The economic growth of New England states, fueled
by paper mills, textile mills, machine tool shops, and other manufac-
turing, was on course, and depended quite heavily on child labor. Even
when the first minimal compulsory education laws were passed, starting
in Massachusetts in 1852, there was little enforcement.6
But after the Civil War, the economy changed. Continuing industri-
alization combined with technology improvements in machinery made
labor more productive. This justified paying higher wages to men and
decreased demand for child labor in manufacturing, resulting in less busi-
ness opposition to child labor laws. The increasing need for a managerial
and clerical class of workers, and thus an educated workforce, became
clearer to business leaders and policy-makers, increasing support for edu-
cation.7 The labor movement supported child labor laws for several rea-
sons, not least of which was to eliminate the competition of women and
children for jobs with men, in order to drive up male wages.8 There were
also decreases in fertility, making children and their labor services scarcer
and reducing pressure on family incomes.9 At the same time, a trans-At-
lantic movement to protect children from the perceived danger, drudg-
ery, and exploitation of factory work was growing stronger.
State legislatures began slowly enacting child labor laws around the
time of the end of the Civil War. In 1880, only seven states had mini-
mum age statutes for employment in manufacturing, with most of the
ages as low as 10, but by 1910 only nine states did not have such min-
imums.10 The Fair Labor Standards Act of 1938 (FLSA) introduced
federal legislation into the equation, prohibiting most employment
of children under the age of 14, and regulating the labor of 14- and
15-year-olds. Of course, passage of laws did not ensure compliance.
Enforcing a minimum age for formal employment was costly and could
easily be evaded by moving children into hidden work environments.
Compulsory schooling laws provided an effective complement to child
labor laws by limiting children’s availability for employment. The rate
of school attendance in 1920, when all states had compulsory schooling
laws of some type in effect, was over 90% for children who were also
below the minimum legal work age in their states, indicating that at the
6 M. M. WAY

least, these children spent many hours a year outside the paid or unpaid
workforce.11
Between 1880 and 1920, the number of native-born white boys and
girls ages 10 to 13 reported in the US Census as gainfully employed had
dropped from 24 and 3%, respectively, to 6 and 2%. For an immigrant
population, such as Italians, the numbers went from 30 and 5% to 1 and
0%, with similar changes for Irish children.12 This is probably because
immigrant children were more concentrated in cities and were less
involved in agricultural labor at that time. African American children’s
participation in the labor force was much higher, due to poverty, their
concentration in the agricultural south, and the poor quality of public
education for them under the Jim Crow regime.13 Between 1880 and
1920, the number of black boys and girls ages 10 to 13 in the paid work
force dropped from 51 and 33% to 19 and 14%.14 It is likely that many
more working black children were uncounted as part of the paid labor
force because they worked with their families in sharecropping.
Of course, there are arguments as to whether it was child labor laws
that led to the dramatic decreases in children working, or if social trends
in work and family life were more responsible. Either way, the social
trend toward less child labor and the laws directly prohibiting it led to
a general improvement in the lives of most children, unless their families
were in poverty, or they were unsuited to school and unhappy or abused
there.15 Most people would agree that children needed, and continue
to need, protection from needy or greedy parents, exploitative employ-
ers, and the temptation of trading their future gains from education
for a paycheck. Given the many spillover benefits of education, govern-
ment intervention was required to ensure the economic and civic health
of communities and increase the economic potential of the population,
in addition to protecting children. In 1906, Charlotte Perkins Gilman,
sociologist, feminist and author of Women and Economics, argued in sup-
port of strict child labor laws in the meetings of the American Economic
Association, positing that “(1) Every child has a personal right to
his full growth. (2) The family has no property rights in the child. (3)
The state should enlarge its services to the child until it has fulfilled its
whole duty.” With this last point, Gilman was recommending that the
state provide not just education, but also a minimum standard of living,
because “every child should be considered as a social asset” and trained
to be “put to the higher levels of work.”16
 1 INTRODUCTION 7

Getting children out of the workforce and into school was transfor-
mational for the US economy, driving the economic development of the
United States as it has all industrializing and industrialized countries.17
The expansion of primary and secondary schooling from the late nine-
teenth through the mid-twentieth century led to gains in labor produc-
tivity which complemented technological advances and investments in
physical capital, as well as exploitation of the nation’s natural resources.18
The states with child labor and mandatory education laws provided
themselves an educated workforce which benefited industry in count-
less ways, from creating the clerical and managerial workforces required
for running increasingly complex organizations, to making factory floor
workers trainable on advanced machinery, to spurring the increase in
college attendance that provided scientific and engineering talent.19
Compulsory education laws also satisfied political needs: preparing chil-
dren to be responsible citizens, reducing delinquency, and integrating
immigrant children into the American culture.
But how did these laws change the economics of families? Eliminating
a source of income may not have had an impact on all families, but it cer-
tainly must have been a hardship for some. The imposition of child labor
and education laws changed a trend to a mandate that added a binding
economic constraint on many families, meaning that it changed their
decision-making regarding childrearing; without the laws, they would
have put their children to work. One estimate based on comparisons of
the legal working age between states showed that as late as 1920, being
age eligible to work made a child 6% more likely to be in the work force
than in school. This may seem like a small effect, but it indicates that
the preference in many families or of many children themselves was to
work over going to school.20 Without the law, a significant number of
children would have been bringing an income to their families. Many
of these were recent immigrant families, with lower-skilled adult labor,
whose choice to have their children work was part of an overall strategy
to establish themselves economically in the United States.21
Compulsory schooling laws also took children away from unpaid labor
that the family might have benefited from at home. The family that for-
merly relied on older children to do housework, or care for the younger
children, or complete home-based work intended for the market no
longer could operate that way. Adult women had to spend more time in
childcare and housework, and less time on other tasks, including market
work. White women of the late 1800s were already being pushed away
8 M. M. WAY

from market work by a developing Victorian ideal of female domesticity.

Schooling laws had the effect, if not the intention, of increasing women’s
unpaid work in the home.
With compulsory education laws and child labor prohibitions, the
economic benefit of children in the family declined, but their human
capital and future economic capacity (which they could take with them
when they left the family) increased. Having children became more
expensive and required more sacrifices on the part of parents. It is log-
ical, then, that for many families these policies led to having fewer chil-
dren.22 The constraints labor and education laws imposed accelerated
the changing economic role of children from being economic resources
to their families to being economic costs. In the short term, many fam-
ilies had to adjust and certainly some found themselves in difficult cir-
cumstances when they lost the income or the productive value of their
children’s labor. In the long term, these laws added to a redefinition of
childhood, motherhood, fatherhood, and the different economic roles
played by each family member.
Of course, some types of child labor have persisted, legally, since
the 1700s. The FLSA of 1938 did not prohibit farm labor for chil-
dren, for example, permitting children to work on their own families’
farms, with their parents on other farms, and alone on farms with some
restrictions in hours. The number of child farmworkers has decreased,
and their demographic makeup has evolved, but their contributions to
the agricultural labor force remain significant enough that political bat-
tles over proposed reforms to the agricultural child labor provisions in
the FLSA are still being fought in the twenty-first century. The federal
government’s refusal to this day to grant all children coverage under
labor laws reflects powerful political and economic forces that trump the
rights of children and affect their current and future economic well-be-
ing. Hundreds of thousands of mostly Hispanic children in the United
States continue to be employed in harsh conditions due to the agricul-
tural exemption to child labor laws, aggressively supported by powerful
lobbying groups.23 The number of children age 15 and under working
on farms—usually not owned or run by their families—was estimated at
over 990,000 in 2001 by the National Institute of Occupational Safety
and Health.24 Farm work is the most dangerous occupation for children
with rates of mortality and injury far higher than the next most danger-
ous occupation, construction, where more restrictive regulation of child
labor exists.25 Efforts as recent as 2012 to limit the most hazardous types
 1 INTRODUCTION 9

of work for hired (non-family) children under age 16, such as working
in grain silos or operating heavy equipment, were abandoned due to
large and public opposition by the American Farm Bureau Federation.
Commercial farm members of the federation would have faced significant
cost increases due to more stringent regulation, because children are not
required to be paid minimum wage and they often work for piece wages,
meaning they are paid only for what they produce, and not an hourly
wage.26 They also suffer very high rates of poverty, often live separated
from family, and they are at high risk for not completing high school.27
The policy decision not to protect children who work in agriculture—
many of whom are immigrants or migrants—and not to place the same
constraints on their families as on other US families not only profits pri-
vate sector interests, but also helps achieve political objectives. For exam-
ple, being able to pay low wages to children depresses demand for adult
labor, lowering adult wages as well. Low labor costs result in cheap food
on US families’ tables and push down prices for US agricultural products
on the world market, making them more competitive and improving the
trade balance. Cheap food comes at a very high cost to working chil-
dren and their families, however. The sacrifice of children’s educations
almost guarantees they will keep working in low-paying agricultural work
through adulthood, and perhaps have to bring their own children to the
fields to make ends meet, continuing a vicious cycle. The ethnicity of
these children (over 80% of all farm workers are Hispanic28), their pov-
erty, their invisibility to the public due to remote work locations and an
often transient life situation and the political influence of the agricultural
lobby are all factors that result in a lower perceived value of farm worker
children’s safety and education, both to the public and to elected politi-
cians. The government’s exemption of agriculture from many child labor
laws contributes to maintaining an undereducated group of workers,
which in the twenty-first century economy guarantees a low spot on the
economic hierarchy and contributes to growing inequality.
Despite the glaring agricultural exception, child labor and educa-
tion laws placed constraints on most families’ economic decisions which
helped develop the human capital that propelled twentieth-century pro-
ductivity increases in both labor—through an educated workforce—and
capital—through scientific and technological advances. Let’s look at
another policy from the 1800s that incentivized families to make eco-
nomic decisions that they otherwise might not have by affecting prices.
10 M. M. WAY

The Homestead Act—Lowering the Price of Land

The Homestead Act of 1862 incentivized hundreds of thousands of US
citizens and future citizens, mostly families, to settle frontier land not yet
well communicated with the established territories of the United States,
and not yet well-secured militarily from the Native Americans who were
being displaced. By residing on, and typically farming, a one-quarter sec-
tion of land (about 160 acres) for five years, any head of family, veteran,
or adult over the age of 21 was granted that land by the federal govern-
ment. In effect, the purchase price of the land was lowered to zero.29
The 1862 act and later homesteading acts in the west were combined
with a mix of other federal land sales and grants to railroads, businesses,
speculators, and new states to create a complex land management pol-
icy for the territory stretching west of the Mississippi to California. In
the popular imagination, and in reality, homesteading policies were “how
the west was won,” and Americans were taught to revere the pioneer
men, women, and families who settled in hostile Indian Territory and
made the Midwestern and western states the breadbasket of the country.
In the process, they were also taught to overlook homesteading’s effects
on hundreds of thousands of Native Americans, whose families were vio-
lently displaced by the US military, sometimes with the help of home-
steaders, in violation of hundreds of treaties.
The policy objectives of the Homestead Acts were to assert sover-
eignty over and extract resources from new territories purchased from
the Spanish and French, and appropriated from the Native Americans,
through the use of settlers.30 The mechanism to accomplish these objec-
tives was to lower the costs and promote the benefits of farming on the
frontier, so that families and individuals would be willing to move and
to endure the hardships of settling. These hardships were so great, and
the benefits so meager, however, that many economists and historians
have judged homesteading a dismal and inefficient way to allocate land
resources, prompting articles with titles like “Buying Misery with Federal
Land.”31 Around two-thirds of the 1.5 million homesteads allocated
under the 1862 act were abandoned.32
The misery of the homesteader probably seemed cheap to the fed-
eral government when compared to the cost of military troops to deter
Native American claims to the land and overcome their resistance to US
sovereignty. Homesteading was an economically and militarily efficient
policy, according to some historians, when the government was trying
 1 INTRODUCTION 11

to exert control over many thousands of Indians with a few thousand

troops. The sheer numbers of homesteaders decreased the likelihood of
trouble from the Native Americans by making resistance seem futile.33
The desired population density was realized both by dropping the price
of the land, and by limiting homesteads to 160 acres, which in light of
the types of farming that would take place, was considered small.34 The
inefficient size of homesteads is just one reason why the policy has been
criticized, but the result of encouraging more dense settlement was that
the sovereignty of the United States over the land was enforced in a less
costly way—to the government—than it would have been by the exclu-
sive use of the military. Quick settling of the territories also quickened
the expansion of commercial activity across the frontier and created new
economic opportunities for business entities in the east.
For families who ventured into homestead agreements with the fed-
eral government, moving to the frontier meant the sacrifice of education,
social networks, earnings, and in some cases, lives, in return for a highly
risky and laborious investment. Instead of incentivizing families to edu-
cate their children and protect them from danger, the Homestead Act
incentivized parents to relocate to where their children would be far
from educational opportunities, almost guaranteeing that children would
be providing the type of farm and household labor made more difficult
and dangerous by the remoteness of their location.
Prior to the Homestead Act, many families considering a move to
the frontier might have decided that the direct and indirect costs of
the move outweighed its potential benefits. The direct costs included
transportation, purchasing or laying claim to land in often hostile terri-
tory, building a home and a barn, and purchasing farm tools and seeds.
Indirect costs included risks to the family such as hostilities, disease, acci-
dents, isolation, loss of support networks, lack of access to education,
and the loss of nonfarm employment opportunities. By reducing one of
the direct costs—the cost of purchasing land—to zero, the homestead-
ing policy changed the economics of the decision, resulting in many
families opting for frontier life even when other direct and indirect costs
remained high. Risks to their financial well-being were as serious as risks
to their physical well-being, given the less-than-desirable nature of much
of the land that the government allocated to homesteaders. Railroads
and speculators would pay for better land parcels so homestead land was
usually more remote and less productive.35 As a result, over a million
homesteaders abandoned their claims, losing their investments of time
12 M. M. WAY

and money, and surely landing their families in worse economic circum-
stances than if they had never left settled territory.36
Although it ended in failure for many settler families, and success—
however modest—for others, the Homestead Act achieved its objectives
from the point of view of the federal government. The territories were
settled and Native Americans were pacified at a lower cost than would
have been incurred through exclusively military action, although hun-
dreds of military battles took place. Food production expanded both
for domestic use and trade. Vast natural resources were put under the
control of the federal government or the entities to which they leased
or granted land and resource rights. Thus, while not considered a family
policy per se, the Homestead Act is a great example of a public policy
that incentivized many US families to help advance a national objective
by changing one of the parameters of their economic decisions—in this
case, the price of land.

Married Women’s Property Acts —Changing Property

Rights of Family Members
Property rights, an essential element of the market system, were histor-
ically withheld from married women, preventing them from operating
as anything but agents of their husbands. Coverture laws asserted that
married women were subsumed into the legal person of their husbands,
and they existed in the United States, as part of the jurisdiction of indi-
vidual states, through the nineteenth century, and in some forms into the
twentieth. They were a legacy of the common law of England, brought
to North America by the original colonists. According to Blackstone’s
Commentaries on the Laws of England, “By marriage, the husband and
wife are one person in law: that is, the very being or legal existence of
the woman is suspended during the marriage, or at least is incorporated
and consolidated into that of the husband: under whose wing, protec-
tion, and cover, she performs every thing.[sic]”37 This legal construct,
often called the fiction of marital unity, meant that a husband had prop-
erty rights over his wife, including all her pre- and post-marital savings,
land, personal property, inheritances, and earnings.
Due to these laws, in the 1800s married women could not sign con-
tracts, own property, devise a will, or keep income from their own labor
and businesses. It was difficult for them to even have a business given
 1 INTRODUCTION 13

their inability to enter contracts. Husbands could grant permission for

some of these activities and courts could also grant exceptions through
the recognition of trusts, created prior to marriage, which administered
the rights to and earnings from property. Trusts were usually created to
manage an interest in a business belonging to the wife’s family, or an
inheritance. In practice, these exceptions to the law were only used by
the wealthy.38 None of a husband’s rights over a wife’s property were
reciprocal—a woman could not assert similar rights over her husband’s
property even upon his death. A widow could inherit her husband’s
property (which, ironically, might include property she brought to the
marriage, or the fruits of her labor during the marriage such as a busi-
ness or savings from her earnings), but this depended upon the terms of
the husband’s will and the dower laws of the state. States which adopted
English common law usually allowed the widow only a one-third interest
in the husband’s property, although the husband could bequeath more
in his will. Children and other family members, however, could pres-
ent legal challenges to wills that were considered too generous to wid-
ows.39 Married women, legally speaking, had a status similar to servants
or to children, and comparisons between marriage and slavery were not
unusual.
From an economic perspective, coverture prevented married women
from being full economic actors and severely constrained them in several
ways. First, they were excluded from full participation in the market
economy, because the market requires that individuals have ownership of
the labor, land, and capital they are offering for sale or lease. Married
women were also subject to uncertainty; would they themselves benefit
from their earnings and their profits if they participated in the market, or
would their husbands, their husbands’ creditors or their husbands’ other
heirs be the ultimate beneficiaries of their efforts? Finally, their invest-
ments in bearing and educating their children were risky strategies for
ensuring future economic stability, because under coverture fathers had
property rights over children, and even in death they could assign rights
over their children to someone other than their wives.
Apart from the moral injustice of coverture and the economic effects
on married women, coverture also presented economic challenges to
families and to the larger society as the US evolved from an agrarian
economy to a complex, industrial, and entrepreneurial economy. The
husband-as-feudal-lord model worked, for men at least, when house-
holds operated farms, or very small businesses trading mostly in local
14 M. M. WAY

areas. It did not work as well when a diversity of businesses, entrepre-

neurial opportunities, and financial instruments were emerging. The new
industrial economy required risk taking, and families needed to be able
to protect at least some of their assets from the hands of creditors when
ventures failed. Men, by purchasing on credit or participating in a new
business venture, were jeopardizing the entire family if their wives’ prop-
erty and earnings could be taken by the husbands’ creditors. Women
had business opportunities in growing urban areas, but without the
right to enter into contracts on their own, married women’s entrepre-
neurial potential was stymied. For single women enjoying paid employ-
ment or income from other sources, marriage lost appeal when earnings
and financial independence would be lost upon marriage. New financial
sectors, such as the nascent life insurance industry, were hampered by
doubts about whether a woman could be named as a beneficiary to her
husband’s insurance, and if such insurance was subject to claims by the
deceased husband’s creditors.40 These economic challenges were the pri-
mary motivations to enactment of Married Women’s Property Acts.
Starting in the late 1830s, states began to enact laws to grant property
rights to married women, which changed the family economic frame-
work. Self-insurance within a family was impossible when a wife could
be held responsible for all her husband’s debts. Allowing a wife’s prop-
erty and income to remain under her control protected them from her
husband’s creditors, and prevented family destitution with its resulting
burden on public poor relief—a driving motivation for states in enacting
married women’s property laws. There was also an unforeseen benefit:
the ability of women to maintain rights to their own income and prop-
erty also increased overall human capital investment and entrepreneurial
activity—both necessary in the developing US economy.
The first significant women’s property act was enacted in New York
in 1848. The act allowed married women to own and benefit from
their personal property, and a subsequent act in 1860 allowed women
to maintain control over their own earnings and enter into contracts. In
1862, an amendment prohibited fathers from assigning guardianship of
their children to anyone other than the mother without the mother’s
written permission. Starting with these acts, a slow drumbeat of asser-
tions of the economic rights of married women began. Property acts
were not the end of coverture by any means—judges in New York, for
example, interpreted these statutes extremely conservatively as excep-
tions to the norm of men’s ownership of their wives’ economic property
 1 INTRODUCTION 15

and production. According to historian Norma Basch, while legislation

opened the door to changes in the legal and economic roles of husbands
and wives, “The judges of New York did not permit this to happen.”41
Such laws were a start, however, and by the end of the nineteenth
century almost all states had passed some type of married women’s
property law putting a significant dent in coverture for those women
educated enough to assert their rights under these statutes. In many
southern states, such as Alabama and Georgia, these laws only
allowed for ownership of property, and some states, such as Texas and
Kentucky, held out until the twentieth century to make any changes in
married women’s rights. In the Northeast, Midwest, and West, however,
states often had a trifecta of property laws, earnings laws, and feme sole
trader laws which allowed married women to operate a business as if they
were single, with all the attendant rights and responsibilities.42 While leg-
islatures passed these statutes initially to help husbands and wives man-
age risk, and eventually for political reasons in response to the growing
feminist movement of the late nineteenth century, they probably did not
anticipate how the newly recognized legal rights of women would bene-
fit the US economy by motivating families to invest in the human capital
of their daughters.
By granting women ownership of their productive output, the incen-
tives to invest in daughters’ education increased. Human capital invest-
ments are often made with an eye to future earnings potential. Coverture
laws decreased the likelihood that there would be future returns to an
educational investment in daughters, either for the girls themselves, or
indirectly for their parents who would need support in their old age,
because all rights to daughters’ earnings were controlled by their hus-
bands. Rationally, investments in education were better made on sons.
Examination of historical data reveals differences in the schooling of 15-
to 19-year-old-girls depending on the married women’s rights to prop-
erty and earnings in their state. Significantly higher schooling levels were
achieved by girls in states where property and earnings rights for mar-
ried women existed, according to a 2012 study.43 The researchers also
determined that the relationship was causal—that property rights directly
impacted schooling levels for girls—meaning that families invested more
in their daughters’ educations as a result of the expansion of property
rights.
Female rights to property and income unlocked economic potential
in other ways as well. Recordkeeping on entrepreneurial activity in the
16 M. M. WAY

1800s was scarce, but patent applications by women are a good proxy
for their participation in entrepreneurial activities. The entrepreneurial
activity of women state-by-state as measured by their patent applications
increased depending upon the state’s timing of the granting of property
rights to women, again with a causal relationship being established.44
Other studies have looked at how married women’s property laws were
closely related to the expansion of economic activity in the states, both
because greater economic activity motivated such laws, and because
women’s rights to property led to more economic activity.45
Coverture, and the legacy of coverture, extended well into the twen-
tieth century. Even today, the legal system is reluctant to recognize many
types of contracting within marriage given the tradition of recognizing
married couples as a single entity. For example, spouses are unable to
create legally enforceable economic contracts within marriage to ensure,
for example, that household labor by one spouse, such as childrearing
and housework, is compensated either during marriage or, in the case
of divorce, by the other spouse.46 Such contracts can only be made as
prenuptial agreements. But removal of the most egregious prohibitions
on a woman’s ownership of her property and productive activity freed a
large portion of the US population to bring their talents and resources to
bear in the market economy, driving economic growth through the last
century.

Family Economic Life and the Greater US Economy

Few people like to think that they are being pushed by the govern-
ment to allocate their resources in ways that satisfy political objectives
outside their own best interests. But a feedback loop between families
and the government has driven key features of the US economy in pow-
erful ways. For example, policies that promoted migration, such as the
Homestead Act, stretched already weak intergenerational ties, relative to
countries without strong immigrant traditions, to make Americans less
rooted geographically and more willing to move to distant places where
their labor was needed. US laws allowing married women to hold prop-
erty in their names, inaccessible to their husbands’ creditors, was just
one of the policies that enabled an already entrepreneurial class to take
more risks and fueled the development of a speculative and high-growth
entrepreneurial culture. Policies that we will examine later in the book,
such as enforced school segregation, maintained a class of less-skilled,
 1 INTRODUCTION 17

low-paid farm labor in the south, which benefited white landowners and
the industrialists who profited from cheap agricultural products.
Understanding the mechanisms through which families’ decisions
are influenced by government is critical both for citizens to make more
informed choices in their families and in their civic lives, and for poli-
cy-makers themselves to design programs with fewer unintended con-
sequences and greater chances of success in meeting future economic
challenges. Looking back at how laws and programs fundamentally
changed the economic decisions made by families—and formed the
economy we have today—can help us identify the most effective poli-
cies to help the United States adapt to changing demographics, educate
workers for job markets affected by trade, globalization and new tech-
nologies, identify strategies to deal with climate change, and perhaps
improve the lives of struggling poor and middle-class Americans being
left behind by an economy that strongly favors the already advantaged.
The structure of this book is as follows. In the next chapter, an over-
view of the economic functions of the family and some basic principles
underlying the field of family economics are outlined. Theories about
how family economic decisions are made, how negotiations between
family members take place, what power dynamics may be in play, and
the tradeoffs families make between the present and the future set the
context for the economic discussions in the following chapters. Chapters
3 through 7 focus on specific family economic decisions and the pub-
lic policies that affect them—such as how many children to have, how
much to educate them, which family members participate in the labor
market, who does unpaid childcare and housework, whether to get mar-
ried or divorced, whether or not to have children outside of marriage,
how much to save for retirement, and how much to spend, in time and
money, on elderly family members. “Past” policies, many of which are
still in effect, are highlighted, detailing how they affect the prices, pref-
erences, constraints and tradeoffs that underlie families’ economic deci-
sions. In these chapters, the historical perspective leads to considerations
for future policy, and brief overviews of how future policies might lead
to favorable (or unfavorable) consequences for families and the economy
are presented.
Chapter 8 concludes by examining economic inequality among fam-
ilies across socioeconomic and racial divides and how government has
addressed inequality since the 1800s. The mechanisms for the inter-
generational transmission of socioeconomic status—how families pass
18 M. M. WAY

down their economic successes and failures—are explained, which reveal

potential policy interventions. The chapter looks at several government
policies that have reinforced family inequality through the late twenti-
eth century, creating hurdles that many families cannot surmount as they
attempt to improve their economic well-being. It concludes by consid-
ering the national economic consequences of such inequality and looks
back through the chapters to emphasize measures that could be taken to
prevent further polarization, ensure the economic health of families and
support families’ vital roles in the twenty-first-century US economy.

Notes
1. Research on the returns to education in the nineteenth and early twen-
tieth century is scarce, but some estimates have been done by Claudia
Goldin, “Egalitarianism and the Returns to Education During the
Great Transformation of American Education,” Journal of Political
Economy 107, no. S6 (1999); and Claudia Goldin and Lawrence F. Katz,
“Education and Income in the Early 20th Century: Evidence from the
Prairies,” National Bureau of Economic Research Working Paper Series
no. 7217 (1999).
2. Brian Gratton and Jon Moen, “Immigration, Culture, and Child Labor in
the United States, 1880–1920,” The Journal of Interdisciplinary History
34, no. 3 (2004).
3. W. Elliot Brownlee and Mary M. Brownlee, Women in the American
Economy: A Documentary History, 1675 to 1929 (New Haven: Yale
University Press, 1976), 174–77.
4. W. Elliot Brownlee, Dynamics of Ascent: A History of the American
Economy, 2nd ed. (New York: Knopf, 1979), 159; and Claudia Goldin
and Kenneth Sokoloff, “Women, Children, and Industrialization in
the Early Republic: Evidence from the Manufacturing Censuses,” The
Journal of Economic History 42, no. 4 (1982).
5. Hugh Cunningham, “The Decline of Child Labour: Labour Markets
and Family Economies in Europe and North America Since 1830,” The
Economic History Review 53, no. 3 (2000).
6. Lawrence M. Friedman, A History of American Law, 2nd ed. (New York:
Simon and Schuster, 1985).
7. Brownlee, Dynamics of Ascent: A History of the American Economy, 330.
8. Jane Humphries, “Child Labor: Lessons from the Historical Experience of
Today’s Industrial Economies,” The World Bank Economic Review 17, no.
2 (2003); Cunningham, “The Decline of Child Labour: Labour Markets
and Family Economies in Europe and North America Since 1830,”
 1 INTRODUCTION 19

The Economic History Review 53, no. 3 (2000); and Roger W. Walker,
“The A.F.L. and Child-Labor Legislation: An Exercise in Frustration,”
Labor History 11, no. 3 (1970).
9. Michael R. Haines, “The Population of the United States, 1790–1920,”
in The Cambridge Economic History of the United States, ed. Stanley
L. Engerman and Robert E. Gallman (Cambridge, UK: Cambridge
University Press, 2000), 158.
10. Carolyn M. Moehling, “State Child Labor Laws and the Decline of Child
Labor,” Explorations in Economic History 36, no. 1 (1999).
11. Michael S. Katz, A History of Compulsory Education Laws (Bloomington,
IN: Phi Delta Kappa, 1976).
12. Gratton and Moen, “Immigration, Culture, and Child Labor in the
United States, 1880–1920.”
13. Ibid.
14. Gratton and Moen, “Immigration, Culture, and Child Labor in the
United States, 1880–1920.”
15. Ibid.
16. Charlotte Perkins Gilman and Francis H. McLean, “Child Labor in
the United States-Discussion,” Publications of the American Economic
Association 8, no. 1 (1907).
17. Sascha O. Becker, Erik Hornung, and Ludger Woessmann, “Education
and Catch-Up in the Industrial Revolution,” American Economic
Journal: Macroeconomics 3, no. 3 (2011).
18. Moses Abramovitz and Paul A. David, “American Macroeconomic
Growth in the Era of Knowledge-Based Progress: The Long-Run
Perspective,” in The Cambridge Economic History of the United States,
ed. Stanley L. Engerman and Robert E. Gallman (Cambridge, UK:
Cambridge University Press, 2000).
19. Ibid.
20. Marco Manacorda, “Child Labor and the Labor Supply of Other
Household Members: Evidence from 1920 America,” The American
Economic Review 96, no. 5 (2006).
21. Gratton and Moen, “Immigration, Culture, and Child Labor in the
United States, 1880–1920.”
22. Matthias Doepke and Fabrizio Zilibotti, “The Macroeconomics of Child
Labor Regulation,” The American Economic Review 95, no. 5 (2005);
Barry R. Chiswick, “Minimum Schooling Legislation, Externalities and a
“Child Tax”,” The Journal of Law & Economics 15, no. 2 (1972).
23. National Research Council and Institute of Medicine, Agriculture,
Forestry and Fishing Research Program, Report No. 3, ed. Forestry
Committee to Review the NIOSH Agriculture, and Fishing Research
Program, Reviews of Research Programs of the National Institute
20 M. M. WAY

for Occupational Safety and Health (Washington, DC: The National

Academies Press, 2008), 181–82.
24. Ibid., 23.
25. Bureau of Labor Statistics, “Report on the Youth Labor Force,”
(Washington, DC: U.S. Department of Labor, 2000), 60–61.
26. Rena Steinzor, “The Age of Greed and the Sabotage of Regulation,”
Wake Forest Law Review 47, no. 3 (2012).
27. Bureau of Labor Statistics, “Report on the Youth Labor Force,” ed.
Office of Publications and Special Studies (Washington, DC: U.S.
Department of Labor, 2000).
28. BLS Employment and Training Administration, “Findings from
the National Agricultural Workers Survey (Naws) 2001–2002: A
Demographic and Employment Profile of United States Farm Workers,”
ed. Bureau of Labor Statistics (Washington, DC, 2005).
29. Homesteaders could also purchase the land after six months of settlement,
for $1.25/acre.
30. Douglas W. Allen, “Homesteading and Property Rights; or, “How the
West Was Really Won”,” Journal of Law and Economics 34, no. 1 (1991).
31. Richard L. Stroup, “Buying Misery with Federal Land,” Public Choice 57,
no. 1 (1988).
32. Greg Bradsher, “How the West Was Settled,” Prologue, no. Winter
(2012).
33. Allen, “Homesteading and Property Rights; or, “How the West Was
Really Won”.”
34. Ibid.
35. Ibid.
36. Bradsher, “How the West Was Settled.”
37. William Blackstone, “Book the Second: The Rights of Things,” in
Commentaries on the Laws of England (New Haven, CT: Yale Law
School, The Avalon Project, 1765–1769), 430. http://avalon.law.yale.
edu/subject_menus/blacksone.asp.
38. Norma Basch, In the Eyes of the Law: Women, Marriage, and Property in
Nineteenth-Century New York (Ithaca: Cornell University Press, 1982),
72–88.
39. Ibid., 20; and Richard H. Chused, “Married Women’s Property Law:
1800–1850,” Georgetown Law Journal 71, no. June (1983).
40. Basch, In the Eyes of the Law: Women, Marriage, and Property in
Nineteenth-Century New York, 137.
41. Ibid., 223.
42. B. Zorina Khan, “Married Women’s Property Laws and Female
Commercial Activity: Evidence from United States Patent Records,
1790–1895,” The Journal of Economic History 56, no. 2 (1996).
 1 INTRODUCTION 21

43. Rick Geddes, Dean Lueck, and Sharon Tennyson, “Human Capital

Accumulation and the Expansion of Women’s Economic Rights,” The
Journal of Law & Economics 55, no. 4 (2012).
44. Khan, “Married Women’s Property Laws and Female Commercial
Activity: Evidence from United States Patent Records, 1790–1895.”
45. Rick Geddes and Dean Lueck, “The Gains from Self-Ownership and the
Expansion of Women’s Rights,” The American Economic Review 92, no.
4 (2002).
46. Jill Elaine Hasday, Family Law Reimagined (Cambridge, MA: Harvard
University Press, 2014), 108–20.
 CHAPTER 2

Families: Economic Functions

and Decision-Making

Introduction
Applying economic concepts to the family means letting go—if only
temporarily—of the romantic ideal that so many place on marriage and
parenthood. Families are collections of individuals, and one of the basic
assumptions of neoclassical (or traditional) economics is that individu-
als behave selfishly. Economists even view purportedly unselfish behav-
ior, such as giving money to charity, as accomplishing underlying selfish
objectives, such as making people feel good about themselves. To econ-
omists, families are collections of self-interested individuals working
together and sometimes competing for scarce resources, and who gets
what can be a source of great conflict. There is a zero-sum game at play
with regard to many decisions, and there is the chance that some family
members will free-ride on the generosity or goodwill of their parents,
siblings, or children. This view is disconcerting, however, and economists
and other social scientists avoided studying these topics through the first
half of the twentieth century. As sociologist David Heer pointed out in
1963, “although anthropologists gave us good descriptions of the power
structure among the Hopi or the Tikopia, in the study of the contem-
porary American family, research on decision-making was conspicuous

© The Author(s) 2018 23

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_2
24 M. M. WAY

by its absence. The reason for this neglect is not completely clear; it
may have reflected a fear that to inquire into the power structure of the
American family was to deny the ideology of romantic love which insists
that for the happily married pair the only concern of each is the welfare
of the other.”1
If the economic view of families as collections of selfish individuals
can come across as somewhat unfeeling, the economic perspective on
the role of families in society is warmer, if a little bit functional. Families
are the vehicles for tremendous investments in people, in business enter-
prises and in communities. Economic value is created in well-functioning
family systems in ways that make everyone in society better off. (And
the destructive legacies of dysfunctional families have economic conse-
quences as well.) Families are small economies unto themselves, the cel-
lular building blocks of the larger economy, evolving over US history as
the greater economy has evolved. Families determine the composition of
the US labor force, the quantity of savings available for investment, and
the distribution of consumer spending which drives the economy. The
microeconomic decisions families make—who gets educated and how
much, who works, who raises the children, who takes care of elderly fam-
ily members, when to bail out kids, siblings, or others in economic crisis,
whether to buy a car, or to go on vacation—shape the macroeconomy.
Families have a fundamental resource allocation function which is often
most starkly perceived when relationships break down, and resources are
withheld from spouses, children, or siblings, or when feelings are bruised
by perceived inequalities in financial and other support. This resource
allocation function is an undercurrent that flows through the entire
economy, and in trying to manage the economy, policy-makers move
levers that cause families to allocate their resources in certain ways, as the
examples in Chapter 1 illustrated.
In the development of modern economics, however, families have
gotten short shrift. Economists have tended to ignore families and focus
on individuals, probably because individuals are easier to contemplate,
and simpler to portray in models of economic behavior. The vast major-
ity of Americans, however, live and share resources with at least one
other person, and even those who live alone often have economic ties to
extended family members. Few individuals are today, or were in the past,
independent economic actors, so understanding the economic functions
of the family is critical, and having some basic ideas—or models—about
how these functions are fulfilled and how decisions are made is funda-
mental to policy analysis.
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 25

Recognizing this, economists of the latter half of the twentieth century

began incorporating families into their models. They did so in sometimes
clumsy and coldhearted ways, however, and the neoclassical economist’s per-
spective on family is objectionable to many. Take how economists view the
decision to have children. Article titles such as “Are Children Really Inferior
Goods?”,2 published in 2010, seem to say it all both in terms of how econ-
omists perceive children and what people dislike about economists. The
title of that article could be rewritten as “Do People Have More Children
During Tough Economic Times?”, which avoids the implication that chil-
dren are market goods, but economics as a discipline has incorporated the
family wholesale into models of demand and supply in ways that require
some interpretation for the layperson. Interpreting these models is worth-
while, however, and the main objective of this chapter is to do just that.
The economic perspective—coldhearted as it may seem—is vital in
understanding the effects of policy. For example, the economic portrayal
of the “demand for children” incorporates the costs and benefits of chil-
dren. Children in developed economies today are considered a net eco-
nomic liability, although in the preindustrial United States, this would
not have been considered so.3 People have more children when chil-
dren are cheaper to care for and raise, all else equal, so governments in
developed economies seeing net population decreases, such as Japan and
many countries of Western Europe, could take policy measures to make
raising children cheaper, through child subsidies, universal day care,
and low-cost higher education. Without understanding the econom-
ics, policy-makers who are interested in stabilizing population declines
might ignore valuable tools for helping families afford more children.
Conversely, in countries where population growth is a concern, requiring
education for all children, particularly girls, and enforcing child labor-
laws are just two policies that result in children becoming more expen-
sive, thereby encouraging smaller families.
Judging from the reactions of students in undergraduate econom-
ics classes, however, many people get extremely uncomfortable talking
about the family in economic terms, and they may not think the govern-
ment has any business taking steps to influence people’s decisions regard-
ing fertility or any other family matter. But whether they care to think
about it or not, families are as subject to the basic principles of econom-
ics as individuals, and even if policy-makers do not take an active role
in encouraging family decisions such as to have more children or fewer,
for example, they will inadvertently cause such results if they make policy
without considering family economic responses.
26 M. M. WAY

As we consider the economic functions of the family in US economic

history, and describe some simple models of family economic deci-
sion-making, one basic assumption we will rely on is that nineteenth-
and twentieth-century families operated on similar economic princi-
ples as twenty-first-century families. They were concerned with pro-
viding food and shelter, educating children formally or informally,
saving and investing for future goals, providing help to extended fam-
ily and insuring against the inevitable hard times and old age; all these
are consistent family objectives throughout time. Decisions about how
to accomplish these goals may have been determined by a paternal or
maternal family head—probably more common in the past—or some
sort of collective decision-making or bargaining may have taken place
between spouses—probably more common today. Different genera-
tions had to negotiate who does what, who gets what and who cares for
whom when it came to taking on caregiving or breadwinning responsi-
bilities and sharing economic resources across the generations, and this
is true today as well.
While the basic economic functions and decision-making processes
of the family have stayed relatively consistent over time, the context
in which families’ economic decisions are made has changed dramati-
cally. Not only has industrialization and the development of a consumer
economy obviated the need for families to produce their own food,
clothing, and shelter, but the policy environment in which they live has
changed dramatically. The services provided by local, state, and fed-
eral agencies have evolved over time, particularly affecting education,
housing, safety net services such as nutritional and medical support for
low-income families, and retirement. Laws and regulations of all types
have evolved, affecting how people treat their children, perhaps requir-
ing them to purchase health insurance, increasing the likelihood that
parents will be absent due to incarceration, determining where families
can and cannot live and what they can and cannot do with their homes
and property. Laws such as state-level divorce and alimony laws and
federal gay marriage laws have changed the power structure in spousal
relationships in ways that affect economic decision-making. The social
expectations and norms established by the communities with which
families identify and in which they live have also experienced sweep-
ing changes, evidenced by the changing norms around marriage and
non-marital childrearing.
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 27

This text will examine how families have responded economically to

many of these changes. Before delving further into the family as an eco-
nomic entity, however, it makes sense to ask, what are we calling a fam-
ily? What defined a family in the past and what defines one today? Does
the definition even matter?

Defining Family
For the purposes of economic analysis, the third question is the easi-
est, and the answer is no, no formal definition of family is necessary. If
a group of people say they are a family through bonds created by biol-
ogy, laws, love, friendship, or other obligations—and if they share their
resources in any way—economists can analyze their exchanges of money,
time, goods, and services using tools of family economics. Interestingly,
an idea of family independent of biology or marriage is somewhat
compatible with a historical definition of family elaborated by the US
Department of the Interior for the 1860 census, over 150 years ago:

By the term ‘family’ is meant either one person living separately and alone
in a house, or a part of a house, and providing for him or herself, or several
persons living together in a house, or part of a house, upon one common
means of support and separately from others in similar circumstances. A
widow living alone and separately providing for herself, or 200 individuals
living together and provided for by a common head, should each be num-
bered as one family.4

In the 1860 census, it was living together, not the particular relation-
ships between those living together, that defined a family, except in the
case of slaves whose families were not recognized and who were enumer-
ated only as the property of an individual.5 Compare this to the 2010
census definition of “family”:

A family consists of a householder and one or more other people living in

the same household who are related to the householder by birth, marriage,
or adoption.6

This modern definition reflects the evolution of public policy, which

often emphasizes and requires a legal recognition of familial relation-
ships, most commonly marriage and parental ties (although these can
28 M. M. WAY

be assigned to adoptive parents or guardians). Rights and responsibil-

ities maintained by law over family relationships usually govern only
these two fundamental relationships. Other family relationships, such as
those with siblings, cousins, grandparents, cohabiting partners, and even
stepchildren, are usually not touched by family law or public policy in a
direct way. This does not mean that policies do not indirectly affect these
other types of family members. For example, Social Security and Social
Security Disability Insurance only provide money directly to retired
workers and their spouses, and disabled people or their parents, children,
or guardians. Indirectly, however, the money Social Security provides
has ripple effects across far-reaching family networks. Many grandchil-
dren of elderly people, and able siblings of disabled people, have been
helped by being relieved of some of the financial responsibility that loyal
and supportive family members take on for their loved ones, regardless
of any legal requirement of financial support. Any policy that provides
resources to individuals, or takes resources away from individuals, can
indirectly affect all those with whom that individual has an economic
relationship.
So, while at times the legal definition of family that applies to a par-
ticular policy may take precedence, for the purposes of considering fam-
ily economics in this book, a family is any group of people that define
themselves as such, particularly if the family relationships involve shar-
ing or potential sharing of economic resources—of money, time, goods,
or services. Married or cohabiting heterosexual or homosexual partners,
biological, step-, or adopted children, extended family, and friends with
economic ties both perceived and actual—all these categories of relation-
ships fall under family.

The Economic Functions of Family

What follows is a non-exhaustive list of economic functions fulfilled by
family and potentially influenced by public policy.

Creating Human Capital

Human capital refers to the skills, abilities, and productive capacity
of individuals, and it is most commonly associated with education and
work experience. First and foremost, however, human capital is created
within families. Families produce children and then invest money, effort,
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 29

and time in their children’s health, education, and social development,

all of which lead to skills and abilities that are valued in the home and
the market. Historically, homes often served as classrooms and voca-
tional schools for children, with parents passing on literacy, numeracy,
and on-the-job training in agriculture, trades, and business. While in the
modern era parents may not directly school their children, the home-
schooling movement is growing in the United States, and the willing-
ness of parents across the socioeconomic spectrum to supplement their
children’s schooling with tutoring, music lessons and sports—requiring
significant investments of time and money—demonstrates the importance
modern families place on this responsibility. Even in utero, human capital
formation is underway, with some women consciously eating, taking vita-
mins, giving up alcohol, and even listening to classical music or foreign
language recordings in the hopes not only of producing a healthy child,
but one that might be a little bit smarter, or a little bit ahead of its peers.
Besides creating human capital, families “assign” human capital to the
labor force and ultimately determine its composition. Families decide
who participates in market work, and how much time its members
spend in market work versus household production. A child’s education
and trade are also decisions that affect the labor pool in local commu-
nities, and parents across the socioeconomic spectrum have determined
what their children will do for a living. One study of very poor families
in antebellum Charleston, South Carolina, who had been forced by eco-
nomic circumstances to leave their children in orphanages, showed that
even in the most deprived circumstances, the mothers in particular made
heroic efforts to instill literacy in their children and get them placed in
apprenticeships, despite having relinquished custody of them.7 In this
way, even impoverished parents influenced their local economy by decid-
ing in what trade their child would contribute his or her labor. Families
also decide where and when to migrate and thus change the labor force
composition of the United States across its geographies.

Creating Social Capital

Social capital refers to connections with extended family members,
neighbors, church, and civic associations that create valuable social
and economic networks and allow a community to function effectively.
Creating social capital requires an investment of time, labor, or money,
which implies tradeoffs with other uses of family resources. In many
30 M. M. WAY

families, the paid work of some of the members helps support the unpaid
work of other members, enabling stay-at-home parents, for example, to
volunteer. This unpaid work often provides economically vital services
that build community infrastructure. Consider, for example, all the ser-
vice projects undertaken by youth and civic organizations, community
food pantries run by churches, and parent–teacher associations which
provide extra materials, enrichment programs, and free parent labor to
schools. Families give up time and often money to participate in these
organizations which support the civic life of many communities.

Household Production
The mix of goods and services produced within households has changed
over the last two centuries, but the overall economic impact continues
to be substantial. In the 1800s, growing food, sewing clothes, and con-
structing a house and furnishings were all vital productive activities for
families, particularly in farm and frontier life. Specialization and exchange
existed within families, so that not all members had to participate in all
activities, but could gain proficiency or comparative advantage in some
types of production and thus advance the overall economy of the house-
hold. While household goods production took a serious decline with
industrialization in the mid- to late-nineteenth century, even today there
are farm families and family businesses of all sorts that engage in pro-
duction. The production of household services, on the other hand—the
cooking, cleaning, childcare, healthcare, home maintenance, repairs,
laundry, and shopping—continues to this day, even though market-based
substitutes are increasingly available to families with means.8
How important is household production? While the best method of
valuing the contribution of these services to the US economy is subject
to debate (and is discussed later in Chapter 5), one method is to consider
the price of paying someone to come into a home and cook, clean, or
care for the elderly, for example, and value the time that family members
spend doing these tasks accordingly. One estimate using this method
demonstrates that adding the value of these services to our national
accounts would increase GDP by about 18%.9 This does not include
the value of household production as a complement to market work—
not only do unpaid services have a value in and of themselves, but they
increase the productivity of the members of the household that work in
the market.
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 31

Creating Economies of Scale and Providing Public Goods

Many of the goods and services that households purchase or otherwise
provide their members benefit from economies of scale, meaning that
it is cheaper per person to provide these goods for many people than
for few. For example, it is cheaper in terms of time required per meal
to cook dinner for four people than for one, and it is often cheaper per
meal to purchase the ingredients and the cooking fuel for four as well.
As many recent college graduates know, renting a two-bedroom apart-
ment is rarely twice the cost of a comparable one-bedroom apartment,
so getting a roommate takes advantage of economies of scale in housing.
Sometimes these economies of scale for families result from pricing pol-
icies, such as family memberships at gyms, for example, that are cheaper
on a per person basis than individual memberships.
In a similar way, much of household production and consumption
falls into the category of public goods. Public goods are those goods
that are nonrival, meaning one person’s use of them does not preclude
another person’s use, and nonexcludable, meaning you cannot prevent
someone who has not paid for the good from using it. A perfect example
is heating a home. Once heating oil is purchased and heat is produced,
the enjoyment of that heat can benefit anyone in the home (without less-
ening anyone’s warmth) and no one can be prevented from enjoying the
heat, even if they did not contribute to purchasing the oil (without lock-
ing them out of the house). The intangible benefits gained from chil-
dren are often considered public goods. One parent’s enjoyment of their
children’s presence, development, or accomplishments does not usually
preclude the other parent’s enjoyment—the satisfaction resulting from
hearing of a child’s good report card cannot be “used up.” It can be
difficult to persuade individuals to purchase or invest in public goods
because they are subject to a free-rider problem, meaning that those who
do not pay for the goods are able to enjoy the goods anyways. Families,
however, are uniquely tolerant of free riders and often find ways to make
them pay up. Families help solve the problem of the underproduction of
public goods in this way—by providing the goods even when someone is
free-riding, and enforcing contribution to such goods.
32 M. M. WAY

Consumption and Savings Decisions

Crucial spend-or-save decisions power both consumption and invest-
ment, determining how much firms must produce to satisfy consumers’
wants and how much financial capital firms can access from individual sav-
ings. On the family level, these decisions can include significant tradeoffs
between the well-being of the family today, and its well-being in the
future. For example, parents often face a daunting choice between saving
for retirement and paying for their children’s college education, testing
both their optimism regarding the economic conditions they will face in
their old age, and their altruism toward their children. They can borrow
from their future, to finance current consumption and current ventures
such as starting a new business. They can be saddled by decisions made in
the past, when they acquired debt. The consequences of trends in inter-
temporal (across time) allocation of resources—the consume versus save
decisions—affect the entire economy. For example, the willingness of
US families to purchase on credit creates unique macroeconomic condi-
tions when compared with those in other countries, such as China, where
families opt toward savings. Another example are the college financing
decisions students and their families are making, resulting in a significant
educational debt from college, which may impact the housing market by
hampering the ability of young adults to afford a mortgage.
Consumption and savings decisions can entail difficult bargaining
within households. Couples have to decide what to purchase, when to
purchase, and how to finance purchases. They decide where to invest their
money and what level of risk they are willing to assume. They also allocate
money for food, education, healthcare, clothing, and other consumption
goods within the family, which are sensitive and critical decisions when it
comes to children. Studies show that, on average, mothers are more will-
ing than fathers to spend on children in ways that improve their health
and other measures of human capital.10 For this reason, countries that
provide child allowances in the form of cash transfers usually stipulate that
the money is deposited in mothers’ bank accounts instead of fathers’.

Risk-Sharing and Self-Insurance

Families share risk among their members and insure each other in a wide
variety of ways. When multiple family members are employed, for exam-
ple, the layoff of one does not necessarily spell disaster, because others
have an income. In a phenomenon known as the added worker effect,
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 33

some family members are pulled into the labor market by a recession
when a spouse or a parent loses a job, so the work potential of some
members insure the family from hardship. Families can subsidize the
startup efforts of an entrepreneur and thus share in the risk, either by
investing directly, or providing housing or simply a back up source of
financial help if the business does not go well. In recessions, families
often double up in housing.11 Geographically extended families can also
be sources of informal insurance against regional economic downturns,
crop failure, or natural disasters, by either loaning money or supporting
the migration of family members to a new region. In the United States
and other Western economies, parents in particular provide aid to chil-
dren in economic need. There is even a theoretical case to be made that
families can provide insurance more efficiently than commercial provid-
ers because they have better knowledge of the circumstances and the risk
levels of their members than commercial providers have, and they can
police their members for risky behaviors or shirking.

Three Economic Models—Three Assumptions About

Decision-Making
So, with this wide variety of economic functions to fulfill, how does a
family organize its economic decision-making? How does the allocation
of scarce dollars for consumption, human capital investment and sav-
ing—not to mention the allocation of scarce time for family and home-
based work versus market work—get determined when a variety of
individuals may be clamoring for their preferences to take precedence?
How does a family achieve the neoclassical economist’s objective of max-
imizing household utility when a family is made up of individual actors
whose ideas of maximizing the family utility may be very different?
The answer to these questions is complex, but a few simple models
have emerged since economists started to look at families and house-
holds as more than just black boxes who shared one agreed upon set of
preferences and pooled all their income—essentially equating them with
individuals. The first model, which we will term altruism and which is
also called the unitary model of household decision-making, is based on
the idea that family economic decisions are decided by a single person,
the family head, who behaves altruistically toward the other members
in allocating family resources. The second model is a bargaining model,
which is especially applicable to the case of partners in a marriage or
34 M. M. WAY

marriage-like relationship who may bargain with each other in order to

achieve agreement when they have different preferences over how they
spend their joint resources. The third model is the exchange model, per-
tinent, especially to relationships between the generations in a family,
whereby a parent, for example, invests in a child with the understand-
ing that in the future that child will provide some return in income or
services to the parent. Let’s examine a little more deeply what kinds of
decision-making behavior these models represent and how they will help
us understand the impact of policy on families.

Altruism
The first model used in modern family economic analysis was developed
by Gary Becker in the 1960s. It features only one household member’s
preferences—those of the household head—but those preferences recog-
nize and include the wants and needs of all family members. The intui-
tion behind the model is simple: as long as the head of the household is
altruistic, meaning he or she cares about the well-being of other mem-
bers of the household, that person will incorporate the other members’
well-being into their decision-making, allocating resources, and mak-
ing tradeoffs between the wants of family members to maximize collec-
tive welfare. In his seminal work, A Theory of Social Interactions (1974),
Becker defined the main actor in his economic models of the family:

The “head” of a family is defined not by sex or age, but as that member, if
there is one, who transfers general purchasing power to all other members
because he cares about their welfare.

One might assume that the head is the chief breadwinner, but maybe
not. Maybe the “headship” is comprised of a couple who are in com-
plete alignment on their priorities and desired outcomes, so they agree
more or less on all decisions. Or, maybe the head is the spouse or parent
of the breadwinner, and the breadwinner’s earnings are handed over to
this person to be allocated to the needs of the family as he or she sees
fit. In any case, it is assumed that the head knows the needs and wants
of all the family members. When a parent or spouse “transfers general
purchasing power” to another family member because he or she cares
about their welfare, economists identify this as an example of altruism.
In economic terms, altruism implies that one person’s well-being, or
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 35

utility, is increased by the utility of another. An altruistic husband suf-

fers intrinsically when his wife is unhappy, not due to any actions of hers
but because he wants her to be happy. An altruistic mother will feel hap-
pier when her child is happy, not because an unhappy child’s behavior
affects her (though it might), but because her child’s state of unhappi-
ness causes her distress. In Becker’s model, the person whose happiness
matters most, however, is the family head who controls the resources.
That person may be very altruistic, or very selfish, but as the controller of
the resources that is his or her prerogative.12
It is probably not a coincidence that the single economic head
assumed in the first family economic models of the 1960s resembles the
benign patriarchs of Father Knows Best, Leave it to Beaver, and other
media portrayals of the post-World War II American family. The ideal of
the nuclear family, with a working father and a homemaking mother, was
at its peak, even though it was never as ideal or as prevalent as many
believe,13 so the altruism model may work well in considering policies
during that timeframe and in earlier US historical contexts when married
men legally did control all the economic resources.
The altruism model is also very useful for depicting the allocation of
resources from parents to children. The balance of power between par-
ents and children is clearly tilted toward the parents. Children have to
accept the economic decisions of their parents and have little recourse
to bargaining—although they may try. Many economists who study the
flow of resources from parents to children, or from children to parents,
rely on an altruism model because the assumption that parents gain util-
ity or satisfaction from their child’s well-being seems to reflect well why
a parent would invest any resources at all in a child that they may never
receive any economic return from. And one great benefit of the altru-
ism model, whether it is used to model economic relationships among
spouses, parents, children, or extended family is that it provides the best
economic proxy for a well-known familial phenomenon—love.

Bargaining
Decision-making in many families may be more shared than the altru-
ism model suggests. Many sociological surveys of family decision-making
and family power structures in the 1950s and 1960s asserted a shared
decision-making process, albeit one tilted toward male dominance.14
Studies in the marriage and family literature during this timeframe, while
36 M. M. WAY

highly critiqued on the basis of methodology, tended to find a positive

relationship between the economic resources brought to marriage by
each spouse, in the form of relative earnings, occupational status, or edu-
cation, and his or her decision-making power.15 A related idea was that
a spouse’s influence on decision-making related positively to the value
of their potential resources if the marriage were to end, explaining why
some studies found that women’s influence in decision-making declined
while their children were young and they would be less able either to
work or to attract another mate, and increased after children were
grown.16
The relationship between control of economic resources and rel-
ative power in decision-making suggests that spouses are bargaining.
Negotiation and compromise are basic elements of many marriages and
marriage-like relationships—when spouses differ in how they would like
to spend their money, for example, they work toward a result that they
can both find satisfactory even if it is not their individual ideal. If they
are unsuccessful, general unhappiness could result, or in many cases the
result could be an end to the relationship and divorce. Particularly if
one or both of the spouses could potentially achieve greater satisfaction
outside of marriage—by having undisputed control over their own pay-
checks, for example, or access to a good alternative selection of potential
mates—the threat that a partner could leave may loom large for at least
one of the spouses, leading him or her to make more concessions.
Economists such as Marilyn Manser, Murray Brown, Marjorie
McElroy, and Mary Jean Horney developed models in the late 1970s and
early 1980s that borrowed heavily from game theory to model bargain-
ing outcomes in families. Bargaining models applied to buyers and sell-
ers feature the preferences of each party, their relative power levels (say
that one is a skilled negotiator and the other is inexperienced in bargain-
ing), and a threat point, or outside option, which is the outcome each
party realizes if they walk away from the deal. In “cooperative bargain-
ing” models applied to spouses, the couple bargains over the allocation
of family resources, with the outcome depending upon (1) each partner’s
level of altruism toward the other, or how much they are willing to sac-
rifice for the other’s happiness, (2) their relative degree of power in the
relationship—is one able to credibly threaten violence against the other,
for example, and (3) their threat points, which reflect the outcome each
would achieve if the relationship ended in divorce. In cooperative bar-
gaining, spouses either find a satisfactory allocation of resources or the
relationship ends.
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 37

Shelly Lundberg and Robert Pollak further developed the models

to reflect how the outcome of such bargaining could be a non-optimal
allocation of resources within the marriage, and not necessarily divorce.
In “separate spheres” bargaining, couples might find an efficient
allocation of resources together, or continue in the marriage with a non-
cooperative and inefficient solution serving as the threat point. The
non-cooperative allocation of resources would depend on the resources
controlled by each spouse—their separate salaries for example—which
they would decide to spend in part on their own consumption and
savings, and in part on household public goods, such as housing or
utilities. These public goods—those costs of living that are essentially
cheaper per person for two than for one—might make it worthwhile to
remain married even if the optimal allocation of resources between the
spouses is not attained. A non-optimal solution, however, would not
jointly maximize their well-being.17
These models were timely, reflecting the changes in state laws gov-
erning divorce, and in changing legislative and judicial trends regarding
alimony, child support and property settlements that gained momentum
in the 1960s. Using these models, one could predict how a change in
the generosity of alimony and child support settlements would affect the
allocation of resources within marriage. Prior to enforced child-support
and alimony arrangements, for example, the improvement in a husband’s
own spending power that would result from abandoning his family could
be enormous, even though it may be accompanied by severe social sanc-
tions. This gave breadwinner husbands tremendous leverage in deter-
mining the allocation of resources within the marriage, because women
would be much less likely to improve their economic situation through
divorce even if their husband was very stingy. With the arrival of alimony
and mandated child support, the husband’s improvement in spending
power post-divorce would be relatively lower than before, and the moth-
er’s situation post-divorce would not be so dire, making her more likely
to have a credible threat of divorce, and him less likely to find divorce
appealing. Thus, he would be willing to concede more, and share more
generously within the marriage.
Bargaining models were not just used to determine how a family’s
resources would be divided between husbands and wives. They were
used to model spousal bargaining over how resources were allocated
to the children as well. This is important for predicting how child well-
being might change as a result of changes in child and family welfare pol-
icies. For example, if husbands and wives have control over their own
38 M. M. WAY

resources within the marriage and do not simply pool their income, then
a change in which parent receives a child allowance or welfare benefit can
reverberate through the family. As mentioned above, in many studies it
has been shown that financial transfers to mothers as opposed to fathers
result in more spending on food, healthcare, and clothing for children.18
The evidence for this is international in scope, and in many cases quite
dramatic. In Brazil, for example, one study found that “unearned income
in the hands of a mother has a bigger effect on her family’s health than
income under the control of a father; for child survival probabilities, the
result is almost twenty times bigger.”19 What this means for family eco-
nomics is that any policy change that puts women in more control of
resources is likely, on average, to result in increased spending on children.
Bargaining models can account for shared decision-making in a way
that altruism models cannot, which is particularly helpful in understanding
the behavior of spouses. While the bargaining model could also be applied
to bargaining between parents and children, particularly in earlier histor-
ical eras when children brought income into the home,20 the altruism
model is usually more apt for understanding the distribution of resources
between parents and children. Another model that is helpful to under-
standing parent–child economic relationships is the exchange model.

Exchange
The third basic model to consider suggests that family members share
resources with each other in exchange for something. This is one of
those ideas that test our idealized notions of familial love, because out-
side the family, it is perfectly normal to discuss the exchange of money
for goods and services, but inside the family it can seem a bit crass.
People do not typically approve of parents paying children for them to
behave well, to study or to help the parent out by doing chores or per-
forming other services. Neither do we expect husbands and wives to pay
each other for household work. Implicitly, however, that is often what
happens. The exchange model recognizes that the money that flows
through a family, particularly across the generations, can represent anim-
plicit contract. Parents, for example, may give money to a child or invest
in a child’s education with the understanding or hope that the child will
reciprocate in some way when or if the parent makes a request or has an
explicit need.21 In the late 1980s, economists such as Donald Cox began
developing exchange models of intergenerational transfer behavior,
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 39

with a particular eye to old-age care for parents. These models are often
intertemporal in nature, meaning they represent economic allocation
choices between time periods. The parent invests in the child early in
the child’s life, perhaps when the parent is very productive in the labor
market, and reaps a payoff sometime in the future, during retirement,
for example.
Exchange models can be used to explain why a parent gives more
money to one child than to another during the parent’s lifetime, even
though upon a parent’s death, bequests are most often given to all chil-
dren equally.22 The parent may be receiving more help from one child
than another, or may be living with that child, or may expect that one
child will provide more help as the parent ages than another. Exchange
models can also be used to explain how families insure their members.
An insurance function is fulfilled when one family member helps another,
believing that if a future need arose, their help would be reciprocated.
It can be difficult to ascertain through data sources if families are
operating under the principles of exchange, because of the implicit and
often unspoken terms of the exchange relationship. What looks like a
parent behaving altruistically today by giving money to a child may actu-
ally be a case of exchange because the parent has an expectation of some
return of resources in the future. The intuition, however, is simple, and
it is common for people to expect that a child who has been relatively
more attentive to an elderly parent should receive more from that parent
than his or her siblings receive, either during the parent’s life or after the
parent’s death.

Public Policy and the Three Models

These three models—altruism, bargaining, and exchange—are broad
enough to help us understand how a policy might affect some families,
and not others. For example, back in the 1800s, in families where the
bargaining model model was operative, and spouses jointly negotiated
how money and time were allocated, coverture laws, and divorce laws
limited a woman’s property rights and her ability to take her property
or any resources out of a marriage. A woman’s threat point in the bar-
gaining model was severely diminished by such a policy—her well-being
would have been so low upon leaving the marriage that her ability to
negotiate for more resources within the marriage would be weak—
leading to less compromise required by the husband and the balance of
40 M. M. WAY

resources tipping toward him. On the other hand, if the altruism model
was operative, and resources were allocated by a paternalistic family
head, then the woman’s ability to take property out of the marriage after
divorce, and her potential well-being outside of the marriage would have
made no difference to the allocation of resources within the marriage.
Another policy example would be that of welfare programs that pro-
vide transfers to unmarried mothers of young children. To a married
male altruist who functions as the family “head,” such transfer policies
have no bearing on the allocation of resources within the marriage. He
gives because of theutility he gets out of seeing his family happy. But if
bargaining based on a threat point is in play, then a woman with little
or no skills and with young children could see her well-being inside her
marriage increase due to awelfare policy that provides her an income if
she leaves the marriage, improving her threat point. She has more cred-
ibility in her implicit or explicit threats to leave the marriage with this
outside source of support.
A third example, pertaining to parents and children, is the implemen-
tation of an increase in Social Security benefits. An increase in future
income can have positive or negative effects on investments in children,
depending on whether altruism or exchange motivations are operative.
Altruistic parents would take into account future benefits from Social
Security by, perhaps, decreasing their own retirement savings and giv-
ing more to their children. On the other hand, for less altruistic parents
whose investments in their children were motivated by exchange, parents
who had previously anticipated being dependent on their children in the
future might respond to newly implemented old-age benefits by decreas-
ing financial transfers to their children prior to their own retirement. The
policy of the government providing for the elderly would have lowered
the need of parents to ensure the security of their retirement years by
entering into an explicit or implicit agreement with their children to
exchange money today for financial or other help by the children for the
parents in the future.
Throughout this text, as we examine how different policies affected
the resource allocation decisions of families, we will have to allow for
some uncertainty in understanding whether altruism, bargaining, or
exchange are the dominant models within any given family. But some
public policies may actually have influenced family decision-making
regimes at different points in US economic history. For example, state
law which put the control of wives’ and children’s earnings and assets,
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 41

even those inherited by the wife from her ancestral family, under the con-
trol of the husband and father would have reinforced the idea of a single
paternalistic head of the family, as in the altruism model. At that time in
US history, bargaining would probably have been a less plausible model
for many families, even though it seems more realistic today.
On the other hand, the transition from divorce laws requiring the
consent of both spouses to unilateral divorce with equal division of mar-
ital assets might push couples toward greater bargaining and more equal
power in negotiating how money is spent and who does what within the
household. (As well as helping to decrease the incidence of domestic
violence and spousal homicide.23) Changing societal norms and greater
acceptance of divorce may have been the reason for changing divorce
and property settlement laws, but these laws then reinforced the rise in
female bargaining power.24
The evolving interdependent relationships among family economic
decision-making, social norms, and public policy from the nineteenth
century through today mean that we will have to consider the regimes
under which families were affected by policy as varying. References to
altruism, bargaining, and exchange will be frequent in later chapters and
it will be important to consider the assumptions regarding family deci-
sion-making that are being made in evaluating certain ideas about the
impact of policy.

Conclusion
The economic functions of the family—defined as any group of people
related by bonds of biology, love, friendship, or obligation who share or
may potentially share economic resources—have been remarkably con-
sistent over time. Many of the circumstances were different in the 1800s
than today—industrialization was not as advanced, consumer goods were
not as plentiful, and much more labor went into producing goods and
services in the home. Financial services such as insurance were rudimen-
tary, and the rights of women were less complete. But the economic
roles of a family were similar. Families still had to work to provide for
the physical needs of their members, educate, or train their children,
keep everyone healthy, create a nest egg for old age or for bad times, and
maybe help extended family members. They still had to save for big pur-
chases, such as land and other real estate, home furnishings, and means
of transportation. They needed to allocate their members’ time across a
42 M. M. WAY

wide variety of tasks serving the family itself or its community, perhaps
bartering time with other families when big tasks needed to be done.
They also did not make decisions in a vacuum and the policies of their
local, state, and federal governments, as well as social norms, would have
influenced their resource allocations.
The economic roles of the family, as well as the altruism, bargain-
ing, and exchange models described above will be a touchstone for some
of the later chapters, so we can hypothesize about how different public
policy applications might have changed family decisions. We will begin
by looking at the most basic of family decisions—the decision whether
or not to have children and how many children to have—and its conse-
quences for the US economy.

Notes
1. David M. Heer, “The Measurement and Bases of Family Power: An
Overview,” Marriage and Family Living 25, no. 2 (1963).
2. Jason M. Lindo, “Are Children Really Inferior Goods? Evidence from
Displacement-Driven Income Shocks,” The Journal of Human Resources
45, no. 2 (2010).
3. Lee A. Craig, “The Value of Household Labor in Antebellum Northern
Agriculture,” The Journal of Economic History 51, no. 1 (1991).
4. U.S. Department of the Interior, “Eighth Census, United States:
Instructions to U.S. Marshals,” ed. Census Office (Washington, DC, 1850).
5. Slaves were enumerated as persons using numbers, not names, and
defined in relationship only to their owner. The census instructions made
very clear that enumerators were not to recognize or record marriages
among slaves: “Under heading 6, entitled Married or widowed, this col-
umn only applies to free inhabitants. The spaces opposite all slaves are to
be left blank.” In this way, the family status of most African Americans
was officially denied by the federal government. Sorting out the marital
status of freed slaves in the post-war south was a difficult and, for some,
traumatic process as bizarre strategies were employed, such as declaring
“married” any couple living together on a certain date. For more see
Chapter 4 of Nancy F. Cott, Public Vows: A History of Marriage and the
Nation (Cambridge, MA: Harvard University Press, 2000).
6. Daphne Lofquist et al., “Households and Families: 2010,” in 2010 Census
Briefs (Washington, DC: United States Census Bureau, 2012).
7. John E. Murray, “Family, Literacy, and Skill Training in the Antebellum
South: Historical-Longitudinal Evidence from Charleston,” The Journal
of Economic History 64, no. 3 (2004).
 2 FAMILIES: ECONOMIC FUNCTIONS AND DECISION-MAKING 43

8. Interestingly, this does not mean that fewer hours of home production
are necessarily taking place. In fact, when one form of household ser-
vice is substituted by a purchased service, often the time saved is applied
to childcare, for example. See Suzanne M. Bianchi et al., “Housework:
Who Did, Does or Will Do It, and How Much Does It Matter?,” Social
Forces 91, no. 1 (2012); and Valerie A. Ramey, “Time Spent in Home
Production in the Twentieth-Century United States: New Estimates from
Old Data,” The Journal of Economic History 69, no. 1 (2009).
9. J. Steven Landefeld, Barbara M. Fraumeni, and Cindy M. Vojtech,
“Accounting for Nonmarket Production: A Prototype Satellite Account
Using the American Time Use Survey,” U.S. Department of Commerce
(Bureau of Economic Analysis, 2005).
10. Shelly J. Lundberg, Robert A. Pollak, and Terence J. Wales, “Do
Husbands and Wives Pool Their Resources? Evidence from the United
Kingdom Child Benefit,” The Journal of Human Resources 32, no. 3
(1997); Shelley A. Phipps and Peter S. Burton, “What’s Mine Is Yours?
The Influence of Male and Female Incomes on Patterns of Household
Expenditure,” Economica 65, no. 260 (1998); Catherine T. Kenney,
“Father Doesn’t Know Best? Parents’ Control of Money and Children’s
Food Insecurity,” Journal of Marriage and Family 70, no. 3 (2008); and
Duncan Thomas, “Intra-Household Resource Allocation: An Inferential
Approach,” The Journal of Human Resources 25, no. 4 (1990).
11. Greg Kaplan, “Moving Back Home: Insurance against Labor Market
Risk,” in Staff Report (Minneapolis: Federal Reserve Bank of
Minneapolis, 2010).
12. Gary S. Becker, A Treatise on the Family (Cambridge, MA: Harvard
University Press, 1991).
13. Stephanie Coontz, The Way We Never Were: American Families and the
Nostalgia Trap (New York, NY: BasicBooks, 1992). Chapter 2.
14. Lee G. Burchinal and Ward W. Bauder, “Decision-Making and Role
Patterns among Iowa Farm and Nonfarm Families,” Journal of Marriage
and Family 27, no. 4 (1965); Heer, “The Measurement and Bases of
Family Power: An Overview”; and Constantina Safilios-Rothschild, “The
Study of Family Power Structure: A Review 1960–1969,” Journal of
Marriage and Family 32, no. 4 (1970).
15. “The Study of Family Power Structure: A Review 1960–1969”; “Answer
to Stephen J. Bahr’s, “Comment on ‘The Study of Family Power
Structure: A Review 1960–1969’”,” Journal of Marriage and Family 34,
no. 2 (1972).
16. Heer, “The Measurement and Bases of Family Power: An Overview.”
17. Shelly Lundberg and Robert A. Pollak, “Separate Spheres Bargaining and
the Marriage Market,” Journal of Political Economy 101, no. 6 (1993).
44 M. M. WAY

18. Lundberg, Pollak, and Wales, “Do Husbands and Wives Pool Their
Resources? Evidence from the United Kingdom Child Benefit”; Phipps
and Burton, “What’s Mine Is Yours? The Influence of Male and Female
Incomes on Patterns of Household Expenditure”; Kenney, “Father
Doesn’t Know Best? Parents’ Control of Money and Children’s Food
Insecurity”; and Thomas, “Intra-Household Resource Allocation: An
Inferential Approach.”
19. “Intra-Household Resource Allocation: an Inferential Approach,” Journal
of Human Resources 25, no. 4 (1990).
20. Carolyn M. Moehling, ““She Has Suddenly Become Powerful”: Youth
Employment and Household Decision Making in the Early Twentieth
Century,” The Journal of Economic History 65, no. 2 (2005).
21. Donald Cox, “Motives for Private Income Transfers,” Journal of Political
Economy 95, no. 3 (1987); and Donald Cox and Mark R. Rank, “Inter-
Vivos Transfers and Intergenerational Exchange,” The Review of
Economics and Statistics 74, no. 2 (1992).
22. Audrey Light and Kathleen McGarry, “Why Parents Play Favorites:
Explanations for Unequal Bequests,” The American Economic Review
94, no. 5 (2004); Mark O. Wilhelm, “Bequest Behavior and the Effect
of Heirs’ Earnings: Testing the Altruistic Model of Bequests,” The
American Economic Review 86, no. 4 (1996); and Kathleen McGarry,
“Inter Vivos Transfers and Intended Bequests,” Journal of Public
Economics 73, no. 3 (1999).
23. Betsey Stevenson and Justin Wolfers, “Bargaining in the Shadow of
the Law: Divorce Laws and Family Distress,” The Quarterly Journal of
Economics 121, no. 1 (2006).
24. Jeffrey S. Gray, “Divorce-Law Changes, Household Bargaining, and
Married Women’s Labor Supply,” The American Economic Review 88,
no. 3 (1998).
 CHAPTER 3

The Path of US Fertility: Micro Decisions

with Macro Consequences

Introduction
The United States is a fertility outlier among high-income countries. The
relatively high fertility of the native-born, from the eighteenth century
through today, supplemented by continuous infusions of even higher
fertility immigrants, distinguishes the United States from its similarly
wealthy and developed counterparts in Europe and Asia. Even with fer-
tility rates hovering around 1.9, slightly below the replacement level
(replacement is around 2.1 children per woman in high-income coun-
tries1), US fertility continues to be much higher in the early twenty-first
century than fertility in European countries, for example, where women
have, on average, 1.5 children each.2 Demographers refer to the situa-
tion in Europe as the second demographic transition, characterized by
delayed marriage and parenthood, and below replacement fertility. This
is occurring even though many European countries have enacted pro-
natalist policies that encourage families to have children—child
allowances, baby bonuses, generous paid parental leave, and universal
subsidized day care—in marked contrast to the United States.
Despite its outlier status, fertility is on the decline in the United
States, failing to rebound after the drop caused by the Great Recession
of 2008–2009, as it has rebounded following past recessions. The pop-
ulation is aging as the baby-boom generation of the 1950s and 1960s
reaches retirement age, impacting social programs, the labor force, and

© The Author(s) 2018 45

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_3
46 M. M. WAY

family economic resources. With political pressures to reduce immigra-

tion, and with immigration from high-fertility Mexico starting to drop as
economic conditions there improve, the family-size choices of the native
born become more critical. Environmental advocates may groan when
economists express concern about low birth rates, and well they should
given the resources devoured by each additional US citizen, but popula-
tion growth in developed countries has historically been a driver of eco-
nomic growth and without it, the health of the US economy and the
well-being of its citizens could be at risk. Macroeconomists do not have
a clear consensus on growth—so much of what is discussed is theory, not
fully satisfactory or settled—and they are seemingly a fair distance away
from an “economics of sustainability” where people do well even as the
total size of the economy is stable or shrinking. One needs only to look
at the stagnant economic situations in the late 1990s through the 2010s
in very low fertility countries such as Japan, which is expected to see its
population drop by tens of millions of people by 2050, to understand
that in high-income, consumption-driven economies, maintaining at
least a stable population is critical for economic well-being.
How did the fertility choices of American families evolve since the
1800s, and what impact did those choices have on our macroeconomic
success? Why has fertility declined consistently since the early 1800s?
What public policies addressed fertility, and did they have any effect? If
population policy is important to promote fertility and population stabil-
ity, which policies could work in twenty-first century America?
To address these questions, this chapter will start by reviewing US
macroeconomic growth and population growth from the nineteenth to
the twenty-first century. Then it will examine the economics of fertility
using a demand-for-children framework, highlighting the factors that
shape the decision of how many or how few children people have. The
chapter continues by summarizing three areas of public policy related to
US fertility historically: policies that protected children and extended the
years of childhood; policies directed at contraception and abortion; and
immigration policy. Then it will look to the future of the US economy,
considering some of the potential macroeconomic consequences of lower
fertility levels. Finally, it will suggest policy initiatives the government
might take to mitigate the effects of an aging population and potentially
avert population decline, taking some of the seemingly successful pro-
natalist policies in European countries as an example.
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 47

The US Economy and Population Growth

from 1850 to 2016

Although measures of GDP were not part of reported US economic sta-

tistics prior to the 1930s, estimates by economic historians suggest that
between the 1850s and 1909 the US economy grew at an annual rate
of around 3.9%.3 This very high and sustained level of growth, despite
downturns during the Civil War and periodic recessions and depressions,
was driven by three fundamental forces. First, there were large-scale
increases in land and natural resources, as the country acquired territory
by treaty and military means. Second, there was a rapid accumulation of
capital due to profitable internal markets, success in exports and cheap
slave (and later freed but still cheap African American) labor, which led
to rapid industrialization in the North, as well as the building of the
railroads.
None of the benefits of the first and second forces would have been
reaped, however, without the third force—the rapid expansion of the
population, through high birth rates and welcoming immigration poli-
cies. The population more than tripled between the 1850s and the first
decade of the twentieth century, from around 26 million to 83 million
people (see Fig. 3.1). Policies promoting population growth on the fron-
tier enabled the exploitation of vast natural resources. Not only was there
rapid population growth, but labor force participation was high as well,
with women and children participating in the agricultural and indus-
trial sectors. This stimulated both the demand side and supply side of
the economy, as a large internal market and an abundance of cheap labor
enabled economies of scale that other countries could not achieve.
In the 1900s, as the birth rate slowed and immigration channels nar-
rowed due to war and political changes, the population continued to
increase, propelled by the momentum of the 1800s. It took 80 years
for the population to almost triple again, from 83 million to 238 mil-
lion in the 1980s. During this time annual economic growth, averaged
over the length of the century was over 3%,4 still high on a sustained
basis. As the United States grew to become an economic superpower, the
source of economic growth shifted somewhat away from acquiring more
land, natural resources, and labor, to making these factors, particularly
labor, more productive through education and continuing investments
in technology and capital. The availability of cheap, concentrated energy
in the form of oil certainly helped as well. As the birth rate decreased and
48 M. M. WAY

Fig. 3.1 US population recorded in decennial censuses, 1790–2010 (Data

sources Table 2 of Selected Historical Population Data, 1990 Census; 2000
Census; 2010 Census. Accessed from https://www.census.gov/)

World Wars I and II drained the domestic male workforce, women were
pulled into skilled manufacturing jobs. The Great Migration also started,
drawing the southern black population out of the low-productivity agri-
cultural South, into to the industrial North and West. Both of these
changes increased the size and quality of the labor force in the industrial
sector.
Worries about the low fertility rate of the native-born white popula-
tion arose periodically, but by the 1960s, there was more concern about
over-population worldwide due to medical and agricultural improve-
ments. Low fertility went hand in hand with women entering the work-
force so the labor force continued to grow. High levels of legal and
illegal immigration—while evidence of a shortage of labor in the low-
skilled sectors of the workforce—provided enough workers to avoid
labor-based economic slowdowns.
Average GDP growth remained at about 2.6% over the three decades
leading to 2016, when the population reached over 310 million.5 GDP
growth rates in the long term have declined together with population
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 49

growth rates, and neither demographers nor economists would predict

an increase in either of these to nineteenth century levels. (Although
demographers would probably be more shocked than economists if this
happened.)

The Path of US Fertility

and Population-Related Policy

A closer look at US fertility throughout its history and the policies that
directly or indirectly influenced the size and location of the population
provides some context for how fertility decisions evolved. From the ear-
liest days of colonization, when shipments of “virtuous” women were
sent from Europe to Virginia and other southern colonies to be mates
for the farmers, soldiers, tradesmen, and other workers establishing set-
tlements in North America, increasing the population of the colonies was
considered a priority. The path of American fertility from colonial times
through the nineteenth century reflected the economic needs and eco-
nomic opportunities of those times. (See Fig. 3.2, which shows the gen-
eral fertility rate—the annual number of births per thousand women of
childbearing age—from 1800 through 2015.)
Labor has almost always been scarce in the United States, albeit dif-
ferent types of labor at different times. The labor required to farm end-
less tracts of arable land in the eighteenth and nineteenth centuries far
outpaced the reproductive capabilities of the population, although repro-
duction through the early 1800s was the primary means of generating
the laborers required, followed by slave labor and immigration. Children
started at early ages to work as laborers on family farms. They also con-
tributed to household production, which was required when markets
were distant and families had to produce most of their consumption
goods at home. Land also made long-term provisioning of adult chil-
dren’s needs more possible. Rather than divide ever-shrinking parcels of
land, or allocate all land to an eldest son and try to find trades or other
work opportunities for younger sons, land availability made it possible
for adult children to support themselves by obtaining their own land.
Fertility levels somewhat tracked the frontier as it moved from the East
Coast to the West, with fertility dropping in more settled areas as land
became scarce. In rural populations, many studies of antebellum census
data reveal positive correlations between land availability and the fertility
50 M. M. WAY

Fig. 3.2 General fertility rate (annual births per thousand women ages 15–44),
1800–2015. Notes (1) Change in smoothness of line results from higher fre-
quency data after 1910. (2) Prior to 1900, it is unclear from census data if sur-
veyed population includes non-whites (Data sources 1800 to 1960—US Census
Bureau, Historical Statistics of the Unites States, Colonial Times to 1970,
Bicentennial Edition (1975). 1960 to 2015—National Vital Statistics Reports,
vol. 66, no. 1 (2017))

rate, holding constant other important factors such as education, so

even though movement to the frontier per se did not affect fertility lev-
els, the availability of land led parents to be less restrictive in their family
planning.6
Americans in the 1700s and 1800s had better health and nutri-
tion than their counterparts in Europe, which decreased maternal and
infant mortality rates, effectively lowering the costs of childbirth in
both economic and psychic terms.7 Slave families on the US mainland
had far less favorable conditions than whites, but in terms of nutrition
and health were better off than slaves imported to the Caribbean who
faced extremely harsh tropical conditions and treatment. In addition to
(or because of) the economic and physical environment, the early 1800s
were characterized by young ages at first marriage, low mortality rates,
and long life expectancies for women, meaning many lived through the
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 51

end of their childbearing years. As of 1800, the total fertility rate (TFR),
or the number of children a typical woman in a given year would have
over her lifetime, was around 7 for white women compared to 5.5 in
England and 4.5 in France.8 Although fertility declined as the frontier
moved west, rates remained relatively high dropping to 4.5 for white
women and 7.3 for black women after the Civil War.9
At this point, the demographic transition in the United States had
begun, meaning that a shift occurred from high fertility, high mortality
population patterns to low fertility, low mortality patterns. The transition
paralleled the industrialization trend. Prior to the mid-1800s, a primar-
ily agrarian economy meant women’s economic role in childrearing and
household production was highly valued. As industrialization advanced,
however, the economic equation began to change. Young women faced
new opportunities in manufacturing, teaching and commerce, leading to
later marriage and a higher opportunity cost of children, meaning that
by sacrificing a job and wages to have children, children became costlier.
The manufacturing labor shortage especially, which in the middle and
later decades of the nineteenth century would be filled by immigrants,
led to an increase in female employment, particularly in the mid-Atlantic
and New England states. The difficulty integrating motherhood and fac-
tory work was apparent, and there were even calls for day care at facto-
ries as early as the 1820s.10
It was also true, however, that the early years of industrialization cre-
ated economic opportunities for children that made them potentially sig-
nificant sources of income to families. High rates of demand for child
labor in factories drove the cost of children down for some poorer mem-
bers of society, for at least half a century, and employment of entire
families in the industrial context was not unusual, especially among
first-generation immigrant populations. This could have effectively led to
higher birth rates, but countervailing economic forces, and laws regulat-
ing child labor and schooling, described in Chapter 1, limited the mone-
tary returns to children by the late 1800s.
Lifestyle changes affected the optimal size of families as well.
Urbanization advanced quickly, with over 50% of the population of
the Northeast and over 30% of the population of the West living in
cities by 1880, with lower but growing urbanization in the South and
Midwest.11 Life in urban areas imposed space constraints, making chil-
dren more expensive, while the needs of an industrializing economy
favored skilled labor over unskilled, requiring more parental investment
52 M. M. WAY

in children, and more education. More participation in a market econ-

omy increased the taste for consumption goods. Growth in urban areas
also led to more educational opportunities for girls, providing a natural
brake to unbounded fertility for the native-born middle class. As girls’
education increased their job opportunities did as well, further increas-
ing the opportunity cost of children, and decreasing the preference for
childrearing. This in turn led to increasing needs for immigrant unskilled
labor to turn the abundant and relatively cheap natural resources of the
United States into goods and services available for intrastate, interstate,
and international commerce.12 The wave of southern European and Irish
immigration in the late nineteenth century boosted the population and
brought with it high fertility that lasted usually for the first two genera-
tions of immigrant families. In the late 1800s, the foreign-born popula-
tion made up almost 14% of the overall US population (see Fig. 3.3).
The patterns for the black population, the majority of whom were
enslaved prior to the Civil War, were similar. High fertility levels for
US slave populations, relative to slave populations in other parts of the
Americas, are attributed to more adequate nutrition, a favorable climate

Fig. 3.3 US immigrant population: 1850–2010 (Data sources US Census

Bureau, Census of Population, 1850–2000, and the American Community
Survey, 2010. Includes all immigrants regardless of legal status)
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 53

compared to the climate found in more tropical regions where African

slavery was prevalent, and breastfeeding spells that were shorter—simi-
lar to the white European pattern—than practiced in other locations.13
While some have hypothesized that pro-active “breeding” on the part of
slave owners may also have had a role in high fertility, particularly after
the halting of the Atlantic slave trade in 1808, it seems more likely that
more stable family structures in North American mainland slaves, despite
the power of slaveholders to separate families, were a significant factor.14
High fertility did not, however, imply explosive growth rates among the
black population, countered as they were by high child mortality and
low life expectancy for black Americans, although the black population
growth rate was high at about 2% per year after the ending of the slave
trade, similar to that of the overall population when factoring out immi-
gration.15 Infant mortality rates (death prior to age one) estimated for
1850 were 340 per thousand births for black women and 217 per thou-
sand for white, while life expectancy at birth was 23 years for blacks and
almost 40 for whites.16 Post-Civil War, fertility levels declined among the
black population, though not as dramatically as for whites.17 The differ-
ence in postwar fertility rates was due largely to black families remain-
ing in the agricultural South versus the more industrial North until their
largescale migration north during the early to mid-1900s.
The Native American population also had high fertility but, unlike
whites and blacks, their population saw a steady and deliberately induced
decline through policies of displacement, settler aggression, and military
actions resulting in high mortality due to violence, poor nutrition and
disease.18 The demographic transition came later to the Native American
population—fertility and mortality remained high, surpassing the rates
of whites and blacks in the 1800s. In 1900, Native American TFR was
still around seven births per woman, but as health conditions improved
and as wars and forced relocation ended, mortality decreased, followed
very slowly by fertility. The recovery of the Native American population
that took place during the 1900s was fueled by high, though declining,
fertility through the 1980s when fertility rates fell to their current below-
replacement level (see Fig. 3.4).
Over the latter part of the nineteenth century and the first decades
of the twentieth century, the demographic transition was completed.
The TFR reached a nadir of around 2.2 births per woman in the mid-
1930s—a decline exacerbated by the Great Depression—and then
rebounded during the baby boom to its peak of over 3.5, corresponding
54 M. M. WAY

Fig. 3.4 General fertility rate by race: 1980–2015 (Data source Martin et al.,
“Births: Final data for 2015.” National Vital Statistics Report; vol. 66, no. 1.
Hyattsville, MD: National Center for Health Statistics. 2017. Table 1-Birth and
Birth Rates by Race)

to about 120 births per thousand women of childbearing age in the

late 1950s (see Fig. 3.2). The patterns across racial groups were simi-
lar, but white women had slightly lower rates, while non-white women
had higher. The reasons for the baby boom are still being debated. The
strong postwar economy in the 1940s and 1950s—in contrast with the
Depression and economic malaise of the 1930s—together with the resur-
gent interest in family life following the horrors of World War II were
important factors. There was a political and social push to return women
to the home from their wartime work in factories, and to reintroduce the
returning soldiers to the “normalcy” of family life. Propaganda—both
government produced and commercially produced—promoted a cult
of domesticity. With fewer job opportunities, women’s implicit cost of
children decreased. There was also a new opening of land—federal high-
way funding and homeownership subsidies (for the white population at
least) made living in houses in the suburbs an attractive alternative to
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 55

apartments in the cities, relieving family space constraints. By the mid-

1960s, the boom had ended, however, and a steady decline in fertility
began.
In the late 2010s, US fertility reached a historic low with a TFR
slightly below replacement level at about 1.9 children per woman,
although native-born fertility was closer to 1.75. What kept US popula-
tion growth relatively high through the late twentieth century and early
twenty-first century compared to other high-income countries was net
migration. Immigrant arrivals since 1965, their children and their grand-
children accounted for about 72 million of the US population of 324
million in 2015. This represented about 55% of US population growth
since 1965.19 The United States was better off—if you consider replace-
ment level fertility a good thing—than many of its high-income peers.
In 2016, the United Kingdom had a TFR of 1.8, Italy was at 1.3, Spain
was at 1.3, Japan (which had below replacement fertility since 1974) at
1.5, South Korea at 1.2, and even one of the leaders in pro-natal poli-
cies, Sweden, was just matching the fertility of the United States at 1.9.20
These numbers are evidence of the fact that national fertility rates are
negatively correlated with national income levels. According to United
Nations data, the average TFR for all high-income countries was 1.7 in
2015, compared to 2.4 for middle-income countries, and 4.8 for low-
income countries.21
We will consider the consequences for the US economy if the TFR
continues its overall downward trend, and if there is anything federal or
state governments could or should do to encourage families to have more
children, later in this chapter. To consider any public policy measure that
might affect fertility, however, we first need to start by examining the
economic forces that influence an individual’s or a couple’s desire to have
children. These forces point to areas that could potentially be influenced
by policy in order to nudge fertility in one direction or another.

The Micro Decision: Demand for Children

The decision of whether or not to have children, or how many children
to have, may be the most important, intimate and economically signifi-
cant of individual and family decisions. Government actions may or may
not directly influence this decision and policy researchers have gone to
great lengths to try to measure the impact of public policy on child-
bearing decisions. This is not easy to do, however, considering that the
56 M. M. WAY

decision to have children is influenced by economic costs and benefits,

income constraints, social norms, religious beliefs, and individual pref-
erences. This section will outline a basic economic model of demand
for children that incorporates these elements. First articulated by Gary
Becker in the 1960s and elaborated on by economists since then, the
demand for children model was one of the first to take economic analysis
to the family level, suggesting that the demand for children was like the
demand for any other good—based on costs, benefits, preferences, and
income constraints.22

Costs
Children are expensive, and costs associated with childrearing have been
increasing in dollar terms since the 1800s. (The trend toward a longer
and costlier childhood will be elaborated below.) Specifically, between
1960 and 2015, the US Department of Agriculture estimated the
average expenditures for raising a child from birth to age 17 in a two-
parent, middle-income household increased from about $202,000
in 1960 (adjusted to 2015 dollars) to $233,000, representing a 16%
increase above inflation. In 2015, the expenditures included, in descend-
ing order of the proportion of expenditure on each category, housing,
food, childcare and education, transportation, healthcare, “miscellane-
ous,” and clothing. This figure did not include expenditures on college
education, which could potentially double the monetary outlays required
to raise a child.23
More importantly, this measure excluded the opportunity cost of hav-
ing children—the money that goes unearned by women and, less often,
by men, over their lifetimes due to parental leave, extended time out
of the workforce, shortened work hours, putting oneself on or being
on a “mommy track” (resulting in slow, or no advancement), discrim-
ination against mothers in salary and promotions, and any other ways
that women’s earning potential is decreased by having children.24 (This
is only partially mitigated in two-parent homes by increased earnings of
fathers due in part to bias in favor of married fathers over single, childless
men.25) Like expenditures for housing, healthcare, and education, the
opportunity cost of children has also been steadily increasing. The evolu-
tion of women’s rights, higher rates of female education, and increasing
participation of women in the labor force increased the earnings poten-
tial of women, making the monetary sacrifice required to have children
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 57

much greater overall. An economic model of demand for children needs

to consider both the monetary costs over time—food, housing, child-
care, etc.—and the opportunity costs—decreased lifetime earnings—of
having children.

Benefits
Children used to have tangible monetary benefits to parents, and they
also used to provide vital old-age support, or at least the assurance that
support was available. Today, the benefits of children are usually not
monetary, and Social Security and Medicare provide a safety net that
frees children from many of the financial demands of having an elderly
parent. For most Americans, cash flows down from older generations
to younger, from parents to children, throughout children’s lives, and
it is less common that children end up supporting their parents finan-
cially, with some exceptions. African American families, for example, are
more likely than white families to see money transferred from younger to
older generations, due to the more precarious economic circumstances of
many elderly African Americans. Immigrant families also provide support
from younger to older generations, although this trend reverses quickly
in the subsequent US-born generations. For the most part, however,
contemporary parents in the United States give to their children from
birth through death.26
So, considering that children are a net cost to parents, and their role
as a “safety net” is not nearly as important as it was a century ago, what
benefits does the twenty-first century child provide in terms of utility?
Utility is a highly subjective concept, based on individuals’ tastes and
preferences, and the utility children provide their parents can derive from
a variety of sources. There are people who just enjoy children despite
all the work involved, and for them, being around children makes them
happy. There is also the satisfaction many parents receive, knowing that
they are meeting a cultural or religious expectation. People may desire
family life and companionship in the present and into the future. People
may feel disutility in falling behind peer groups and friends that are all
themselves having children, so having children increases utility by help-
ing parents stay tied to their social groups. It also could be that there
is a biological imperative that makes the pleasure sensors in our brains
delight in viewing our progeny. For some people, the utility gained from
children may be minimal, or negative—meaning having a child would
58 M. M. WAY

decrease their happiness or satisfaction with life—and parenthood would

never be a choice for them. While the “utility” of children is real for
most people, it is intangible and difficult to measure.

Income Constraint
What is easier to measure is the third element of the model: the parents’
income. Income sources derive not only from work, but include wel-
fare and other transfer programs, such as food stamps, that are opera-
tive at the time a person or couple is deciding to have a child. This leads
to a topic of much debate in economic and policy circles. Does more
income make people want more children because they can afford more?
Or, does more income make people want fewer children, because they
can afford other alternative goods and services that they enjoy more,
or because they are within a socioeconomic group that expects people
to pour a lot of money into their children, trading quantity of children
for quality. (This is the topic studied by the unfortunately-named paper
“Are Children Really Inferior Goods” by Jacob Lindo, referenced in
Chapter 2.27) The data consistently show that highly educated, high-
income people have fewer children, on average, than less educated,
low-income people, just as high-income countries have lower fertility
rates than low-income countries (see Fig. 3.5).
It is hard to know, however, why this is the case. On the one hand,
this could be due to people’s preferences changing as they get richer, a
theory proposed by Richard Easterlin. When you have more money, for
example, you can afford expensive consumer goods and travel and you
would rather spend your money on these things than spend it on hav-
ing lots of children.28 Or, the observed negative relationship between
income and children could be due to the cost of having a child increasing
with income level. For example, dual-earner high-income couples will
have high opportunity costs of having a child—they will lose significantly
more income due to parental leave and childrearing than a couple who
earns less. Another theory is the quantity–quality tradeoff, first modeled
by Gary Becker and H. Gregg Lewis.29 High-income parents may pre-
fer fewer, expensive, high-quality children over having a larger quantity
of children. At high-income levels, parents will be concerned with their
child being able to maintain the family’s standard of living, requiring
investments in education and healthcare that lead to “quality.” The par-
ents may expect to send their child to private schools and college, pay
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 59

Fig. 3.5 Completed fertility by education, women ages 40–50: 2014

(Data source US Census Bureau—Fertility of Women in the United States:
2014. Table 6. Completed Fertility for Women 40–50 Years Old by Selected
Characteristics. https://www.census.gov/data/tables/2014/demo/fertility/
women-fertility.html)

for extracurricular activities, tutoring, and camps, and enable their child
to enjoy other expensive goods and services that lower-income people
would not associate with the cost of a child.30
Policy wise, the distinction is important if a government is attempt-
ing to increase or decrease fertility. Governments in Singapore, France,
and Canada, to name a few, have provided cash bonuses for children in
an attempt to increase their fertility rates. If increased income is corre-
lated with fewer children because the costs of children at higher socioec-
onomic levels is higher, then income gained from a cash bonus provided
to everyone equally should defray the monetary costs of children and
result in higher fertility. If, however, more income makes people want
to shift their spending from children to other goods and services or
to invest more in one child, then parents might take the cash bonus
offered for baby number one, increase spending on that child (or them-
selves), and not be interested in having baby number two. The results
from cross-country studies are mixed and suggest that cash alone, with-
out other child or working-parent-friendly policies, will not make peo-
ple decide to have more children. In France, where there are a variety of
60 M. M. WAY

gender equality and family support policies in place, cash bonuses have
had a slight effect on the decision to have a third child, but in Singapore,
where until recently the policy concern was with overpopulation, and
social services for families are sparse, they have not affected fertility.31
We have discussed the basic elements of the demand for children:
costs, benefits, and the income constraint. To be realistic, this model
should also consider the other ways parents’ money could be spent, and
how much more or how much less utility parents might get from those
other choices.32 These are considerations many parents can relate to.
Have child number one, or have no children and retire young on all the
money saved? Have child number two, or send child number one to a
private college? Have child number three or do more traveling with chil-
dren one and two? How much more or less utility a parent would get
from these other choices helps determine how many children the par-
ent will have. (And as mentioned above, the parents’ income level may
change their willingness or ability to access some of the alternatives to
having one or more children.)

Assumptions
Finally, there are a few key assumptions underlying the demand-for-chil-
dren model that must be considered and accepted before using such a
framework to analyze the impact of public policy on childbearing. The
first is the assumption that people are rational in their decision-mak-
ing—they make decisions in their own self-interest and if they decide to
have two or six or twelve children, that is because having that number
will provide them with the greatest degree of utility. The second is the
assumption that people have complete information about current and
future costs, benefits, and alternatives. Economists who create demand-
for-children models are operating on the belief that people rationally
weigh out the costs and benefits of children over time, considering what
they can afford with their current and expected future income, and com-
paring the utility they would gain from children with the utility they
would gain from spending their time and money on other things.
On the other hand, these assumptions could be fundamentally flawed.
Assuming that people make their decisions rationally, weighing the
costs and benefits, instead of just doing what society nudges them to
do, or what their families expect, or acting on impulse without consid-
ering the consequences, can seem overly optimistic. The growing field
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 61

of behavioral economics challenges the neoclassical economist’s ubiq-

uitous assumption of rationality. The assumption of complete informa-
tion regarding the costs and benefits of children may also not be true
for many people. Not only is there uncertainty in the costs and benefits,
which could make the calculations of the most forward-looking individ-
ual come out wrong, but many people are unaware of the costs that will
be facing them, and they may not know how much they will benefit (or
not) from parenting. They may have no understanding that this child will
take over most of their free time, and could require braces, or could have
special educational needs, or any of a thousand other unexpected circum-
stances (costs) that arise with children. They may not think far enough
ahead to investigate the cost of afterschool care, or health insurance
copayments. People may not even have correct expectations for their
income over time. They also may not appreciate the other opportunities
that are out there if they delay childbearing or have fewer children.33
Despite these concerns, we will take the neo-classical assumptions of
rationality and complete information as given in considering how public
policy has impacted or could impact fertility decisions. While they might
not hold true for everyone, assuming that people know what is best for
them and that they have enough information, or will seek out enough
information, to make an informed choice does not seem unreasonable in
general.

Past Policies and Fertility

There are a variety of government pro-natal policies typical of western
democracies—from tax benefits, to child allowances to government-pro-
vided day care—that have only short term or very slight positive impacts
on fertility.34 Fertility-specific policies, such as prohibitions on contracep-
tion on the one hand, or family planning initiatives on the other, have
been shown to only slightly impact the fertility of specific groups, such
as the poor, and have a negligible effect on births at a national level.35
Even the anti-natal and genocidal policies that targeted Native Americans
in the nineteenth century—wars, forced resettlement, and land confisca-
tion—did not succeed in lowering Native American birth rates although
early deaths kept the overall population numbers low.36 Instead, it was
policies targeting other objectives—educational policies that kept girls
in school until older ages, for example—that had a significant impact in
lowering fertility for the broad population.
62 M. M. WAY

Before continuing, it is important to recognized that most of the cir-

cumstances relating to the continuous decline in fertility since the 1800s
were not directly policy related and that the federal and state govern-
ments in the United States have never declared a direct intention to
increase or decrease fertility levels for the general population. Policies
were directed at increasing the population in certain regions (such as the
frontier) through internal migration of native-born families or immigra-
tion. Policies attempted to prevent migration from regions in order to
maintain the labor force in certain areas, such as the efforts made to pre-
vent the African American population from leaving the South during the
Jim Crow era. But it has never been an overtly stated objective to influ-
ence the private family decisions of the general population, even if law-
makers may have had ulterior motives behind some of their policies. This
means that our evidence of how fertility-specific policies—those policies
aimed directly at influencing people to have more or fewer children—
affect fertility choices in the United States is very limited.
In a comprehensive historical look at the economics of the fertil-
ity decline of the 1800s, Timothy Guinnane considers six factors: (1)
declines in infant mortality making it less important to have “spare”
children; (2) improvements in contraceptive technology and availabil-
ity; (3) increases in the direct costs of children (food, education, hous-
ing); (4) increases in the opportunity costs of children (women’s wages);
(5) changes in the costs of ensuring child quality through healthcare
and education; and (6) increasing social safety nets for the elderly mak-
ing children a less necessary “insurance” policy.37 In all of these factors,
state and federal policy played a role, but even in laws banning contra-
ception and abortion, the justification was almost never fertility related,
but instead was based on preventing “obscenity” or protecting women’s
virtue.
Without a specific fertility policy to examine, this section will summa-
rize three types of policy interventions related to fertility in the United
States. The first type included those interventions which caused childhood
to be protected and extended in duration. The second included laws reg-
ulating contraception and abortion. The third was immigration policy.

Policies That Extended Childhood—Increasing the Cost of Children

The child labor and education laws already described in Chapter 1
impacted US fertility levels in two ways. First, they increased the number
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 63

of years during which children were economically dependent on their par-

ents, making children costlier. As compulsory schooling ages increased
from 12 to 14 to 16 years in some states, the number of years parents
could expect to be the primary or only income earners in the family
increased, and the number of years they would have significant monetary
outlays to support their children, at least in housing, food, and cloth-
ing, if not in tuition and school supplies, also increased. The contribu-
tions children made to the family economy were greatly limited, and
their dependency increased. In a historical examination of child labor and
schooling as a factor in differing fertility across states in the late 1900s,
sociologists Avery Guest and Stewart Tolnay concluded “the ultimate
effect of this drastic change in children’s roles was to reverse the intergen-
erational flow of wealth and to destroy the rationale for high fertility.”38
But education and delayed entrance into labor markets did not just
make children costlier. It also made it less likely that girls would marry
early. Early marriage results in early childbearing and increased fertility.
By keeping girls in school through the early and mid-teens compulsory
education policies resulted in girls being out of the mating and marriage
markets until older ages and delayed—which also decreased—their child-
bearing.39 It also increased their opportunity cost of children as previ-
ously stated, because more education increased labor market prospects
and potential earnings.
Childhood has continued to lengthen into the early twenty-first cen-
tury, in part due to economic changes that have resulted in children
needing ever-increasing levels of education to be prepared for the labor
market, but also due to policies that continue to place the economic
well-being of adult children on the shoulders of their parents. For exam-
ple, one response to the lack of universal healthcare and the uncertain
labor market situation for young adults following the Great Recession
was to include a provision in the Affordable Care Act of 2010 that
allowed children to be covered by their parents’ health insurance until
age 26, regardless of their status as working or student, married or sin-
gle. This was a logical and humane provision of the act, but it certainly
communicated to families that children in their mid-twenties were still
dependent, decreasing the ability of parents to quit jobs or retire, and
increasing the ability of children to delay work, or choose types of work
that did not provide health insurance. Economic theory predicts that this
policy, by making children costlier, will decrease the number of children
desired by parents.
64 M. M. WAY

Contraception and Abortion Laws—Increasing the Cost

of Controlling Fertility
Until the late 1800s, few regulations regarding contraception were imple-
mented at the state level. State laws prohibiting abortion, however, started
to emerge in the early 1800s with Connecticut’s being the first in 1821,
and most states and territories following by the end of the Civil War. While
the legislation and law enforcement activity associated with anti-abortion
law used moral grounds as a justification, demographic considerations were
at play as politicians began to be concerned about the fertility decline.

Legislators in 1845 were already aware, however imperfectly, of the demo-

graphic trends […], and they realized that American women were having
fewer children than they had had earlier in the century. As a physician active
in the [anti-abortion] campaign of the middle 1840s shrewdly remarked,
legislators in New York were opposed to ‘checks on population…. At pres-
ent, and in this country, population is wealth and a blessing, and the public
is not disposed to look with favor upon any means for keeping it down.’40

The criminalization of abortion did not prevent abortions, which prob-

ably peaked in the pre-Roe v. Wade era sometime between 1860 and
1880, but laws grew more and more restrictive through the beginning
of the twentieth century and married women increasingly relied on con-
traception instead of abortion to limit their family size. Poorer, younger,
and single women—who would have had more difficulty obtaining
contraception—were those more likely to seek black-market abortion
services and to run afoul of the law.41
Contraception was another matter, and before the Civil War, few laws
targeted a person’s efforts to prevent pregnancy. Of course, technology
improvements had not yet occurred in the early to mid-1800s. Access to
birth control was minimal, but birth control methods themselves were
primitive and couples relied on abstinence, coitus interruptus, and abor-
tions (self-induced or otherwise) as the most common methods of limiting
family size. The dropping demand for children meant increasing demand
for contraception and the commercial markets were where many American
men and women turned. Innovations emerged from the 1840s through to
the development of the contraceptive pill, first approved by the Food and
Drug Administration in 1960. These included innovations in condoms
and diaphragms—enabled by new vulcanization technology for rubber—a
wide variety of intrauterine devices—often backed by a patent—and new,
more commercialized, though not always effective or safe, spermicides.42
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 65

Concern about changing sexual mores, immorality, and obscenity, and

not fertility decline per se, was the motivation behind the Comstock Law
of 1873, a federal law prohibiting interstate commerce in sex-related
items. It outlawed the sending through US mail of any material deemed
obscene, including information about contraception and abortion, or
contraceptives themselves, effectively blocking an entire product market
from what was then its primary platform for advertising, sales, and deliv-
ery. Other state-level anti-contraceptive laws attempted to shut down
such markets within states, banning clinics, prohibiting contraceptive
education, and even prohibiting doctors from providing their patients
with contraceptive products and information.
Were these laws an attempt to reduce the fertility decline? If they
were, the result was less than successful with fertility continuing to drop
during the late 1800s. One thing they accomplished, however, was to
increase the costs and the risks involved in preventing pregnancy and
childbirth. It is likely that federal and state interference in fertility was
part of an overall reaction to social upheaval. The Civil War had upset
the order of life for many families, with the absence of millions of men
for years, leaving more than 600,000 of them dead and 500,000 injured.
With the abolition of slavery—so often used as a metaphor for the situ-
ation of women relative to their husbands—the energies of many female
abolitionists turned to women’s rights, provoking a backlash from tradi-
tionalists. The Comstock Law, which would be in effect—although not
consistently enforced—until it was repealed by Congress in 1971, rep-
resented a legislative attempt to tie sex and reproduction in such a way
that would increase fertility, even if that was not the explicit intent of the
law. The fight against laws prohibiting contraception was slow and pain-
ful, moving piecemeal until 1965. It was then that the Supreme Court
overturned Connecticut’s ban on the use of contraceptives as violating a
fundamental right to privacy in Griswold v. Connecticut, effectively over-
turning all similar laws.
Comstock and other anti-contraception and anti-abortion laws did
not result in increased birth rates, although it is possible that the birth
rate would have declined more dramatically if they had not been enacted.
Fertility trends in the United States have been independent of the par-
ticular laws on the books, and the black market in contraceptives (or the
legal sales of contraceptives for purportedly other medical purposes) has
always been robust where sales bans existed.43 What these laws more
likely did was reinforce the uneven distribution of births across the
66 M. M. WAY

income spectrum. Poor women with less access to healthcare, education,

and the money that could purchase black-market birth control—which
tended to be expensive—had less access to safe and effective birth con-
trol services. A state-by-state look at the repeal of contraception sales
bans shows that prior to the introduction of the pill, fertility differences
were not significant between states with bans and those without. Those
states without bans saw greater decreases in fertility than those with bans
for a short time after the introduction of the pill due to faster uptake of
the new and improved contraceptive technology, but that difference was
starting to decrease even before Griswold v. Connecticut overturned all
state anti-contraception laws.44
While the Comstock Law was still in effect, ironically, the fed-
eral government started efforts to support family planning funding to
poor citizens as part of President Lyndon Johnson’s War on Poverty.
In 1964, Johnson authorized federal dollars to support reproductive
healthcare, including contraception, for the poor under the “Economic
Opportunity Act.” In 1970, President Richard Nixon signed legis-
lation—which had passed in both houses of Congress with significant
bipartisan support—creating services and supporting research in fam-
ily planning. Title X of the “Family Planning Services and Population
Research Act of 1970” provided funding for health clinics offering fam-
ily planning services to women and men. The motivation for providing
contraception during a time when anti-contraception laws were still on
the books in many states derived in part from concerns with population
growth worldwide and its ecological impact, as well as the effects of the
baby boom in the Unites States. Another motivation was the recogni-
tion that economic progress for many US families depended on limit-
ing family size. The War on Poverty had many fronts, and contraceptive
access was one of them.
Provision of reproductive health services to the poor has had a neg-
ligible impact on overall US fertility, but a more significant impact on
the fertility of low-income women. In a study using the rollout of feder-
ally funded family planning clinics on a county-by-county basis between
1964 and 1973, Martha Bailey found that the Title X funding pro-
gram “had a profound effect on the women it served.” Her estimates
of the effectiveness of the program determined that while nationwide
the fertility decline was only slightly affected by the increased availabil-
ity of contraception, for poor women federally-funded family planning
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 67

resulted in somewhere between a 19 and 30% drop in fertility over a dec-

ade. According to Bailey, “This effect is as large as half to three-quarters
of the 1965 fertility gap between poor and non-poor women and sug-
gests that federally funded family planning diminished the income-based
differences in childbearing that motivated the program.”45 Just as hav-
ing children is an economic decision, based on costs and benefits, and
subject to income constraints, using birth control is the economic deci-
sion on the flip side with its own costs, benefits, and income constraints.
Lowering the cost of birth control—the purchase price, the cost of a
medical visit and the cost of getting reliable information—makes it more
likely it will be utilized.
The historic swing in federal policy—from legally prohibiting inter-
state commerce in contraception in 1873 to supporting contraception
with public funding a century later—represented not merely a reflection
of changing social mores. It reflected the changing economics of the
United States. Population growth in 1873 was important to the macro-
economic health of the country and to political objectives in territorial
expansion. The families who would have been most affected by prohibi-
tions on the postal delivery of contraceptives or contraceptive informa-
tion would have been those living more remotely—precisely the frontier
population that the US government was trying to grow. In 1970, on
the other hand, the economy was fully industrialized, the baby boom’s
effects were taxing the resources of state and local governments, environ-
mental concerns were rising, and the federal government had a goal of
developing previously neglected segments of the population. Changing
the economic calculus of reproduction for poor families was one way to
help achieve those objectives. In his signing statement in 1970, President
Nixon wrote, “It is noteworthy that this landmark legislation on family
planning and population has had strong bipartisan support. I am con-
fident that by working together—at Federal, State, and local levels—
we can achieve the goal of providing adequate family planning services
within the next 5 years to all those who want them but cannot afford
them.” Bipartisan support for the act may also have had a lot to do with
the target population for reproductive services. Early Aid to Families
with Dependent Children (AFDC) guidelines required that state welfare
offices offer family planning services, and in some states, the services spe-
cifically targeted the African American community.46 The goal of restrict-
ing the population of those considered at risk of taxing the welfare state’s
68 M. M. WAY

resources may have moved many lawmakers to vote in favor of subsidized

contraception.
What this look at family planning policy shows is that the government
could not fight against the trend of decreased fertility using anti-con-
traception and anti-abortion laws. It could, however, help poor women
and families achieve their desired family size, moving them along with
the prevailing fertility trend, by promoting and subsidizing family plan-
ning. The country’s economic expansion—and firms’ desire for cheaper
labor—could not be satisfied by the “natural” increase in the population
after the 1970s, however, just as it could not in the 1870s.

Immigration Policy—Supplementing the Native-Born Population

Immigration policy does not directly affect the fertility of natives, but
the fertility patterns of immigrants and immigration itself have served to
bolster the population throughout US history (see Fig. 3.3). The United
States’ outlier status in fertility among industrialized countries in the
early twenty-first century is mainly due to the presence of a large for-
eign-born population—more than 13% of the populace in 2015—and
their higher rates of childbearing. Moving forward, immigration policy
may be the determining factor in whether the United States maintains
replacement level fertility overall, or starts to see absolute population
declines.
Historically, the United States had an open door policy toward
migrants until the twentieth century, notwithstanding pockets of opposi-
tion to immigration from groups such as organized labor. Not all immi-
grants had high fertility differentials from the native-born population.
In the early 1800s, when the fertility of native-born Americans—whites,
blacks, and Native Americans—was much higher than European fertil-
ity rates, the dominant immigrant groups were from northern Europe
where families were traditionally smaller. But after the Civil War, immi-
gration increased from more Catholic southern Europe and Ireland, as
well as from Eastern Europe, and these populations brought with them
high fertility levels. After a generation or two in the United States, fer-
tility levels converged with those of the native born for most of these
immigrant groups.47 Demographic historian Herbert Klein emphasized
the predictability of the immigrant pattern:
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 69

This pattern of initially higher fertility rates of the foreign born and their
progressive decline to at or below the level of the native born is noted in
every study and for every group arriving in the United States in the 19th
and 20th centuries, with the possible exception of only the Mexicans in
the most recent period. No matter if the immigrants came from Europe
in the early 1900s or would come from Latin America or China in the
1980s, the pattern held over time and place.48

High birth rates for immigrants were not only a cultural artifact of
their countries of origin. The demand-for-children model provides two
insights that help explain the persistence of high birth rates for a gen-
eration or two after arrival in the United States. The opportunity cost
of immigrant women’s time was relatively low. Not speaking English,
and with low education levels, immigrant women in the 1800s and early
1900s did not give up much in terms of outside income to have chil-
dren. The benefits of children were higher as well—it was more likely
for immigrant families to send their children to work for wages at a rel-
atively young age, and parents relied on children to bring wages into
the home as their family became economically established in the United
States. Both of these factors made children less costly, leading to higher
fertility in the first generation. The lack of persistence of higher fertility
rates across more than one generation reflects the assimilation of immi-
grant families into the cultural norms of extending childhood, educat-
ing daughters, and participating in the consumption economy, all of
which meant that second and third generation immigrant families faced
similar tradeoffs in their choice of how many children to have as the
native-born.
The Chinese Exclusion Act of 1882, which targeted East Asian
migrants, was the forerunner of more restrictive immigration poli-
cies in the early twentieth century. In the decade from 1910 to 1919,
5.8 million immigrants (75% of whom were European) arrived to the
United States, adding about 5% in that one decade to the total popu-
lation. The Immigration Act of 1917, which imposed a literacy test,
the renewals of the Chinese Exclusion Act, and the Immigration Acts
of 1921 and 1924 imposed quotas limiting immigration from cer-
tain regions including high fertility southern and Eastern Europe.
These restrictions, combined with the effects of two World Wars,­
fundamentally changed immigration to the United States, shutting
70 M. M. WAY

down the legal points of entry until the 1950s. By the late 1920s, only
around 300,000 immigrants per year entered, and post-World War II the
numbers reached a low of 100,000 per year.49 The restrictive immigra-
tion policy exacerbated the fertility decline due to the native born hav-
ing fewer children, with the general fertility rate for all women dropping
sharply between 1920 and 1939, from 118 annual births per thousand
childbearing women in the population, to 89 births per thousand.50
While the baby boom raised the fertility rate through the 1960s, the
downward trend in fertility then resumed with very little immigration to
counter the drop in native-born demand for children: the foreign born
comprised less than 5% of the population in 1970 (see Fig. 3.3).
A more open stance toward immigration returned with the
Immigration and Nationality Act of 1965, which removed coun-
try-of-origin criteria in immigration and prioritized family reunification
and labor market qualifications for US entry. A new era in US immi-
gration began, characterized by increasing rates of immigration from
Latin America and Asia, higher rates of immigration by women in their
childbearing years thanks to family reunification policies, and more ille-
gal immigration from Latin America and Mexico in particular, due to
its long shared border with the United States and a welcoming informal
labor market. The Hispanic immigrant population increased dramatically,
and in 2015, 49% of the 43 million foreign-born residents of the United
States were from Latin America and the Caribbean.51
The Hispanic population, both native and foreign-born, swelled
to 56.5 million people in 2015, or 18% of the US population, greatly
impacting US fertility.52 Figure 3.6 shows the general fertility rate for
women by Hispanic ethnicity since 1990, highlighting the dispropor-
tionate impact of Hispanics on US births. In 2014, the foreign born
accounted for 23% of all babies born in the United States. Without the
foreign born, annual births would be declining at a greater rate than they
currently are. US births have dropped 4% since 1990.53 Immigration
policy is a significant driver of US fertility patterns, making them unique
from European and East Asian fertility patterns. This is important
because the prospects for economic growth in the United States would
be less rosy without the influx of immigrants and their children. The next
section explores the relationship between population growth and eco-
nomic strength.
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 71

Fig. 3.6 General fertility rate—Hispanic versus non-Hispanic: 1990–2015

(Data source Martin et al., “Births: Final Data for 2015.” National Vital Statistics
Report; vol. 66, no. 1. Hyattsville, MD: National Center for Health Statistics.
2017. Table 5—Births and Birth Rates, by Hispanic Origin of Mother)

The Macro Consequences

of Slowing Population Growth

Overpopulation, so far, has never been a problem for the United States.
The country had the land, the economic potential, and the political sys-
tem to more than triple its population between 1850 and 1910, and
thrive. Neither has there been (yet) an era of too few people—the popu-
lation more than tripled again between 1910 and 2010, both by natural
increase and by immigration. The United States is not currently facing
absolute declines in population. Estimates from the US Census Bureau
predict, based on our current fertility trajectory and a midrange estimate
of immigration levels, that sometime in 2050 the population will cross
the 400 million mark (see Fig. 3.7). This may be too many people if
climate change and the culture of consumption are not addressed, but
72 M. M. WAY

Fig. 3.7 Population projections by immigration rate assumptions. 2015–2060

(Data source US Census Bureau, Population Division. Table 1. Projections of
the Population and Components of Change for the United States: 2015–2060
(NP2012-T1). https://www.census.gov/data/tables/2014/demo/poppro-
j/2014-summary-tables.html)

it could also be too few for an economy that seems to have historically
derived much of its vitality from relatively high population growth.
So should we worry about the macroeconomic effects of families
deciding to have fewer and fewer children? Is the aging of the population
a cause for real concern? Should we be concerned enough that we create
new policies directed at influencing this most private of family decisions?
Or, is this drop in fertility by the Unites States and other developed pop-
ulations providing hope for slowing the advancing environmental crisis
caused by CO2 emissions? While consideration of climate change is out-
side the scope of this book, it should be noted that the US population
leads the world in energy and other resource consumption. It stands to
reason that not only would net decreases in the US population create
more than proportional decreases in carbon emissions—between 1980
and 2005, the increase in the US population accounted for only 3.4% of
the world population increase but 12.6% of the increase in greenhouse
gases54—but that as American families witness the impact of climate
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 73

change on life in the United States and across the world, they may react
by having fewer children.
Regardless of the potential benefits of slowing population growth,
there are potential economic problems that would need to be addressed,
and they are serious enough that policy prescriptions could be in order.
A brief list of these problems includes macroeconomic slowdowns, the
weakening of social programs such as Social Security and Medicare, and a
decline in economic leadership.55

Macroeconomic Decline
From a macroeconomic perspective, population growth provides both
demand side and supply-side impetus to a consumption-driven economy.
With the population growth rate declining, aggregate demand growth
slows as well, holding all else equal, potentially causing downward pres-
sure on prices. This could lead to decreased labor demand and falling
wages. While the economy could evolve so that each individual spends
and consumes more, thus keeping aggregate demand high, it seems
unlikely with the increasingly unequal income distribution of the US
economy in the early twenty-first century that one would see significantly
higher incomes and thus significantly higher spending among middle-
and lower-middle-class individuals who have the highest spend-versus-
save ratio. Any promotion of higher consumption levels to drive the
demand side of the macroeconomy would also negate the environmental
benefits implied by population decline.
Then there is the supply side. Technology has replaced labor in some
industries, but not to a great enough extent that a more slowly growing
labor force would not matter, and many industries are labor intensive.
This could lead to increasing wages and decreased output, pushing up
prices and making US manufactured goods, for example, less competi-
tive on the world market. Globalization and trade policy have already led
to a painful restructuring of the US economy, as manufacturing turned
to cheap labor in developing economies, hollowing out the middle of
the US labor market. Decreasing fertility could intensify this phenom-
enon. In the United States, where about 60% of GDP is generated by
the efforts of labor, population decline without significant technological
advances would have serious consequences.
74 M. M. WAY

Social Program Erosion

Economists and other social scientists are also concerned about declining
fertility’s impact on the dependency ratio and the long-term viability of
social programs such as Social Security, which in the 2020s and 2030s
will see the bulk of the baby boomers enter its rolls. The dependency
ratio refers to the number of people ages 16 and older who are not in
the labor force, for every 100 people in the labor force. An increasing
dependency ratio means that fewer working adults are supporting the
non-working, either directly by financially supporting family members,
or through their payroll and other taxes. This creates a strain on families
and also lowers the amount of savings that can be used for investment.
The dependency ratio rose from 51.5 in 1996 to 61.7 in 2016, due both
to the aging of the population and to the effects of the Great Recession.
By 2026, however, it is expected to increase to 65.9 and keep rising due
to baby-boomer retirements, according to Bureau of Labor Statistics
projections in 2017.56 This increase will put a strain on US social pro-
grams, particularly if the decline in labor force participation among
younger Americans, and among men, does not reverse (see Chapter 5 for
a description of changing labor force participation trends).
US Census Bureau projections for the population age structure
through 2060, shown in Fig. 3.8, depict the increasing percentage
and absolute size of the 65 and older group, due to fertility declines
and increases in life expectancy. This will require changes in the Social
Security program, including increases in payroll taxes and increases in
the age of Social Security eligibility. (More detailed discussion of Social
Security and issues facing the growing elderly population is in Chapter
7.) The aging of the population could also spell trouble for social pro-
grams targeted at the young. Politics in the United States can be influ-
enced by lobbies such as the American Association of Retired Persons
(AARP). Older people make up strong voting blocks, and social safety
net programs for the elderly such as Social Security and Medicare are
sacred cows in American politics, while safety net programs for younger
people and children, such as the Children’s Health Insurance Program,
are often on the chopping block in budget negotiations in Congress.
The aging of the population will lead to favoring of programs targeted at
the elderly, unless there is a concerted policy-based effort to promote the
well-being and value of children.
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 75

Fig. 3.8 Projected age distribution of the US population: 2014–2060 (Data

source Colby, S. L., & Ortman, J. M. (2015). Projections of the Size and
Composition of the US Population: 2014–2060 (P25–1143). Washington, DC:
US Census Bureau. Retrieved from https://www.census.gov/content/dam/
Census/library/publications/2015/demo/p25-1143.pdf)

Slipping from a Leadership Role in World Economy

Then there are the questions of US economic and political leadership.
Aging societies supported by fewer and fewer young people not only
lose economic power, but also can lose vitality and innovativeness. The
decline of the US population will be occurring as other countries in
the Middle East, Asia, and Africa are still growing rapidly and develop-
ing economically. The relative position of the United States economy is
already slipping in relation to China, which itself is reversing the one-
child policy in hopes (probably futile) of staving off population decline.
Instead of accepting an inevitable decline in the United States popula-
tion, it may be prudent to initiate policies that aim to maintain the cur-
rent population strength of the United States, while at the same time
increasing the well-being and productivity of its citizens.
76 M. M. WAY

A country’s economic strength rests on its effective use and steward-

ship of its resources, and its human resources are the most important.
If the economics of the family, operating in the context of the US eco-
nomic system, results in people wanting only one child, or avoiding par-
enthood altogether, the country has likely failed in its stewardship of this
important resource. The problem with the demand for children in the
United States is that it is exists in the context of a market economy and a
political tradition that provides almost no support for families with chil-
dren, outside of minimal safety nets for the poorest of the poor, and a
patchwork of local educational systems of extremely varied quality. Most
families operate on scarce resources in an uncertain labor market, with
little time off and rigid work schedules while facing increasingly unaf-
fordable costs for higher education and healthcare. If, as a nation, the
United States were to decide to enact pronatalist programs to try to slow
the decline in fertility, there are plenty of potential policy areas.

Policies That Could Increase the Demand

for Children

Using policy measures to increase the demand for children, however,

could be a challenge, given the motivations behind the second demo-
graphic transition, described by Ron Lesthaeghe and Lisa Neidert:

If fertility control during the first transition was a matter of avoiding births
of higher parities and births at older ages in order to safeguard the oppor-
tunities of the children already born, during the second it is a matter of
postponing or eschewing parenthood altogether because of more press-
ing competing goals such as prolonging education, achieving more stable
income positions, increased consumerism associated with self-expressive
orientations, finding a suitable companion and realizing a more fulfilled
partnership, keeping an open future, and the like.57

Western economies that have been relatively successful at maintaining

near replacement birth rates; however, such as Sweden (TFR 1.9) and
France (TFR 2.0) have made support of working women and young
families a high priority, and they have a reliable slate of social support
programs for all their citizens besides.58 The project of maintaining
population is not easy, however, and in dozens of studies, it has been
shown that there are a variety of pro-natal policies typical of western
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 77

democracies—from tax benefits, to child allowances to government-sub-

sidized day care—that have short term or only slight impacts on fertil-
ity.59 The “successes” are all in countries that have universal healthcare,
extensive childcare, extensive parental leave for mothers and fathers, and
even much smaller yet meaningful programs such as gift baskets for all
babies providing the necessary kit for the first year of life. It is hard to
imagine these policies in the United States where parents are very much
on their own when it comes to managing the burdens associated with
children.
If there were to be a concerted effort to increase fertility among
the native-born population in order to maintain a healthy age distribu-
tion and sustain current rates of economic growth, it may be necessary
to look at where the United States is at this point in history, and what
makes family economic life difficult and discourages childbearing, and
act on those issues. The demand-for-children model described above has
three main elements—costs, benefits, and income constraints. Costs and
income constraints lend themselves rather easily to policy-making, and
there are moves that state and federal governments could take to make
the perceived benefits of children greater. In fact, policies that make
combining parenthood and work easier usually touch all three aspects of
the model—lowering the costs of parenthood, increasing the benefits of
parenthood (one can enjoy both parenting and career satisfaction), and
increasing the income parents have to spend.

Reducing the Cost of Children and Increasing Parental Income

Paid maternity and paternity leave: The opportunity costs of chil-
dren hit hard at the newborn phase. First, women need time out of the
workforce to recover from childbirth, and second, women or men need
to provide intensive one-on-one care to an infant for at least the first
few months of life. (The exact time is debatable, but no research rec-
ommends less than two months.) A system of paid parental leave could
reduce this cost and potentially reduce discrimination against women
in the labor market by providing both women and men paid leave in
equal measure. This would lower the cost of children by making up
for lost pay. It could also help keep mothers in the labor force, if the
policy is designed correctly, by having the paid time off only apply to
working parents, and by lowering the likelihood that discrimination or
78 M. M. WAY

“mommy-tracking” would take place because both mothers and fathers

would be eligible for the benefit. This gender-equal and family-friendly
measure could provide a much needed sense of solidarity in the project
of raising American children. It could also provide many newborns with
more equal degrees of attention from parents across the socioeconomic
spectrum because low-income mothers generally return to work more
quickly than middle-class and high-income mothers, due to financial
pressures.60
Universal childcare for children up to school age: Universally
provided day care succeeds in both lowering the cost of children and
increasing the ability of parents to balance paid work and parenting.
Private day care is not only expensive, but it is hard to find, hard to get
into, and has rules that make it difficult to deal with the many days of
child illnesses. A comprehensive day care system run at the state or fed-
eral level would help parents reconcile their roles in the labor market and
at home in ways that would likely increase labor force participation and
fertility.
Both of these proposals sound drastic for the US system, but neither
one is outside the realm of the possible. California has funded partial-sal-
ary-replacement parental and family care leave since 2004 through its
state-run disability insurance program, funded by payroll taxes like any
other disability insurance. One study estimates that the federal govern-
ment could fund a similar effort through the Social Security program
for $18 billion to $20 billion per year, not including set-up costs for the
program.61 This proposal includes 16 weeks of paid benefits equal to a
percentage of the workers’ salary (with a higher percentage for low-in-
come parents) for both mothers and fathers of newborn and adopted
children. Summoning the political will to implement such a program,
including raising payroll taxes to pay for it, may seem like an enormous
challenge, but if the most populous and diverse state in the United States
has been able to make headway in paid parental leave, that is a good sign
that larger federal programs are not out of the question.
Similarly, universal childcare and preschool are not outside the scope
of possibility. Many school districts already provide preschool to three-
and four-year olds in need, or to a wider population through a lottery
system. Extending the public educational system’s program to pre-K,
however, may be an extremely heavy lift, politically. Already, many pub-
lic systems are stretched and public schools are usually not work friendly
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 79

for parents. School days end hours before work days typically do, school
holidays and teacher in-service days happen at least once or more a
month, and the summer months leave a gaping hole in the school-age
childcare system. It may be more feasible to find support for childcare
that supplements the public school system either through new state-run
and federally funded centers, or through better subsidy and voucher
programs for private centers. One can look to the historical example of
childcare centers during World War II, when a complete system of state-
funded, professionally-run, on-site childcare was created in factories and
defense-related industries to support mothers in the work force. Funded
by the Lanham Act of 1941, by 1945, more than 1.5 million children
were served by such centers, “more than were all other types of day care
combined as late as 1974.”62
More subsidies for higher education: The high cost of college
education exerts downward pressure on fertility in two ways. High col-
lege costs increases the cost of children for parents. High college debt
restricts the disposable income of college graduates, decreasing their
ability to pay for having their own children. College debt causes young
adults to delay marriage, which delays childbearing and reduces births.63
At the same time, a college education is increasingly a necessity. The
earnings of high-school graduates are stagnant relative to college gradu-
ates and job opportunities are scarce for those without college as well.64
States can increase funding to their public college systems in order to
lower tuitions, and the federal government can increase grants and
subsi­dized loans. Proposals for tuition-free community colleges, where
manystudents benefit from programs tailored to their local economies,
are also potentially pro-natal.

Increasing the Benefits of Children

The difficulty of reconciling childcare, housework and paid work have
been articulated in thousands of research journal articles, newspapers,
news magazines and women’s magazines, as well as in hundreds of books
that try to inspire, help, lobby or just lament. The disutility of the work-
ing-parent dilemma is enormous. To add insult to injury, mothers are paid
less and are considered less capable than non-mothers.65 Fathers at least
get paid more and are regarded with more gravitas at work than non-
fathers, helping to make up for child-related effort they have put in.66 When
80 M. M. WAY

women have equal pay and equal status in the workforce, and men increase
their time dedicated to children and housework, fertility rates go up.67
Some of the policy measures that could accomplish this are the same
as the ones that lower the cost of children—paid parental leave instead of
unpaid maternity leave and universal day care. There are others as well.
Stronger gender equity legislation: Requiring equal pay for equal
work, and making it easier to sue employers for gender-based or moth-
er-based discrimination in the work force would not only lower the
pay gap, but would put employers on notice that cultural changes are
required, and could eventually raise the status of mothers in the work-
place. This could have the added benefit of making mothers and fathers
earnings more equal, which in turn, could increase the share of house-
work done by men, a social variable that has been found to be positively
related to fertility.68
Subsidies to employers for onsite day care: Simplifying day care
logistics and adding needed time to a working parent’s day—that they
can choose to use at work or at home—is a simple way to increase the
utility of parenting.
Afterschool and vacation programs for school-age children: Local
and state governments could enact programs, with support from federal
funding, to provide access to afterschool and vacation programs for all
children. These programs would cover the full work day and cover the
entire year. Some school districts have already lengthened the school day
to improve educational outcomes and support working parents. Patching
the holes in childcare could go a long way to making parenthood less of
a hassle (at best) or series of crisis management situations (at worst) and
making the decision to have another child an easier one.
A final policy suggestion, unrelated to the demand-for-children model
is to maintain current levels of immigration. This may be easier said than
done as the surplus of people resulting from high birth rates in Mexico,
for example, is declining as Mexico goes through its own demographic
transition. Economic improvement in countries across Latin America
and Asia lower the net benefit of immigrating to the United States. This
will require more welcoming immigration policies to attract potential
citizens from those areas, or from less developed countries in Africa. In
the 2020s and 2030s, US economic growth will still be predicated on
population growth, which implies it is depending on immigrants and on
births by the foreign born.
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 81

What if the Government Wanted to Discourage Fertility?

Instead of trying to promote more births, the government could make a
case for limiting fertility. New business and regulatory paradigms could
evolve in response to climate change and resource scarcity, requiring a
low-growth approach to the economy. If the US government wanted to
encourage lower fertility for environmental or any other reasons, then
it could continue on the path it is currently on—ensure that the work/
child tradeoff is very costly by not facilitating paid parental leave or uni-
versal day care; funnel state tax dollars away from subsidizing public col-
leges and universities so college is very costly; decrease federal grants and
scholarships for college; do nothing to reduce healthcare costs or make
coverage more universal; and increase the restrictions on immigration—
both legal and illegal—so that the below replacement fertility of native-
born Americans is not countered by higher-fertility immigrants. These
policy paths are not welfare improving, however, and they could harm
the economy in other ways—high prices for college mean we have fewer
college-educated citizens, and expensive healthcare leads to a less healthy
population. How to meet climate change challenges and still manage a
robust economy, with slowing population growth, requires more study
on the part of economists, environmental scientists, and demographers.

Conclusion
While the United States has benefited from relatively high fertility rates
throughout its history, the ongoing fertility decline resulting from
changing economic circumstances facing families could have serious
consequences. Especially as families see their children’s age of independ-
ence get older and older, measures will be needed to make parenthood,
and motherhood in particular, seem less like an onerous, expensive, and
professionally debilitating lifelong task, and more like a manageable,
socially-supported endeavor. Paid parental leave, universal childcare, and
increased subsidies for college education are a few policies—enacted at
the state or federal level—that would encourage families to grow. They
are also important channels for investments in children and their human
capital.
Whatever policies, or lack of policies, the United States pursues
regarding fertility, what is for sure is that children in the twenty-first
century require a lot of investments in their health and their education
82 M. M. WAY

in order to become the citizens that are needed to propel the economy
forward. The following chapter examines the choices parents and other
family members make to invest often scarce resources in their children,
and how government policy throughout the last century-and-a-half has
encouraged, required, provided and, for some populations, deliberately
prevented investments in children.

Notes
1. A country being below replacement level does not mean that the popula-
tion will immediately decline. Replacement level refers to the total fertil-
ity rate at which the population would remain stable from generation to
generation.
2. For a discussion of American “exceptionalism” in fertility, see Lesthaeghe
and Neidert, “The Second Demographic Transition in the United States:
Exception or Textbook Example?” Population and Development Review
32, no.4 (2006). European fertility data found in Eurostat Employment,
Social Affairs & Inclusion, “Demography Report” (Luxembourg:
European Union, 2015).
3. Robert E. Gallman, “Economic Growth and Structural Change in the
Long Nineteenth Century,” in The Cambridge Economic History of
the United States, ed. Stanley L. Engerman and Robert E. Gallman
(Cambridge, UK: University of Cambridge, 2000).
4. From Table 1.1 in Moses Abramovitz and Paul A. David, “American
Macroeconomic Growth in the Era of Knowledge-Based Progress: The
Long-Run Perspective,” in The Cambridge Economic History of the United
States, ed. Stanley L. Engerman and Robert E. Gallman (Cambridge,
UK: University of Cambridge, 2000).
5. GDP growth for 1986–2016 is author’s calculation from GDP data from
the Economic Research Division Federal Reserve Bank of St. Louis,
“Real GDP, Percent Change from Preceding Period, Annual,” ed.
Federal Reserve Bank of St. Louis Economic Research Division, Federal
Reserve Economic Data (2016).
6. R. Leet Don, “The Determinants of the Fertility Transition in Antebellum
Ohio,” The Journal of Economic History 36, no. 2 (1976); and Schapiro
Morton Owen, “Land Availability and Fertility in the United States,
1760–1870,” The Journal of Economic History 42, no. 3 (1982).
7. Michael R. Haines, “The Population of the United States, 1790–1920,”
in The Cambridge Economic History of the United States, Volume II:
The Long Nineteenth Century, ed. Stanley L. Engerman and Robert E.
Gallman (Cambridge, UK: Cambridge University Press, 2000).
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 83

8. Herbert S. Klein, A Population History of the United States (New York:

Cambridge University Press, 2004), 78.
9. Timothy W. Guinnane, “The Historical Fertility Transition: A Guide
for Economists,” Journal of Economic Literature 49, no. 3 (2011). Also
Table 4.3 in Haines, “The Population of the United States, 1790–1920.”
10. W. Elliot Brownlee and Mary M. Brownlee, Women in the American
Economy: A Documentary History, 1675 to 1929 (New Haven: Yale
University Press, 1976). Chapter 3.
11. From Chapter 4, Graph 4.15 in Klein, A Population History of the United
States.
12. An excellent reading that integrates fertility decisions with industrializa-
tion can be found in W. Elliot Brownlee, Dynamics of Ascent: A History of
the American Economy, 2nd ed. (New York: Knopf, 1979), 136–9.
13. Klein, A Population History of the United States. Chapter 3.
14. For a comprehensive documentary history of the black family, see Herbert
George Gutman, The Black Family in Slavery and Freedom, 1750–1925,
1st ed. (New York: Pantheon Books, 1976).
15. Stanley L. Engerman, “Slavery and Its Consequences for the South
in the Nineteenth Century,” in The Cambridge Economic History of the
United States, Vol. II, ed. Stanley L. Engerman and Robert E. Gallman
(Cambridge, UK: University of Cambridge, 2000), 344. Table 4.1 of
Haines, “The Population of the United States, 1790–1920,” 153.
16. From Table 4.3 of Haines, “The Population of the United States, 1790–
1920,” 163–66.
17. Engerman, “Slavery and Its Consequences for the South in the
Nineteenth Century,” 361.
18. See Chapters 6 and 7 in Roxanne Dunbar-Ortiz, An Indigenous Peoples’
History of the United States, Revisioning American History (Boston:
Beacon Press, 2014).
19. Pew Research Center, “Modern Immigration Wave Brings 59 Million to
U.S. Driving Population Growth and Change Through 2065: Views of
Immigration’s Impact on U.S. Society Mixed” (Washington, DC: Pew
Research Center, 2015).
20. World Bank: Data. “Fertility Rate (Total) Births Per Woman,” accessed
October 2017, https://data.worldbank.org/indicator/SP.DYN.TFRT.
IN/.
21. Ibid.
22. Gary S. Becker, “An Economic Analysis of Fertility,” in Demographic and
Economic Change in Developed Countries, a Conference of the Universities-
National Bureau Committee for Economic Research, ed. Universities-
National Bureau Committee for Economic Research (Princeton:
Princeton University Press, 1960).
84 M. M. WAY

23. Mark Lino et al., “Expenditures on Children by Families, 2015,” ed.

Center for Nutrition Policy and Promotion (Washington, DC: U.S.
Department of Agriculture, 2015).
24. There are several good studies documenting the impact on women’s earn-
ings in the short term and over the life cycle including Shelly Lundberg
and Elaina Rose, “Parenthood and the Earnings of Married Men and
Women,” Labour Economics 7, no. 6 (2000); Jane Waldfogel, “The Effect
of Children on Women’s Wages,” American Sociological Review 62, no.
2 (1997); Michelle J. Budig and Paula England, “The Wage Penalty for
Motherhood,” American Sociological Review 66, no. 2 (2001); and Sara
Cools, Simen Markussen, and Marte Strøm, “Children and Careers: How
Family Size Affects Parents’ Labor Market Outcomes in the Long Run,”
Demography 54, no. 5 (2017).
25. Lundberg and Rose, “Parenthood and the Earnings of Married Men and
Women”; Alexandra Killewald, “A Reconsideration of the Fatherhood
Premium: Marriage, Coresidence, Biology, and Fathers’ Wages,”
American Sociological Review 78, no. 1 (2013); and Melissa J. Hodges
and Michelle J. Budig, “Who Gets the Daddy Bonus? Organizational
Hegemonic Masculinity and the Impact of Fatherhood on Earnings,”
Gender and Society 24, no. 6 (2010).
26. Kathleen McGarry and Robert F. Schoeni, “Transfer Behavior Within
the Family: Results from the Asset and Health Dynamics Study,” The
Journals of Gerontology 52B (1997); Joseph G. Altonji, Fumio Hayashi,
and Laurence J. Kotlikoff, “Parental Altruism and Inter Vivos Transfers:
Theory and Evidence,” Journal of Political Economy 105, no. 6 (1997);
and Emily Wieners et al., “The Generational Structure of U.S. Families
and Their Intergenerational Transfers,” in Population Association of
America 2015 Annual Meeting (San Diego, CA, 2015).
27. Jason M. Lindo, “Are Children Really Inferior Goods? Evidence from
Displacement-Driven Income Shocks,” The Journal of Human Resources
45, no. 2 (2010).
28. Richard A. Easterlin, “On the Relation of Economic Factors to Recent
and Projected Fertility Changes,” Demography 3, no. 1 (1966).
29. Gary S. Becker and H. Gregg Lewis, “On the Interaction Between the
Quantity and Quality of Children,” Journal of Political Economy 81, no. 2
(1973).
30. The intellectual and academic rivalry between the Easterlin camp and the
Becker camp, and an explanation of how the two explanations for fertility
not rising with income complement each other is concisely explained in
Warren C. Sanderson, “On Two Schools of the Economics of Fertility,”
Population and Development Review 2, no. 3/4 (1976).
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 85

31. Steven Philip Kramer, The Other Population Crisis: What Governments

Can Do About Falling Birth Rates (Washington, DC: Woodrow Wilson
Center Press, 2013), 42–69, 111–29.
32. Technically, the other things parents are sacrificing in order to have chil-
dren are also part of the opportunity costs, so they would be included in
a model as a cost of children.
33. Anne H. Gauthier, “The Impact of Family Policies on Fertility in
Industrialized Countries: A Review of the Literature,” Population
Research and Policy Review 26, no. 3 (2007).
34. In the United States the concern has often centered on the impact of
welfare policies on increasing the fertility of the poor. Two papers in
this vein examine the EITC and AFCD: Reagan Baughman and Stacy
Dickert-Conlin, “Did Expanding the EITC Promote Motherhood?,”
The American Economic Review 93, no. 2 (2003); and Jeff Grogger and
Stephen G. Bronars, “The Effect of Welfare Payments on the Marriage
and Fertility Behavior of Unwed Mothers: Results from a Twins
Experiment,” Journal of Political Economy 109, no. 3 (2001). U.S. stud-
ies have also looked at tax benefits such as the personal exemption and
child deduction: see Leslie A. Whittington, James Alm, and H. Elizabeth
Peters, “Fertility and the Personal Exemption: Implicit Pronatalist Policy
in the United States,” The American Economic Review 80, no. 3 (1990);
and Richard Crump, Gopi Shah Goda, and Kevin J. Mumford, “Fertility
and the Personal Exemption: Comment,” The American Economic
Review 101, no. 4 (2011). A recent overview on the literature focusing
on European countries, more of which have pronatalist policies such
as child allowances and parental leave can be found in Gauthier, “The
Impact of Family Policies on Fertility in Industrialized Countries: A
Review of the Literature.”
35. Martha J. Bailey, “Reexamining the Impact of Family Planning Programs
on US Fertility: Evidence from the War on Poverty and the Early Years of
Title X,” American Economic Journal: Applied Economics 4, no. 2 (2012).
36. The Native American population reached its low of near 237,000 by
1900, although the total fertility rate at that time was around 7 children
per woman, according to research by Nancy Shoemaker, found in Klein,
A Population History of the United States, 159.
37. Guinnane, “The Historical Fertility Transition: A Guide for Economists.”
38. Avery M. Guest and Stewart E. Tolnay, “Children’s Roles and Fertility:
Late Nineteenth-Century United States,” Social Science History 7, no. 4
(1983).
39. Cristine A. Smith, Rebecca Paulson Stone, and Sarah Kahando, “A Model
of Women’s Educational Factors Related to Delaying Girls’ Marriage,”
International Review of Education 58, no. 4 (2012); and Gordon B.
86 M. M. WAY

Dahl, “Early Teen Marriage and Future Poverty,” Demography 47, no. 3
(2010).
40. James C. Mohr, Abortion in America: The Origins and Evolution of
National Policy (New York: Oxford University Press, 1979).
41. See Chapter 9 of ibid.
42. For a description of the evolution of contraceptive technology prior to the
Comstock Law of 1873, see Andrea Tone, Devices and Desires: A History
of Contraceptives in America, 1st ed. (New York: Hill and Wang, 2001).
43. See Chapter 4 in ibid. See also Martha J. Bailey, “Fifty Years of Family
Planning: New Evidence on the Long-Run Effects of Increasing Access
to Contraception,” Brookings Papers on Economic Activity. Spring (2013).
44. “Fifty Years of Family Planning: New Evidence on the Long-Run Effects
of Increasing Access to Contraception.”
45. “Reexamining the Impact of Family Planning Programs on US Fertility:
Evidence from the War on Poverty and the Early Years of Title X.”
46. Linda Gordon, The Moral Property of Women: A History of Birth Control
Politics in America (Baltimore: University of Illinois Press, 2007),
289–91.
47. For a good idea of the relative rate of immigrant fertility to native-born
fertility see Table A.3, in Richard A. Easterlin, “The American Baby
Boom in Historical Perspective,” American Economic Review 51, no. 5
(1961). Also see Table 1 in Peter R. Uhlenberg, “A Study of Cohort Life
Cycles: Cohorts of Native Born Massachusetts Women, 1830–1920,”
Population Studies 23, no. 3 (1969).
48. From Chapter 5 of Klein, A Population History of the United States, 162.
49. Ibid., 163–66.
50. U.S. Census Bureau, “Historical Statistics of the United States, Colonial
Times to 1970, Bicentennial Edition, Part 2,” ed. U.S. Census Bureau
(Washington, DC, 1975). Table: Series B 5–10.
51. Gustavo Lopez and Jynnah Radford, “Facts on U.S. Immigrants, 2015:
Statistical Portrait of the Foreign-Born Population in the United States,”
in Hispanic Trends, ed. Pew Research Center (Washington, DC: Pew
Research Center, 2017).
52. Antonio Flores, “Facts on U.S. Latinos, 2015: Statistical Portrait of
Hispanics in the United States,” in Hispanic Trends, ed. Pew Research
Center (Washington, DC: Pew Research Center, 2017).
53. Gretchen Livingston, “Births Outside of Marriage Decline for Immigrant
Women,” in Social & Demographic Trends, ed. Pew Research Center
(Washington, DC: Pew Research Center, 2016).
54. David Satterthwaite, “The Implications of Population Growth and
Urbanization for Climate Change,” Environment and Urbanization 21,
no. 2 (2009).
 3 THE PATH OF US FERTILITY: MICRO DECISIONS … 87

55. An excellent overview of the possible problems and potential mer-

its of population decline can be found in David Coleman and Robert
Rowthorn, “Who’s Afraid of Population Decline? A Critical Examination
of Its Consequences,” Population and Development Review 37 (2011).
See also Kramer, The Other Population Crisis: What Governments Can Do
About Falling Birth Rates for a discussion of the national security implica-
tions of population decline.
56. Bureau of Labor Statistics, “Employment Projections, Table 3.3 Civilian
Labor Force Participation Rate by Age, Sex, Race and Ethnicity.”
Retrieved from Washington, DC (2017), https://www.bls.gov/emp/
ep_table_303.htm.
57. Ron J. Lesthaeghe and Lisa Neidert, “The Second Demographic
Transition in the United States: Exception or Textbook Example?,”
Population and Development Review 32, no. 4 (2006).
58. The Other Population Crisis: What Governments Can Do About Falling
Birth Rates, 131–45.
59. Gauthier, “The Impact of Family Policies on Fertility in Industrialized
Countries: A Review of the Literature.”
60. Ajay Chaudry et al., “Paid Parental Leave,” in Cradle to Kindergarten, A
New Plan to Combat Inequality (New York: Russell Sage Foundation, 2017).
61. Ibid.
62. Stephanie Coontz, The Way We Never Were: American Families and the
Nostalgia Trap (New York, NY: Basic Books, 1992), 159–60.
63. Fenaba R. Addo, “Debt, Cohabitation, and Marriage in Young
Adulthood,” Demography 51, no. 5 (2014).
64. David Autor, “The Polarization of Job Opportunities in the U.S. Labor
Market,” in The Hamilton Project (Washington, DC: The Brookings
Institute, 2010).
65. Budig and England, “The Wage Penalty for Motherhood”; and Christian
Nsiah, Ron Debeaumont, and Annette Ryerson, “Motherhood and
Earnings: Wage Variability by Major Occupational Category and Earnings
Level,” Journal of Family and Economic Issues 34, no. 2 (2013).
66. Alexandra Killewald and Margaret Gough, “Does Specialization Explain
Marriage Penalties and Premiums?,” American Sociological Review 78,
no. 3 (2013); and Hodges and Budig, “Who Gets the Daddy Bonus?
Organizational Hegemonic Masculinity and the Impact of Fatherhood on
Earnings.”
67. See discussion of the three phases of women’s status in the economy and
society in James Feyrer, Bruce Sacerdote, and Ariel Dora Stern, “Will
the Stork Return to Europe and Japan? Understanding Fertility within
Developed Nations,” The Journal of Economic Perspectives 22, no. 3 (2008).
68. Ibid.
 CHAPTER 4

Private and Public Investments in Children:

Creating the Human Capital to Meet US
Economic Needs

Introduction
Human capital is not a term most parents use when thinking about
how they raise their children. It is a term that puts people squarely into
a market economy context and implies that investments—in prenatal
care, in healthcare, in nutrition, in education—are made because some-
one is seeking a return. Parents, however, make decisions about human
capital investments in in their children that have lifelong repercussions
not just for their kids, but for themselves. Even though they may not be
thinking in human-capital or return-on-investment terms per se, they are
weighing tradeoffs. The tradeoff, for example, between paying school or
college tuition and saving for retirement is one millions of parents make
each year. Parents acknowledge and accept that their retirement will be
delayed, or that their financial security in retirement will be decreased,
when they withhold or withdraw money from retirement investments in
order to invest in their child’s education. Implicitly, they are trading one
investment for another, giving over their own financial capital in return
for their child’s human capital.
But what is human capital specifically? Human capital refers to all the
knowledge, skills, and abilities that make a person a productive mem-
ber of society, in roles ranging from citizen to worker to parent. It starts
being formed in utero, during pregnancy, and continues being created
throughout a person’s life, through physical and social development,

© The Author(s) 2018 89

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_4
90 M. M. WAY

formal and informal learning, and experiences of all types. Human capital
does not just steadily increase, however. It can also be eroded by illness,
trauma, and lack of use.
When economists study human capital, it is usually in the context of
the labor market: healthier, better educated, and more experienced work-
ers make more productive workers, and labor force productivity is key
to economic output and growth. But the labor market is not the only
place where human capital is measured and studied for its effects on soci-
etal outcomes. Economists and other social scientists hold broad views of
what an educated mother, for example, adds to the economic potential
of a country through raising her children, or how failing schools affect
crime rates, or how untreated epidemics, such as occurred in the early
years of the HIV epidemic, wreck regional economies by making people
too sick to work, depleting human capital at the same time that they cre-
ate immeasurable human tragedy.
Families are the primary creators and transmitters of human capi-
tal, particularly what is termed non-specific human capital. Non-specific
human capital enhances a person’s ability to do all sorts of things.
Talking, reading, writing, understanding social cues, performing basic
math, washing clothes, cooking dinner, driving a car, being healthy
enough to go to work, being disciplined enough to show up on time,
and being strong enough to do physical labor—all these are examples of
the types of general abilities and skills that enable people to participate
productively in their families, workplaces, and communities. Most fami-
lies can foster all of these skills in their children.
Schools, public health systems, and employers are also responsible
for creating human capital. Pre-schools, primary, and high schools edu-
cate in the academic, social, vocational, and civic skills. Colleges build
advanced knowledge and abilities, including highly technical skills, and
prepare students for further professional and academic training. Public
health systems and healthcare providers help create healthy people and
by curing disease, they can prevent the loss of human capital relied on
by families, employers, and society. Employers give workers training
and the opportunity to gain experience in a particular job, which is vital
for productivity growth. Even the criminal justice system has a role in
human capital. When it is rehabilitative, it can create human capital and
restore its use to society, but when it is not concerned with preserving or
enhancing specific skills and general employability of the incarcerated, it
reduces society’s stock of human capital.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 91

The economics of funding investments in human capital—paying for

schools, colleges, healthcare, and workplace training—is complicated by
the positive externalities or spillover benefits that accrue from educated,
healthy citizens. It is not simply the individual person who benefits from
their own human capital through increased earnings, a better quality of
life, and perhaps enjoyment of their human capital for its own good.
Many other people also benefit from that person’s human capital as well.
An educated, healthy person is a boon to themselves and their families.
Their labor creates profits for employers. The individual pays taxes to
support their community, their state, and the country. They raise chil-
dren who are likely to be similarly healthy and educated. They provide
money and services on a voluntary basis to religious and community
organizations. Individuals who have a good stock of human capital are
more likely to vote and be active citizens. And the list goes on. The more
human capital an individual has, the less likely they are to impose par-
ticular costs on society—healthcare costs, criminal justice costs or welfare
costs. So the economic challenge is that while investments are made, or
not made, in a specific person, the benefits, or costs, that is, the returns
on investment, are dispersed across society. Individuals and families reap
some of the benefits of higher human capital investment, but through
the spillover benefits, society reaps benefits as well. Society also incurs
the spillover costs of investing too little in human capital.
The effects on the macroeconomy of human capital investments can
be dramatic as well. In her broad overview of US labor markets and their
importance to the twentieth-century US economy, economist Claudia
Goldin made clear that the increase in human capital in the 1900s had
similar impacts to the increase in physical capital had 100 years earlier.
“Human capital accumulation and technological change were to the twen-
tieth century what physical capital accumulation was to the nineteenth
century—they were engines of growth. From 1929 to 1982 human capital
formation accounted for almost 60 percent of all capital formation. The
increased human capital stock advanced per capita growth in the twentieth
century by more than any other single measurable factor.”1
For all the reasons above, public policy is actively involved in the cre-
ation of human capital outside the family—and sometimes even inside
the family through prenatal healthcare, nutrition programs, and educa-
tional initiatives promoting reading, for example. Without government
involvement, families alone would not invest at levels that are optimal
for society as a whole because they do not enjoy all the returns on their
92 M. M. WAY

investments, and they cannot afford to invest the way society needs them
to. So in modern societies, it has become a norm for the government to
step in and provide all sorts of human-capital-producing programs. This
chapter focuses on the most significant and often controversial of these
programs when it comes to families and public policy—education.
Education policies affect almost all families in the United States in
an intimate way. Children and young adults are among the groups most
directly affected by government intervention in their lives, given the
requirement to show up in a classroom more than 180 days per year,
for at least six hours each day. This intervention presents an enormous
opportunity for gifting children with abilities that will serve them and
society for the rest of their lives. But for all of the idealistic rhetoric sur-
rounding education, the objectives of public education policies have not
only been strictly human capital creation but also social and political
control. For over a hundred years, from 1875 to 1977, Native American
children were routinely taken from their parents and forced into board-
ing schools, or somewhat more benignly put into day schools, for the
purpose of assimilation, robbing them of their culture and their fam-
ily ties, and placing them in situations that were often abusive.2 More
innocent educational objectives often have other economic implications
and can be the source of fear on the part of families regarding real or
imagined ulterior motives in the government’s insistence that their chil-
dren show up for school. Most families, however, regard public edu-
cation as something they want for their children, even though it could
always arguably be better, more efficient, more tailored to a specific
child, or less costly in taxes.
This chapter begins with an overview of the role of education as the
US economy developed in the last century and a half. Then the discussion
turns to the economics of education, the factors affecting families’ decision-
making and optimal public funding for education. To understand how pub-
lic investments in education have evolved, the chapter then gives a brief
history of primary, secondary, and tertiary education, pointing out some
unique qualities of the US educational system, including three historical
education-related policies and their effects on family’s resource allocation:
property tax as the major source of local school funding, legislated segrega-
tion in the South prior to the 1960s, and the G.I. Bill which launched mas-
sive investments in higher education for veterans after World War II. Finally,
we will consider a few policies that have been proposed as ways to improve
US human capital—expanding preschool education, school vouchers as
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 93

a way of achieving school choice, and the availability of “free” community

college—looking particularly at how families might or might not change
their educational investments as a result of such policies.

Human Capital and Development

of the US Macro Economy

The evolution of the United States economy from an agrarian base in

the early 1800s, through industrialization in the later 1800s and early
1900s, the technological revolution of the later 1900s, and into the
knowledge-based economy of the early 2000s could not have hap-
pened without comprehensive education. For the most part, basic liter-
acy and numeracy education had been promoted in the United States
since the earliest days of the nation, with over 90% literacy among white
Americans in 1840, a high proportion when compared to England or
France, for example.3 The founding fathers appreciated education, rec-
ognized its importance for creating a vital nation, and even attempted
to use education to realize the democratic ideals of equality and mer-
it-based advancement, for white males. Even then, however, the question
of how to pay for primary education was contentious. In his autobiogra-
phy, Thomas Jefferson lamented the failure of the Virginia legislature to
ensure that primary school education would be funded by proportional
taxation across the commonwealth, leaving the decision up to the gen-
eral court in each county, because “this would throw on wealth the edu-
cation of the poor, and the justices, being generally of the more wealthy
class, were unwilling to incur that burden.”4 Thus began the long-
standing American tradition of battling over school funding.
In some cases, withholding education was part of an explicit economic
strategy, as in the early 1800s when in many locales, there were prohibi-
tions on teaching slaves to read, in order to make them more dependent
and less able to effect a successful escape. Maintaining the slave system
through a variety of strategies, of which preventing literacy was just one,
enabled northern industrialization by providing cheap cotton that made
textile exports competitive and provided an advantage for the US econ-
omy. After the Civil War, there was great resistance by southerners to
educating African Americans because of the potential negative effect on
the availability of cheap field labor. It is possible, however, that the econ-
omy of the South would have evolved and industrialized more quickly
94 M. M. WAY

with universal education, and the policy of withholding education from

the black population was one of several factors that delayed the develop-
ment of the southern economy.
Education was seen as a tool to develop other populations, however.
Schooling reforms and legislation in the mid-1800s targeted not just
literacy and numeracy skills but civic education, with the objective of
supporting social cohesion, particularly in immigrant-rich urban environ-
ments. This cohesion was a driving force in enabling the types of inter-
actions between workers, employers, entrepreneurs, and the community
that allowed a heterogeneous population to become an economic super-
power.5 Education of the urban poor and African Americans in the North
was designed to develop employable citizens who could be put to work in
semi-skilled labor and manufacturing environments. A rich higher educa-
tion environment produced the elite classes for government, law, science,
and business—although business success was sometimes still possible with
no more than a basic education as evidenced by the success of less-educated
business titans such as Andrew Carnegie and Cornelius Vanderbilt.
By 1900, the United States was a leader in public education, being
the first nation to enroll sizeable percentages of its young population in
post-primary schooling. “Americans invented the publicly funded, aca-
demic secondary school for the masses,” and according to Claudia Goldin,
this attention to education came from the realization that “post-literacy
training could make the ordinary office worker, bookkeeper, stenographer,
retail clerk, machinist, mechanic, shop-floor worker, and farmer more
productive, and that it could make the difference between an economic
leader and a laggard.”6 In addition to the rapid growth of high school
education contributing to US economic leadership in the early twen-
tieth century, some credit for the ongoing strength of the US economy
throughout that centure may be due to an expanding higher education
sector (see Fig. 4.1). The scientific-technical revolution of 1940–1970
made science and engineering education key to the productivity of agri-
culture, manufacturing, and medicine, as well as to government subsi-
dized defense and technology programs. Economic theory suggests that
with higher levels of human capital, investments, and advances in phys-
ical capital yield higher marginal output. There is also a role for educa-
tion in the diffusion of scientific and technological developments, a
theory tested by Robert Barro in a panel study of 100 countries across
the years 1965–1975, which showed a positive correlation of economic
growth rates with the average years of secondary or higher education
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 95

Fig. 4.1 Educational attainment of US population: 1940–2016 (Data source

US Census Bureau, Educational Attainment in the United States: 2016. Table
A-1 “Years of School Completed by People 25 Years and Over by Age and Sex:
Selected Years 1940–2016.” https://www.census.gov/data/tables/2016/
demo/education-attainment/cps-detailed-tables.html)

among adult males. This led Barro to offer the opinion that “since work-
ers with this educational background would be complementary with new
technologies, the results suggest an important role for the diffusion of
technology.”7
The contributions of education to growth went noted by economists
and policymakers worldwide. Primary and secondary education became
an international cause and a tool in development. There was broad
acceptance that it was not just the number of people, and their access to
capital such as tools and machinery that drove macroeconomic growth,
but the levels of technological development and education that deter-
mined a nation’s ability to reach competitive levels of productivity in the
world economy.8
96 M. M. WAY

In the late twentieth and early twenty-first centuries, concern turned

to the ability of the US educational system to keep up with the systems
of its economic allies and competitors. American children began con-
sistently showing up in the middle of the pack on standardized tests
of reading, math and science, when compared with other high-income
countries. Reports such as A Nation at Risk (1983), by the National
Commission on Excellence in Education, outlined needs for reforms
in the schools in order to maintain US economic, military, and politi-
cal leadership. The federal government inserted itself into education in a
way that it had not in the past, including establishing the Department of
Education in the late 1970s. It was generally understood that graduat-
ing more students from high school with educations that prepared them
for some post-secondary training or college was an important objective
for economic growth, and this involved not only improving schools, but
making it easier for families to invest in education beyond high school.
Programs to help low-income families pay for college, such as the Pell
Grant Program and the Federal Direct Student Loan Program, were
authorized by Congress in the 1960s, expanded in the 1970s, and con-
tinued into the 2010s.
Ensuring that US citizens are sufficiently educated is not something
that the government can do on its own, however. Families and children
themselves have a big say in how much education is acquired. Next, we
turn to the economics behind how families and governments decide how
much to invest in education. This can help us understand how we got
the educational system we have today, with its strengths and weaknesses,
and how it might be improved.

Private and Public Economic Decision-Making

and Education

The Family’s Investment

The choice of how much to invest in a child’s education is made, like
most family economic decisions, on the basis of costs, benefits, and
income constraints. There are two other factors, however, that have spe-
cial significance when analyzing decisions regarding how much of a fam-
ily’s limited resources are spent on their child’s education. The first is
the parents’ level of altruism toward their child, a concept introduced
in Chapter 2. Most investments that parents’ make in their children’s
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 97

education will not provide payoffs to the parents themselves, once a cer-
tain level of qualification for the labor market is reached and children can
support themselves. The return on additional investments in the number
of years a child is in school or on the quality of schooling will, for the
most part, accrue to the child, so parents’ level of altruism—how much
their child’s utility contributes to their own utility—matters a great deal.9
Of course, even non-altruistic parents could have status concerns—their
child’s degree and type of schooling might reflect on their own status.
Or the parent could expect something in exchange from their child, such
as money or some sort of support or services in the future. In this chap-
ter, however, we will assume that it is the parents’ altruism level that is a
significant determinant of educational investments, rather than status or
the expectation that the child will pay them back later.
The second factor is the parents’ and the child’s patience levels. In
human capital investments, as in most investments, realizing a return on
investment takes time. The monetary payoffs from education are very
long term, accruing in higher earnings over a lifetime, and they must
be weighed against costs, including earnings, sacrificed in the present.
Parents’ and children’s level of impatience—the discount rate—matters
because impatient, present-oriented people discount the benefit of
increased future earnings by a great deal when comparing them with the
costs of lost earnings and tuition money today, making them less likely
to opt for more education. Patient, future-oriented people have low dis-
count rates: they value future earnings more highly, so they are more
likely to invest in education, holding all else equal.
This is not to imply a value judgment on impatience. Life experience,
economic circumstances, illness, and education (or lack thereof) can
cause people to discount the future. For example, a child growing up
in a neighborhood with violence and high incarceration rates rates will
realistically assess that their likelihood of reaching adulthood, or reaching
it without being incarcerated, is relatively low and will therefore value
future payoffs much less than a child who grows up with little risk of vio-
lence, surrounded by successful adults. A teenager whose immigrant fam-
ily depends on their earnings for economic survival will logically value
their earnings today relatively more than a teenager from an economi-
cally secure family who does not need to work. The impatience level, or
discount rate, is something that can be affected by policy interventions
that address its underlying causes.
98 M. M. WAY

Another consideration is that not only do parents invest in education,

but children do as well, with their time, energy, effort, and attention.
This investment can be costlier for some children than others, depend-
ing not only on the child’s innate abilities but also on the conditions
under which they are expected to learn. Long travel times, poor facili-
ties, substandard materials, untreated learning disabilities, and unpleasant
teachers all make a child’s participation in their own education costlier to
them, and therefore less likely to occur, holding the benefits constant.
Costs, benefits, income constraints, altruism, and impatience are the
elements that policymakers could act on to increase (or decrease) fam-
ilies’ investments in education. To put this in more descriptive terms,
suppose that a parent and child are deciding if the child should stay in
school past the age of 16 and complete high school. They would com-
pare the money that the child could earn if they drop out, with the
money they could earn in the future with a high school diploma, keep-
ing in mind that an impatient parent or child will highly discount future
earnings. The sacrificed income today would be part of the cost of com-
pleting high school, but transportation, materials, and other school-re-
lated costs must be considered, as well as the psychic and emotional
costs to the child, particularly if they have to put in a lot of effort rel-
ative to other students, or if being in the school is particularly difficult
or unpleasant. They would also weigh the income constraints the family
faces—can they afford to keep the child out of the full-time labor force
and incur school costs? Finally, the parent’s altruism toward the child
would be expressed in their willingness (if they are able) to incur costs
and keep covering the child’s living expenses—their part of the rent,
food budget, utilities, and clothing, for example—in order for their child
to have higher earnings and greater economic wellbeing in the future.
Policies could affect the above scenario in several ways. The schools
could institute retention programs that fully explain the benefits in earn-
ings over the lifetime for workers with high school diplomas versus high
school dropouts, to make sure the family is making an informed deci-
sion. On the more draconian side, the state could raise the legal age
for working full-time or during school hours to 18, thus lowering the
amount the child is sacrificing in earnings and lowering the opportunity
cost of another year of school. The school could provide free transpor-
tation, waive fees, and provide free lunches, to encourage more school-
ing in low-income families, or even offer free meals regardless of income
level, reducing the direct cost of school and providing an extra benefit.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 99

If dire economic circumstances for the family make them impatient for
earnings, special government benefits for students who are seniors in
high school and at danger of dropping out could be created. This would
affect the income constraint as well, making the decision to stay in school
less daunting. If impatience is resulting also from a sense of hopeless-
ness due to a troubled neighborhood, interventions that expose the child
to experiences and work possibilities outside their neighborhood could
help. Finally, perhaps the most difficult variable, the parents’ altruism,
could be overridden by simply by taking that draconian step mentioned
above of raising the compulsory school age to 18 and taking the decision
to continue in school out of the parents’ hands.
Most of these policy interventions have been enacted at some point in
the United States or in other countries. But how does a community, or a
state, or a country decide how much money to put into these programs
and what non-monetary incentives to impose on or provide to families
and students themselves? What economic principles guide the allocation
of scarce tax dollars to education and inform broader social policies?

The Public’s Investment

Our analysis will be clarified if we begin with an assumption that public
policy is enacted by rational and forward-looking public servants who are
trying to maximize public welfare. Even if policymakers have few or no
paternalistic motives, in other words, they are not interested in imposing
policies on individuals or even entire families “for their own good,” pol-
icymakers’ role as stewards of community well-being together with eco-
nomic reasoning suggest that they should assess the value of the spillover
benefits that come from an educated populace. These potentially include:
increased tax dollars, more business activity, increased employment,
decreased criminal justice costs, decreased healthcare costs, decreased
welfare costs, and more attractive communities with higher real-estate
values, better run community institutions such as churches, community
groups, and sports programs. They may discount some of these returns
because the benefits will come in the future and education dollars must
be spent today, but they should compare the future discounted benefits
with the current costs of the educational investment. The principle they
would use is to invest up to the point that the marginal dollars, or the
extra dollars spent on the last teacher hired, or the last computer in the
lab, or the last hour of after-school programming equals the marginal
dollars of return on these investments to the community.
100 M. M. WAY

One problem faced by policymakers in the United States is that local

funding and control of schools means that many of the benefits of edu-
cation spending may not accrue to the community in which children live
and go to school. A town’s school board may not consider benefits that
spill over to other communities or the larger society, such as advances in
technology, science, business practices, and state-level or international
competitiveness benefits that come from education. Taxes get paid not
just locally, but at the state and federal level, so tax revenue benefits
are spread across government jurisdictions. Savings in criminal justice,
healthcare, and welfare diffuse in a similar way. The United States also
has a highly mobile population, so some of a community’s investments in
human capital may just up and walk away.
Now add to this complexity the reality that education policy is
enacted by people who are voted into office, either directly, or indirectly
when they are appointed and managed by elected officials. Voters’ (and
taxpayers’) opinions always are in play, and thus the public investment
decision depends upon individual voters’ analyses of the value of educa-
tion, the return they may personally recognize, their altruism toward the
children in the community and their own income constraints which may
make it hard for them to pay a higher tax bill. Primary and secondary
education financing is extremely complex because the costs are concen-
trated and the benefits are widespread. Just like with parents investing
in their children, if only local communities invested in education, they
would not invest enough because they do not reap all the benefits.
With higher education the situation is similar, but there is far less
public financing of higher education both in dollars and in proportion
to private funding. For primary and secondary education, families and
other private entities spend around six cents for every dollar spent by the
public sector, and this ratio is similar in other high- and middle-income
countries (see Fig. 4.2). In higher education, on the other hand, families
and private entities (private scholarship foundations, for example) spend
$1.60 for every dollar spent by the public sector. While some coun-
tries have similar ratios, this is very high compared to the U.K. ($0.80),
Canada ($0.75), France ($0.36), and Germany ($0.20). Considering all
the benefits to society of having highly educated citizens, public sector
investments in the United States are relatively low compared to other
high-income countries.10 Part of the reason for this underinvestment lies
in the highly decentralized educational system that has evolved in the
United States.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 101

Fig. 4.2 Ratio of private to public educational expenditures: 2013 (Data source
Author’s calculations from Digest of Education Statistics 2016, Table 605.20
“Public and private direct expenditures on education institutions as a percent-
age of gross domestic product, by level of education and country: Selected years,
2005 through 2013,” National Center of Education Statistics. https://nces.
ed.gov/programs/digest/d16/tables/dt16_605.20.asp)

Evolution of the US Education System

Primary and Secondary Schooling

In the mid-1800s, the district school model that had been prevalent in
the United States back to colonial times—with its one-room school-
houses, instruction based on an individual’s recitation of lessons and
varied funding methods including fees paid by families—started giving
way to the common school movement, particularly in urban areas. The
common school movement was not established by policymakers from
above. Its principles were adopted gradually by many communities strug-
gling with the inadequacies of district schools, and in places where those
inadequacies were not recognized, particularly remote and rural areas,
change came slowly. Common schools set an objective of getting all chil-
dren into school, particularly those in the cities, and providing all-public
102 M. M. WAY

funding to obviate the need for fees. Common schools intended for chil-
dren to study a common academic curriculum based on grade levels, and
the movement sought to bring middle- and upper-class children, who
were often privately tutored, into contact with newer and poorer mem-
bers of US society by changing the economics of schooling. The proper-
ty-tax-based model meant better-off families were required to pay taxes,
receiving “free” education for their children in return, but also contribut-
ing to the education of the less well-off. In addition to academic subjects,
or perhaps even more important than academic subjects, the common
schools attempted to instill a common set of values, ethics, and morals
in American children, and to instruct them in such a way that they would
avoid vice and prefer virtue, with one of the chief vices being idleness and
one of the chief virtues being submission to authority. It was thought that
the social problems evident in urban slums could be corrected by edu-
cating the children who lived in them. This was thought to be a cheaper
and less politically controversial objective than addressing such problems
directly, especially given that the poverty causing social problems resulted
mainly from the rapid pace of industrialization and the expansion of the
market economy. Manufacturers needed a growing supply of workers
who would submit readily to supervision, and while, perhaps, uneducated
adults would find it hard to adapt to the factory, their children, with some
schooling, might arrive in a more “factory-ready” frame of mind.11
The common schools were moderately successful, evidenced by the
fact that in 1910, the median years of schooling for people ages 25 and
older were 8 years, across the entire population.12 This rate was not bad
at the time and was higher than most other countries, but left a lot of
room for improvement. The common schools never achieved, however,
the social reforms they claimed they could accomplish. The pattern of
attempting to solve social problems with educational fixes was set, how-
ever, and since then, schools in poor and urban areas have been consist-
ently tasked with overcoming problems of poverty, family dissolution,
high crime rates, immigrant assimilation, and racial divisions often in
locations and with budgets that make it difficult to attract teachers and
other needed personnel.
The high school movement grew out of the relative success, such as
it was, of common schools, offering a way for the middle class to dif-
ferentiate their children from the masses. Before compulsory e­ ducation
laws, the common schools had to convince poor and immigrant pop-
ulations to send their children to free primary schools, forgoing
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 103

potential income. To do this, school promoters touted the economic

benefits of education, and social mobility was one of the promised out-
comes that was much desired by immigrants in particular. But social
mobility for the lowest classes meant that the middle classes expected
their children to move up the socioeconomic ladder as well, or at least
not to be lumped together with the poor and immigrants. The desire for
educational differentiation led to the development of a public second-
ary school system, not required by state-level compulsory schooling laws
until the mid-twentieth century.13
At the turn of the twentieth century, secondary schools started gain-
ing importance, but the purposes and curriculum of high schools were
diverse and continued to be throughout the century. As high school
became a more expected part of children’s education, differentiation
between college preparatory and vocational schools provided the status
that middle-class families desired, particularly in urban areas. In 1910,
less than 10% of 17-year olds were high school graduates, but this per-
centage jumped considerably in the next 30 years and on the eve of
World War II over 50% of 17-year olds, and almost 30% of the overall
population had a high school diploma (see Fig. 4.1).14 While the cited
educational statistics used age 17 as a point of comparison over time, this
may understate high school completion rates given that some students
complete high school at age 18.
By the end of the twentieth century, high school attendance (though
not graduation) was basically compulsory for all students—most states
had raised the age at which a student could leave school to 16 or
higher—but that did not mean that high school graduation was univer-
sal. Graduation rates increased from 50% to near 80% in the late 1960s
before declining, only reaching the late 1960s levels again in 2011.
These numbers varied across racial and ethnic groups, with the 2011
white rate at 94%, the 2011 rate for black students at 88%, and the
increasing Latino population graduating 72% of young people.15

Schooling in the Segregated South

During Reconstruction, the common school reform movement of the
North moved south, to a decimated region with meager funding for edu-
cation, mostly through state-level property taxes. With the ­poorest, high-
est fertility, and most geographically dispersed rural populations in the
United States, southern education lagged far behind the North, especially
104 M. M. WAY

for the black population. Mandated segregation made education more

expensive, with the need for white and black schools reducing econo-
mies of scale in schooling. Southern whites viewed the models imposed
on them by the North as invasive and disruptive, especially given Yankee
educators’ initial attempts to treat black children the same as whites.
While the original goal of the federal government was equal education for
the races, that was never realized and by the 1900s that goal was overtly
abandoned as Jim Crow took hold. Later educational reforms resulted
in most funding being funneled to white schools. It was officially deter-
mined that facilities and materials would be highly unequal in the still
agrarian South, justified by the belief—or determination—that the types
of jobs blacks should be preparing for did not require much education in
any case.16
That did not mean that the United States government was com-
pletely indifferent to black education, even though it had retreated from
its post-Civil War oversight of fair treatment for ex-slaves and had aban-
doned Reconstruction. A report from the Department of the Interior in
1916 acknowledged the dismal situation of public schooling for blacks.
In the 16 southern states and the District of Columbia, public teacher
salaries per child were $10.32 per year for white children and $2.89 for
black.17 White illiteracy was at 8% while black illiteracy ran at 33%.18
The report gave some explanations for why, between both public and
private schools, only 58% of black children between the ages of 6 and
14 attended school, even during the extremely short school “year.”
According to a rural white southern school superintendent:

I never visit one of these [Negro] [sic] schools without feeling that we are
wasting a large part of this money and are neglecting a great opportunity.
The Negro schoolhouses are miserable beyond all description. They are
usually without comfort, equipment, proper lighting or sanitation. Nearly
all of the Negroes of school age are crowded into these miserable struc-
tures during the short term which the school runs. Most of the teachers
are absolutely untrained and have been given certificates by the county
board, not because they have passed certification, but because it is neces-
sary to have some kind of a Negro teacher. Among the Negro rural schools
which I have visited, I have found only one in which the highest class knew
the multiplication table.19

Some black families sought private education for their children at

mission schools, Catholic parochial schools, and schools founded and
funded by black educational and philanthropic organizations in the
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 105

North, which contributed heavily to private education opportunities

for blacks. But the overwhelmingly low probabilities of benefiting from
an education in the Jim Crow South made even low costs too high a
tradeoff for many black families and their children, and low school
attendance rates reflected this.
The 1954 Supreme Court Decision, Brown v. Board of Education, and
the Civil Rights Act of 1964 led to the end of legal support for many Jim
Crow laws and eventually to some degree of school desegregation and
a very gradual re-alignment of funding. School desegregation was man-
dated in the North too, in some areas, but the busing required to bring
it about was not considered a wholesale success. As in the South, many
white families in the North moved to less racially diverse communities
or sent their children to private schools, leaving urban schools highly
racially segregated. Despite that, desegregation led to gains in educa-
tional attainment, earnings, and health and lowered rates of incarceration
for African Americans.20
In the North, de facto racial and socioeconomic segregation resulted
from segregated housing (due in part to de jure local, state and federal
discriminatory housing policies), particularly as the suburbs became res-
idential destinations for the middle- and upper-middle class. Continued
reliance on local property tax funding for schools resulted in inequi-
ties in school quality. These inequities led to differences in skills, high
school graduation rates, and college attendance based on race and
income level. In the early 1960s, around 43% of whites over the age of
25 had graduated from high school, while only 22% of blacks had.21 By
2016, however, both whites and blacks had greatly increased their high
school graduation rates, and the racial gap had decreased significantly
(see Fig. 4.3).
Attendance at college preparatory high schools versus vocational high
schools also differed significantly by race, with white and higher-income
students far more likely to be on the college track. Secondary schools
were full participants in the vicious cycle of segregation in the United
States, taking students already segregated in childhood by income and
race, moving them through segregated vocational or college prep tracks,
and depositing them into the segregated workforce with highly unequal
lifetime earnings prospects. The reasoning for segregated programs was
often practical—children’s primary school preparation, home environ-
ments, parental expectations, income levels, or job prospects in their
communities made college an unattainable or impractical choice—but
106 M. M. WAY

Fig. 4.3 Educational attainment of population ages 25–29 by race, ethnic

group: 2016 (Data source US Census Bureau, Educational Attainment in the
United States: 2016, Table 1. “Educational Attainment in the United States:
2016.” https://www.census.gov/data/tables/2016/demo/education-attain-
ment/cps-detailed-tables.html)

the result represented a societal injustice nonetheless. In the late 1900s,

efforts were made to correct racial and economic disparities and over-
come some of the obstacles to high-school graduation and college
attendance that faced many children. Figure 4.3 shows educational
attainment by race for the cohort born between 1987 and 1991, reflect-
ing the persistence of racial differences in education.

Late Twentieth Century Reforms

At the same time, there was increasing concern with the performance of
US schools and school children, and the differences between children
of different states. The common school movement had given way to
progressive reforms in the early twentieth century. Reform had pushed
schooling to the more social and civic education end of the spectrum,
with an emphasis on softer, less academic skills. Starting in the 1950s,
a back-to-basics movement began, backed by the federal government,
which emphasized hard academics over the soft skills of personal devel-
opment and community building. In part as a reaction to the Soviet
Union’s launch of Sputnik in 1957, the federal government asserted
itself in developing standards, testing, and assessing the nation’s children,
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 107

through programs such as the National Defense Education Act in 1958

and the National Educational Assessment Program, developed in the
1960s and continuing through today. Head Start, an early childhood
education program for low-income children was launched as part of
Lyndon Baines Johnson’s “War on Poverty” program, initiated in the
mid-1960s. The establishment of the Department of Education in 1979
and its elevation to a cabinet-level position in 1980 made clear that the
federal government was claiming a role in the nation’s diverse educa-
tional systems. This led to a series of presidential proposals and acts such
as “America 2000: An Education Strategy” (President George H. W.
Bush, 1991, never enacted by Congress), “Goals 2000: Educate America
Act” (President Bill Clinton, 1994), “No Child Left Behind Act”
(President George W. Bush, 2001), and the “Race to the Top” grant
program (President Barak Obama, funded under the American Recovery
and Reinvestment Act of 2009). Those were just a few of the federal pro-
grams that attempted to maintain the United States’ leading educational
and economic position in the last century.22
In addition to attempting to improve the quality of education, in an
era when increasing human capital was imperative, a more basic chal-
lenge for government officials at all levels was still how to get parents
to send their children to school (and get children to stay there) through
high school graduation at least, and how to make them acquiesce to the
type of schooling the powers-that-be determined their children should
have in a highly diverse nation. This is still the challenge, and still the
focus of high stakes battles over where and how children are schooled.
Many parents want more control and choice in their children’s educa-
tion, to the extent that in 2012, 1.8 million children were homeschooled
in the United States, representing 3.4% of the school-age population, an
increase from 1.7% in 1999.23

Higher Education
College was the domain of the male elite throughout the 1800s. Most
early American colleges were oriented toward a classical education, but
in the mid-to-late-1800s, the curriculum started to shift to a more prac-
tical technical and scientific approach. This is not to say that there was
a wholesale change. American higher education was and continues to
be varied in its forms, purposes, and methods. Educational reformers,
however, recognized that science and engineering were key subjects in
108 M. M. WAY

an industrializing economy, and that the methods of science could be

applied to other disciplines. “Future leaders had to be introduced in the
university to a method of problem solving which could be applied to
political, economic and social issues they would encounter after gradua-
tion. For this, the methods of scientific research were ideal.”24
While primary and secondary education were local public sector issues,
higher education was largely privately funded from donors and tuition rev-
enue until the federal government signaled its intentions for the univer-
sity system with the Morrill Act of 1862. This act deeded federal land to
the states for sale, the proceeds from which would support public colleges
that would teach students advanced agricultural and mechanical sciences
and engineering. Some of the original land-grant universities included
Cornell, Ohio State, Purdue, and the University of Connecticut. Under
the expanded act Morrill Act of 1890—targeted at states that had been
in rebellion when the first act was signed—southern states had to demon-
strate equal access to their land grant schools for African Americans, or
establish separate institutions of higher education for them. From that
provision, historically black land-grant universities, such as Langston,
Tuskegee, and Florida A&M were founded for agricultural and technical
education. State control of the land-grant universities was maintained, and
states expanded higher education systems throughout the late 1800s.
Higher education rates increased steadily through the twentieth
century. In 1890, about 15,500 bachelor’s degrees were awarded,
with around 2700 of those going to women. By 1940, the number
increased to 186,000, of which 77,000 went to women, a jump in per-
centage terms from less than 20% to more than 40%. Ten years later, in
part due to the educational benefits of the post-World War II G.I. Bill,
the degrees granted swelled to 432,000, about three-quarters of those
degrees going to men, as returning soldiers filled the classrooms.25 By
2015, 1.8 million bachelor’s degrees and 1.0 million associate’s degrees
were awarded, but by this time, the majority of degree earners were
women, reflecting changes in women’s status and participation in the
labor force. Those changes will be a focus of the next chapter.
The diversity of college institutions remained, with college students
served by state-funded colleges and universities, private colleges, and
universities—both religious and secular—and public and private military
colleges. Given the tuition rates of private colleges, however, as demand
for college increased in the 1950s and 1960s, state-sponsored university
and college programs grew. Enrollment at public versus private four-year
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 109

colleges increased from around 50% of the college population in the

1930s to around 80% in the 1990s. Enrollment in two-year programs,
mostly through community colleges, was growing at the same time.
While private institutions of higher education were overwhelmingly non-
profit in the twentieth century, by 2015, for-profit institutions grew to
enroll about 25% of all private college students, accounting for 19% of
private bachelor’s degrees.
Also awarded in 2015 were 769,000 master’s degrees and 180,000
doctoral degrees, up from 58 thousand and six thousand respectively in
1950, a much higher than proportional increase in relation to the num-
ber of bachelor’s degrees conferred.26 The increase in graduate educa-
tion had several causes. One was the scaling effect of having so many
more college graduates, making a college degree less of a human capital
or labor market differentiator and motivating more students to complete
advanced degrees. Second was the need for more academics to educate
the swelling ranks of college students. Third, and probably most impor-
tantly, were the rapid developments in science and technology and the
demand for more graduates with advanced degrees to participate in these
fields. The years of the highest rate of increase in graduate degrees were
the 1960s and 1970s, following the 1958 National Defense Education
Act. The Act provided funding at all levels of education to increase the
numbers of qualified defense-oriented workers in science, engineer-
ing, foreign languages, and area-specific studies, and followed increas-
ing national interest in science and technology inspired by the space
program. The addition of two or more years of graduate education to
overall educational investments increased both the direct costs and
opportunity costs of completing an education. The 15-fold increase in
advanced degrees over the second half of the twentieth century indicates
that for many people the benefits made these costs worthwhile; by the
early 2000s, more affluent families began factoring the cost of graduate
education into the cost of having a child.

Past Policies and Family Educational Investments

Local funding and control, segregation, and the G.I. Bill were all men-
tioned in the previous section because they were important to the devel-
opment of the US educational system. This section examines how family
economics were affected by those policies and how families responded by
increasing or decreasing their educational investments as a result.
110 M. M. WAY

Local Funding and Control in K-12 Education—

Creating Disparate and Unequal Benefits of Education
In his book The Fight for Local Control: Schools, Suburbs and American
Democracy, Campbell Scribner described the long tradition of local
school funding and management as “the nation’s most direct form of
democracy,” albeit one that resulted in highly imperfect outcomes for
many students, and provided cover for blatant racism and elitism.27
Even as compulsory schooling laws were passed at the state level start-
ing in the late 1800s, control of curriculum, teacher hiring, and budgets
remained at the local level, and financing for education relied heavily on
local property taxes. In 1890, 80% of funding for primary and second-
ary schools was local, with 20% at the state level. The first time that fed-
eral funds provided even one percent of funding was in the 1930s (see
Fig. 4.4).28 Claudia Goldin described the system of local funding in an
article entitled “The Human-Capital Century and American Leadership:
Virtues of the Past,” as a past virtue and present vice. “The system of
small, fiscally independent districts dependent on property taxes and
competing for residents may foster educational investments if there are
wide differences in tastes and when enrollments are low. But it may also
produce large differences in funding.”29 This type of funding combined
with the local control that it encouraged led to extreme disparities in
educational resources and quality, within and between states.
State-level educational reforms starting in the 1930s were accompa-
nied by rapidly increasing funding from state coffers, providing leverage
to influence local school districts to conform curriculum to state stand-
ards, hire professional teachers, and adhere to civil rights regulations (see
Fig. 4.4). By 1990, state and local funding each accounted for over 45%
of school funding, with federal funds providing less than 10%, but this
average hid great variation at the state level. For example, in 1995, local
funding in Massachusetts still accounted for about 56% of primary and
secondary school funding with 36% contributed by the state, whereas
in Michigan those proportions were reversed with 25% local and 67%
state funding following a funding reform measure.30 Measures to equal-
ize spending per student often had perverse consequences, often causing
average per student funding to decrease statewide, and creating disincen-
tives for localities to increase property tax revenue.
The basic principle of local control over school curriculum and fund-
ing has persisted, even while states and the federal government have
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 111

Fig. 4.4 Revenues per student by local, state and federal sources: 1920–2014
(Data source Digest of Education Statistics 2016, Table 235.10 “Revenues for
public elementary and secondary schools, by source of funds: Selected years,
1919–1920 through 2013–2014,” National Center of Education Statistics.
https://nces.ed.gov/programs/digest/d16/tables/dt16_235.10.asp)

increased—or attempted to increase—their influence. What has this

meant for family educational investments? One result of this system is
that for many families living in poorer localities, or in better-off localities
where the community does not support school tax initiatives, the bene-
fits of education are low relative to higher-income localities with strong
public support. While states can and do compensate, to varying degrees,
for lower property tax collections in low-income areas, poorer communi-
ties generally have to do more in their schools with less. Capital expendi-
tures are lower, resulting in lower quality school facilities and equipment.
Low-income children may be facing hunger, increased stress, and other
factors that make learning difficult and require extra support. It is more
difficult to attract high quality teachers to poorer school districts. And
while less funding does not necessarily result in worse educational out-
comes, the correlation between low income, low test scores, and high
school dropout rates is high, meaning that the benefits of the time spent
in the classroom are lower in low-income areas.31 Economics suggests
that low benefits from education flowing from low community invest-
ment rationally result in lower personal or familial investments in edu-
cation, whether they are investments of time, effort, or money. This is
112 M. M. WAY

true for children as well as their parents, particularly as they get older and
understand better what their particular high school diploma does and
does not mean for their future prospects in the job market or college.
Another result of low local government investment in education
is further voluntary and involuntary segregation. The mobility of the
American family leads to families migrating to access better educa-
tion systems for their children. The quality of the school system is one
of the primary factors considered in housing decisions for families with
children.32 In elite communities, the ability to raise revenue due to high
property values, combined with a highly educated population, creates an
effective combination of resources, public support, and positive educa-
tional spillovers. Expectations for school facilities, teachers, and students
are high. Parental involvement is above average.33 Conditions are fertile
for highly successful public schools, and there is a positive selection effect
of upper-middle-class families investing in their children’s educations by
purchasing homes in those communities, and of high-quality teachers
seeking those locales out for employment, and for raising their own fam-
ilies. Resistance in wealthy communities is high to measures that could
cut into local control, and to any intrusion by lower income populations
through affordable housing, for example, or even non-discriminatory
real-estate zoning and sales.34 The result is that schools are increas-
ingly segregated, even following the desegregation efforts of the 1960s
and 1970s. In 1988, 32% of black children went to schools that were
90–100% majority black. By 2000, that number had increased to 40%.35
Latino students are the most segregated, with the average racial compo-
sition of a Latino student’s school including 54% Latino, 12% black, 28%
white, and 6% other, while Latino students only comprise around 16% of
the US student population.36
The tradition of local control tailoring education to the wants and
needs of a local community, which may have originally been based on
democratic ideals, seems anachronistic today. In our highly networked
and mobile society, primary and secondary secondary education provided
in one community spills over to other communities. The inefficiencies
inherent in localized school control, particularly when it perpetuates
segregation, poverty, and persistent inequality, seems hard to justify on
economic efficiency grounds. On a macroeconomic level, the costs of
poorly educated children unable to reach their potential may be enor-
mous. Experiencing another human-capital century will likely be possible
only if at least some of the worst educational disparities are overcome.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 113

However, overturning the local, property-tax-based system would

require a political and educational revolution that could force many
whiter, richer constituencies to sacrifice their privilege, perhaps sending
even more of these families into the private school system. But while
identifying and implementing state or federal-level controls over educa-
tion that would reduce inequality would not be easy, a shift of control
to higher levels of government would at the very least reduce funding
inequalities. At the same time, shifting to more state or federal control
and funding would likely reduce education-related migration of families
seeking better schools, particularly within-states. The result may be less
segregation and more equal schools, with benefits accruing to millions of
students and their families.37

De Jure Segregation—Intentional Reduction

of the Payoff to Education for African Americans
In a description of Monroe, Louisiana, in the 1920s, by Isabel Wilkerson
(in her book on the Great Migration The Warmth of Other Suns), there is
a poignant description of the realities of legal segregation.

Every few years, a teacher from Monroe Colored High loaded a band of
students onto the flat bed of a pickup truck and rattled across the Missouri
Pacific Railway tracks. They passed the rich people’s porticos and pulled up
to the back entrance of the white high school in town. The boys jumped
out and began stacking the truck bed with the books the white school was
throwing away. That is how Monroe Colored High School got its books.
The boys loaded the truck with old geography and English texts, some
without covers and with pages torn out and love notes scrawled in the
margins, and headed back to their side of town.38

The outcomes of segregation for African–Americans in the South have

already been described. The years of separate but unequal schools for
blacks had taken an enormous toll, essentially stealing economic oppor-
tunity and potential, not to mention self-worth and dignity, from mil-
lions of African American children. This toll was intentionally imposed.
Educational segregation was not just the result of a disdain for black
people, resulting from prejudice or antipathy. It was a part of a polit-
ically organized economic system and an adaptation by whites to the
loss of the enslaved class. During Reconstruction, Major General Carl
114 M. M. WAY

Schurz, an official of the post-war Bureau of Refugees, Freedman and

Abandoned Lands (known as the Freedmen’s Bureau), reported to the
Senate the many arguments against public schooling for the children of
newly-emancipated African Americans. This included a comment he fre-
quently heard that “learning would spoil the n— for work.” The report
included reference to a letter from citizens of Vicksburg, Mississippi,
respectfully asking “that no freedman schools be established under the
auspices of the Bureau, as it would tend to disturb the present labor
system, and take from the field labor that is so necessary to restore the
wealth of the State.”39
Major General Schurz concluded in his Senate testimony that “The
consequence of the prejudice prevailing in the southern States is that
colored schools can be established and carried on with safety only under
the protection of our military forces, and that where the latter are with-
drawn the former have to go with them. There may be a few localities
forming exceptions, but their number is certainly very small.” Almost
one hundred years later, eighty years after the federal government left
the South and ended Reconstruction, images of the National Guard
­providing protection to the Little Rock Nine in desegregating a single
Arkansas high school in 1957 demonstrated astonishingly slow progress
in the near-century since Schurz’s Reconstruction-era observation.
The withholding of education from blacks to maintain their status
as cheap field labor resulted in a transfer of education funds to whites,
improving their schools. This meant there was a transfer of the bene-
fits in income and wealth that result from investments in human capi-
tal from blacks to whites as well. (Current day exceptions to compulsory
schooling and labor laws for children working in agriculture, who are
overwhelmingly Hispanic, have exactly the same result.) The segregated
schools and the under-provisioning of public education to blacks resulted
in persistently large gaps in black and white literacy and educational
attainment, contributing to perpetuation of the occupational segregation
of the slave era.
For black and white families, the economics of the educational invest-
ment decision were completely different. Benefits, both in the quality of
schooling and the labor market reward for schooling, were much lower
for blacks than whites. The costs of schooling were higher for blacks as
well. Separate but not equal meant longer walks to school, poorer facili-
ties, and equipment, black teachers who did not have access to the same
level of training provided to white teachers, and crowded classrooms.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 115

A few families found ways to send their children to private schools, but
the income constraints were tight on southern blacks. The life circum-
stances associated with poverty (which segregated schools helped main-
tain), including early marriage and pregnancy, naturally increased black
families’ and children’s impatience for earnings. The only educational
investment factor not directly affected by segregated schools was parental
altruism.
The logical result was less educational investment by African American
families and children—evidenced by fewer years of school attendance—
compounding the effects of less investment by the state. In 1950, among
the southern population, 31% of white adults aged 25 and older were
high school graduates, versus nine percent of black adults.40 Black illit-
eracy rates in the South in 1950 were around 10%, versus white rates
of about three percent.41 In this case, legislated segregation and pub-
lic underinvestment in black education severely curtailed human capital
accumulation, and given the importance of human capital to economic
growth in the twentieth century, curtailed development of the economy
of the South.42

The G.I. Bill—Lowering the Costs of Education for Veterans

The educational subsidies enacted in 1944 under the Servicemen’s
Readjustment Act, or the G.I. Bill, represented the biggest federal inter-
vention in higher higher education policy since the Morrill Acts in the
1800s had funded land-grant colleges. Enacted for the purpose of rein-
tegrating soldiers after World War II and providing a measure of thanks
for their sacrifices of education and careers during the war years, the G.I.
Bill provided scholarships for college tuition and stipends to cover living
expenses while in school, in addition to vocational training, guaranteed
home mortgages, small business loans, and extensions to unemployment
insurance. The plan has been reformulated by Congress over time, with
some versions less generous, and others more suited to new circum-
stances. Early versions of the law, when combined with state-level restric-
tions, combined to put many of the benefits of the G.I. Bill effectively
off-limits for black veterans in the south.43
After initial enactment of the G.I. Bill in 1944, college enrollment
increased from its pre-war level of 1.3 million students in 1939 to more
than 2 million by the late 1940s, with veterans accounting for almost
50% of the students.44 Following the Korean War, 42% of Korean War
116 M. M. WAY

veterans attended college under the G.I. Bill, and educational ben-
efits have continued for veterans and for some active duty members to
the present day, although with the rising cost of college education the
percent of tuition covered by the bill has fluctuated.45 The shock to
the higher education system and the injection of human capital into
the economy was highest, however, in the late 1940s and early 1950s.
Eventually, over two million veterans of World War II used the G.I.
Bill for higher education, exceeding all expectations for the program.
Although many of these legions of former soldiers would have gone to
college in any case—having been delayed by the war but not, ultimately,
put off of their planned educational path—it is estimated that over fifty
percent more veterans completed college because of the bill than would
have otherwise.46 The G.I. Bill has been credited with having a part in
the post-war US economic boom because of its human capital effects,
and because it facilitated a relatively smooth reintegration into civilian
life of men with many years of work life ahead of them.
How did the original G.I. Bill affect family economic decision-making
and investments in higher education? Its most significant impact was to
lower the direct costs of college. The opportunity costs of college was
lowered by stipend payments and may also have been lower because of
the possibility that so many returning soldiers would cause unemploy-
ment to temporarily increase in some regions of the country. The payoffs
from education were also higher for returning soldiers, overall, because
the G.I. Bill included preferential hiring provisions for veterans to be
instituted by any firm accepting contracts from the federal government,
at a time when the Defense Department’s spending was increasing dra-
matically. Income constraints were loosened with the addition of living
stipends, on top of college tuition grants. The bill did not directly affect
impatience, nor did it aim to change parental altruism—by the time sol-
diers returned from the war, most were past the age of depending on
their parents for tuition help anyhow.
Because veterans were overwhelmingly men, the bill also affected the
investments in men’s versus women’s education. Scholarships for men
made the education of women relatively more expensive, so if a wife,
for example, had been planning to continue her education after the war,
this bill made it less likely given that her husband could attend instead
at a much lower cost. There is also evidence that married female labor
force participation was higher due to the bill with women working to
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 117

supplement the living stipends provided under the bill while their hus-
bands completed college.47
Given its effects on the factors important to educational decision-
making, it is no wonder that the G.I. Bill was much more successful than
originally anticipated by Congress and the military. Surveys of soldiers
led the military to believe that the uptake of a veterans’ scholarship pro-
gram would only be around 10%, but participation was more than dou-
ble that.48 Non-white veterans of World War II were actually more likely
than whites to use the educational provisions of the bill, but they were
far more likely to use the vocational training benefits instead of college
benefits, because many fewer black, Asian, or Native American soldiers
had the prior education that would have prepared them for college.49
Another obstacle for them in using college benefits was segregated col-
leges and the segregated labor force awaiting them after college. Many
acquired skills that they could not take to the labor force because jobs
requiring college degrees were not offered to blacks. Despite this, there is
evidence that the wide application of the G.I. Bill increased social mobil-
ity for its recipients and changed the life course of many men who prior
to the war may not have had further education factor into their plans.
Federal government investments together with rational economic
decision-making resulted in a boost to the average education level of a
select group of mostly white men, benefiting them, their families, and
the post-war economy. This boost had significant follow-on effects as the
benefits of fathers’ educations trickled down to the next generation—col-
lege-educated parents are far more likely to have college-educated chil-
dren—and helped create the twentieth-century middle class.

Potential Policies Looking Forward

In the twenty-first century, signs point to an erosion of the middle class
and a polarization of the workforce resulting from skill-biased techno-
logical change—technology that makes high-skilled people more pro-
ductive—globalization and increasing automation in manufacturing
and the service sector. Employment growth is occurring in low-pay-
ing, low-skilled service sector jobs—food service, home-health aides,
and security services, for example—and in high-paying, high-skilled
jobs that require a college education or more.50 Employment is stag-
nant or shrinking for those with only a high-school degree, particu-
larly for men, as both manufacturing and a variety of middle-skilled
118 M. M. WAY

white collar occupations—think of retail workers or customer service

representatives—have replaced American workers with foreign labor and
automated processes. Education policies that lead to students completing
high school better prepared for post-secondary education and that facil-
itate students’ entrance into two-year- and four-year-college programs
can help advance US economic competitiveness and may also prevent the
widening of the gap between high-income and low-income families, dis-
cussed in Chapter 8.
Any policy that is going to increase the level of human capital in the
United States, or the level of a certain type of human capital, must work
on the costs, benefits, and income constraints, and possibly the altruism
and time preference, of American families. The policies mentioned below
are not necessarily the most effective ways to increase human capital
going forward—I have included them here because they are three pol-
icies that have been publically discussed by economists, educators, and
politicians in the early years of the twenty-first century. These policies
could have positive or negative unintended consequences given how they
change the parameters of families’ choices. Universal preschool, school
“choice” in the form of vouchers, and the extension of fully-funded
­public education to community college are policies that could potentially
improve educational outcomes. The focus here will not be so much on
their educational effectiveness, as on their potential impact on the eco-
nomics of the family.

Universal Preschool—Increasing the Benefits of Primary Education

Children’s exposure to the world outside their families prior to kinder-
garten affects their kindergarten preparedness and their subsequent
achievement in grade school. Reading and mathematical abilities are
higher in children who have attended preschool, leading to better out-
comes in later grades and even significant effects on the likelihood of
high school graduation.51 States are increasingly providing pre-K for
four-year olds, and some for three-year olds. The federal government
funds Head Start programs serving the poor, but coverage is far from
universal. Between 2000 and 2015, the percent of three- and four-year
olds in some type of preschool program held constant at around 40
and 65%, respectively. These averages mask the disparity in enrollment
between children of highly-educated parents and less-educated par-
ents, with 49% of the children of parents with professional or graduate
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 119

education enrolled, but only 29% of the children of parents with less
than a high school education enrolled.52
How does universal preschool impact family educational deci-
sion-making? One way is by increasing the benefits of education. The
skills learned in preschool facilitate learning at higher grades, which
creates momentum for a child’s learning process.53 More skills can be
acquired, and particularly for children who may be at risk for dropping
out of high school due to poverty, or low educational attainment of their
parents, the rewards of academic accomplishment may help motivate per-
sistence in school. Staying in school past the age of 16 has a higher pay-
off when high-school graduation and college are more likely, so families
are more likely to support, encourage, or insist their child continue their
education. Publicly funded preschool also affects costs not only by lower-
ing the direct cost of preschool education for families, but it also lowers
the psychic cost to the child of learning in later grades if learning comes
more easily. For some children, starting school at an older age may mean
that they require more extra help later in their school career, which can
be expensive and have psychic costs as well.
For children whose parents already send them to preschool at private
expense, universal publicly-funded preschool frees up income that can be
saved for college, if the family chooses to switch to the public system. A
study of the savings activities of parents of children who are expected to go
to college showed that over 70% of them saved for college on a monthly
basis, but that their savings rates only would result in about 30% of costs
being covered.54 By freeing up the money dedicated to paying for child-
care at ages three and four, parents could increase college investments and
make college education or a higher quality college education more likely.
Of course, implementing universal preschool would be expen-
sive. It is beyond the scope of this book to suggest the best way to
finance expansion of preschool using public funds. Funding pre-
school at the federal, state or local level, centralizing control at the
state level versus the local level and determining standards for cur-
riculum and teaching likely would be intensely debated, as these
issues have been in states such as Florida and Texas which have vol-
untary, universal state-funded preschool programs for four-year
olds. The payoffs, however, from increasing high school gradua-
tion rates—one way of assessing educational effectiveness—are esti-
mated to be high when comparing the costs of providing preschool.
Pre-school investments have positive net returns in the long run
120 M. M. WAY

for the public sector in the form of higher tax revenues combined with
lower healthcare, criminal justice, and welfare costs. The benefits to fam-
ilies are overwhelmingly positive given that the direct cost to families of
publicly funded preschool is close to zero, and many families would save
on what they had been spending out of pocket already.55

School Choice Voucher Programs—Decreasing the Costs

of Private Education for Families, While Tightening
Revenue Constraints on Public Schools
School choice refers to a wide variety of programs that provide families
with more options for primary and secondary education for their chil-
dren, including charter schools, magnet schools, public school selection
outside of neighborhood schools, and vouchers for parents to pay private
school tuition, removing their children (and some of their dollars) from
the public school system. In reality, true school choice only belongs to
those wealthy enough to move to the school district of their choice, or
to send their children to private schools regardless of the costs of tuition,
books, and transportation.56 Publicly-funded charter schools and magnet
schools have limited numbers of seats and the high-quality ones often
use a lottery to admit students. Public school selection systems—such as
parents submitting a ranked list of schools they would like their child to
attend—are very complicated, and many, if not most families, do not get
their children into their first choice schools. Vouchers only go so far, usu-
ally not covering the entire tuition of a private school, and transportation
and other costs may make many private schools inaccessible for families,
even with a voucher.
The premises driving the school choice movement are twofold. The
first is that competition for students improves public schools. There is
some evidence that teacher hiring is more selective, and teacher quality
improves as a result of competition.57 The second is that parents should
have more control over the type of education their children receive. In
the case of vouchers, there is an additional premise of fairness, both to
families who pay for private schools—that they should not also be forced
to pay for public schools they do not use—and fairness to low-income
families who do not have the resources to send their children to private
schools. Voucher proponents argue that fairness requires that both types
of families be able to take the tax money that would have been spent on
their children and apply it to the private schools of their choice.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 121

School districts implementing vouchers as a way to offer school choice

tend to move cautiously due to the complexities of changing the ­public
school model, and only around 150,000 US students were participating
in school voucher programs in 2015.58 For example, a wholesale imple-
mentation of vouchers across a school district (providing vouchers to
all students currently in private school and to all students who switch
to private school) would immediately increase demand for local private
schools, increase academic competition for entrance, and potentially
drive up tuition rates, leaving those students with fewer academic skills
from poorer families back in the public schools. At the same time, all
those families who were already sending their children to private schools
would be able to claim vouchers, pulling money out the public schools.
This would decrease significantly the funding for public schools, even
before a single student switched from public to private. Depending upon
the rules enabling private schools to accept vouchers, and the rules (such
as they are) that do (or do not) require private voucher-accepting schools
to accept students with particular categories of learning challenges, the
public schools would tend to serve learning disabled, physically disabled,
and non-English speaking students in greater proportions after voucher
implementation than before. Serving a greater proportion of high-need
students with the tax revenue left over after more independent students
had left could make it difficult to maintain educational quality for all
students.59
Another issue is the effect of vouchers on family educational deci-
sions. A family presented with a voucher gets the opportunity to com-
pare the costs and benefits of leaving their child in their assigned public
school, or moving the child to a private school. The out-of-pocket costs
of the private school have been lowered, but usually not eliminated as
most school voucher programs only cover a portion of private tuition.
(Some, however, require schools accepting vouchers to not charge above
the voucher amount for very low-income students.) In addition to hav-
ing to fund the difference between the voucher and the school tuition,
families could also face new expenses for transportation, books, uni-
forms, and other fees. If a voucher system increased demand and caused
private schools to become more selective, the benefits to private school
education might increase due to the positive effects of being in class
with higher achieving peers. (This, of course, would affect the likelihood
that any particular family would use the voucher, given the greater diffi-
culty of being accepted. At the same time, an influx of voucher-funded
122 M. M. WAY

students could mean some students from better-off families find they
cannot get into the private school they would have otherwise attended.)
So the costs of private school education would decrease, the benefits
would stay the same or increase, and the other factors—family income,
altruism and impatience—would stay the same. Families would be more
likely, depending on the size of the voucher, to choose a private school,
although many still would not or could not. The costs still may be pro-
hibitive, there may not be good private school choices within a reasona-
ble distance, transportation options may be poor, the family may have a
child who needs services that are unavailable in private schools, or there
may not be private school seats available.
What effect could voucher systems have on overall investment in
education at the primary and secondary level? Families for whom the
voucher made the difference between sending their child to private
school or not likely would end up spending more on education—what-
ever the voucher did not cover—but this group would most likely be rel-
atively small compared to the families with children already enrolled in
private school. Those families would have a part of their contribution to
public schools refunded to them through the voucher, and per student
funding for public school students would decrease, unless overall school
tax rates were raised to compensate. With lower per student funding for
the public schools, there would be quality decreases resulting in lower
benefits for those children in public schools. With lower benefits for
public school students and their families, economic reasoning suggests
that their educational investments, measured in time and effort, would
decrease.
While the wholesale implementation of vouchers is an extreme case—
many states have started with targeted voucher programs that only serve
low-income students in urban areas with caps or other methods of lim-
iting participation60—considering the implications of expansion of these
programs serves to illustrate the risk to overall investment in the human
capital of children. While some families may spend more on their own
child’s education, as a community the investment in education measured
not just in dollars but in time and effort could decrease, creating greater
inequalities in education than without the voucher program.
The empirical evidence is limited regarding the effects of voucher on
educational outcomes for students who use vouchers. In a meta-analysis
(a study of many studies) of school voucher systems in the United States
and across the world, researchers found no consistent evidence that test
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 123

scores or other measures of school performance improve when a student

changes from a public to a private school using a voucher.61
There is, however, some evidence that those children who use vouch-
ers stay in school longer and are more likely to graduate from high
school than if they stayed in public school. The benefits of a private
education—some of which come through being surrounded by peers
who are more likely to graduate from high school—are high enough
to increase their years in school. While the authors of this study caution
that the small numbers and specific characteristics of students studied
(low-income and minority students for the most part) cannot be applied
to voucher use in general, they concluded that the design of targeted
voucher systems could produce benefits to some students without the
serious funding impact that wholesale implementation would have.62

“Free” Community College—Lowering Costs

with Some Unintended Consequences
The final policy we will consider is fully-taxpayer-funded community col-
lege. Community colleges have a wide variety of functions, from offering
non-degree students specific skills and training, to providing two-year
associate’s degrees for students who will go no further in their educa-
tion, to giving students who want a four-year degree an inexpensive or
less academically-intense way to complete their first year or two before
transferring to a four-year college or university. Funding for commu-
nity colleges is usually local and state based, with full-time student tui-
tion averaging $3520 per year in 2016–2017. Grants from the federal
government and private sources can reduce fees even more by provid-
ing supplemental assistance.63 In the early 2000s, calls for both needs-
based and universal “free” community-college emerged, intended by
their proponents as a way to overcome growing economic inequality and
better prepare students for the twenty-first century labor force. A fed-
erally-funded effort to eliminate tuition for two-year degree or transfer
programs would have a profound effect on the economics of community
college systems, many of which would see huge increases in demand, and
would need to scale up accordingly. But for the purposes of family eco-
nomics, let’s consider what free community college would do to family
decision-making.
By lowering the cost of community college, many more families
would choose community college for their children. (And many more
124 M. M. WAY

adults would choose community college for themselves.) This includes

families who could not have afforded tuition otherwise, increasing the
number of high-school graduates with at least some college education.
Significant benefits in earnings could accrue to those individuals and to
society as well. In one study from New York City, the net benefits of
an associate’s degree were estimated to be around $148,000 over a per-
son’s lifetime when compared to someone who only had a high-school
degree. Federal and state tax payments by two-year degree holders
were around $82,000 higher than payments by high-school graduates.
Without including a variety of other spillover effects on society, the ben-
efits would make up for the cost, both for the students and for the public
sector, at any cost level near the current low level of community college
costs.64
The potential problems with free community college, however, come
from students at two ends of the ability spectrum. Families of children
with immutable academic deficits that limit the benefits they can get
from post-high-school education, who otherwise might have stopped
schooling after high school, might respond to free tuition by sending
their children to community college even when the benefits are low.
Community colleges might respond by providing remedial education to
make up for students with educational deficiencies. This could be ben-
eficial if high school educational problems are revealed and fixed, but it
would put an additional burden on the community college system.
Another group of families and students of particular concern are
low- to middle-income families with children who are well-qualified for
four-year colleges. With average tuition and fees of $9650 for in-state
students at public colleges in the United States, these families might be
able to afford tuition with the help of financial aid.65 With free commu-
nity-college tuition, however, the relative costs of state schools are now
higher. Families with higher-ability children (demonstrated by their abil-
ity to get into a four-year college) may decide that the additional benefit
of a state school over a community college, for at least the first two years,
is not worth the additional costs.66 Some students end up undermatched,
meaning their skills and abilities qualify them for a better education—
which would result in better job prospects—than a community college
provides. Some may start community college intending to transfer to a
four year school, but get sidetracked and end their educations with an
associate’s degree. (While most community college students say they
plan to complete a bachelor’s degree, only about 12% actually do.67)
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 125

If they had started as freshmen at a four-year college, the peer effects

and the momentum would make it more likely to complete a bachelor’s
degree. The same study referred to above calculates the additional life-
time earnings, in New York City, from a bachelor’s over an associate’s
degree to be $784,000 over the lifetime, and the difference in taxes paid
is around $231,000.68
Implementing universally free community college could also misdirect
resources. This is because for some families free tuition is not enough—
the sacrifice of full-time earnings and the impatience for earnings today
caused by poverty or other circumstances make further schooling impos-
sible. Living stipends that would cover room and board (which average
over $8000 per year for residential community college students) and
even vouchers for childcare might be required for families in deep pov-
erty, or for teenage parents. Community college that is tuition free for all
can end up subsidizing families who can afford tuition, while not provid-
ing enough to those families who have greater needs.

Conclusion
The impact of human capital on the development of the US economy
has justified enormous public investments in education. These invest-
ments, combined with family investments, have spurred growth and
advancement for many Americans. The decentralized approach to edu-
cational control and financing that evolved throughout US history,
however, has resulted in vast educational disparities between racial and
socioeconomic groups, affecting, or one could say “distorting,” fami-
lies’ decisions about how much to invest of their own money, time and
energy—as well as their children’s—in creating human capital. Local
school systems, for the most part, determine the costs and the benefits
of education that families face. If the public school requires a child to
travel a long distance, pay for supplies or other fees, and suffer through
an unpleasant learning environment, those costs are high, particularly
if the child could be working instead. If the education is low quality
due to overcrowding, poor facilities, or poorly trained teachers, then
the benefits are low. Combine those two situations and even the most
forward-looking and altruistic of parents would have a hard time buy-
ing into that investment. On the other hand, if transportation is free,
the learning environment is as pleasant as is consonant with necessary
rigor, if the schools are effective, with good teachers, and if a robust
126 M. M. WAY

labor market that rewards education will await the child post-graduation,
even a less altruistic and more present-oriented parent might opt for the
human capital investment in their family’s future.
The knowledge economy of the twenty-first century is changing labor
markets and the types of skills needed by workers to require significantly
more education. Both the public sector and families are contending
with these increased requirements, facing high stakes both for US com-
petitiveness and leadership, and for individual success in an increasingly
polarized economy. Making changes so that those who have been under-
served by public education systems recognize a better return on their
investments of time, effort, and money would go a long way toward
achieving a second “human capital century.” In the case of higher edu-
cation, public investments that reflect the benefits college graduates
enjoy for themselves and provide to society and that lower the burden
of education costs borne directly by families would provide an infusion
of human capital needed to address the problems the United States is
facing such as climate change, global security, and the weakening of its
economic leadership. The twenty-first century labor force requires such
an investment. In the next chapter, we turn to the US labor force and
the families’ role in determining its composition.

Notes
1. Claudia Goldin, “Labor Markets in the Twentieth Century,” in The
Cambridge Economic History of the United States, Volume III, ed. Stanley
L. Engerman and Robert E. Gallman (Cambridge, UK: University of
Cambridge, 2000).
2. Meg Devlin O’Sullivan, “More Destruction to These Family Ties,”
Journal of Family History 41, no. 1 (2016); and Roxanne Dunbar-Ortiz,
An Indigenous Peoples’ History of the United States, Revisioning American
History; Revisioning American History (Boston: Beacon Press, 2014),
211–14.
3. Albert Fishlow, “Levels of Nineteenth-Century American Investment in
Education,” The Journal of Economic History 26, no. 4 (1966).
4. Congressional Quarterly Inc., Education for a Nation (Washington, DC,
1972).
5. Mark Gradstein and Moshe Justman, “Education, Social Cohesion, and
Economic Growth,” The American Economic Review 92, no. 4 (2002).
6. Claudia Goldin, “The Human-Capital Century and American Leadership:
Virtues of the Past,” The Journal of Economic History 61, no. 2 (2001).
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 127

7. Robert J. Barro, “Human Capital and Growth,” The American Economic

Review 91, no. 2 (2001).
8. Ibid.; Eric A. Hanushek and Ludger Woessmann, “Do Better Schools
Lead to More Growth? Cognitive Skills, Economic Outcomes, and
Causation,” Journal of Economic Growth 17, no. 4 (2012); and Alan
B. Krueger and Mikael Lindahl, “Education for Growth: Why and for
Whom?,” Journal of Economic Literature 39, no. 4 (2001).
9. The exchange model could also be operative here, if the parents are will-
ing to invest in schooling only if they have an implicit or explicit agree-
ment with the child to receive something in exchange at a later time.
10. See Table 605.20 in National Center for Education Statistics, “Annual
Reports and Information, NCES,” ed. National Center for Education
Statistics, Digest of Education Statistics (Washington, DC, 2016).
11. Robert L. Church and Michael W. Sedlak, Education in the United States:
An Interpretive History (New York: Free Press, 1976).
12. Thomas D. Snyder and National Center for Education Statistics, Table 5
in 120 Years of American Education: A Statistical Portrait (Washington,
DC: U.S. Department of Education, Office of Educational Research and
Improvement, National Center for Education Statistics, 1993).
13. For a description of the efforts to use education as a differentiator for
children, see Part III “The Retreat from Commonality” in Church and
Sedlak, Education in the United States: An Interpretive History.
14. Snyder and National Center for Education Statistics, 120 Years of
American Education: A Statistical Portrait, 31.
15. Table 104.20, “Percentage of persons 25–29 years old with selected lev-
els of educational attainment, by race/ethnicity and sex: Selected years,
1920 through 2016”, in “Annual Reports and Information, NCES,” ed.
National Center for Education Statistics, Digest of Education Statistics
(Washington, DC, 2016).
16. See Chapter 5 in Church and Sedlak, Education in the United States: An
Interpretive History.
17. Thomas Jesse Jones, “Negro Education: A Study of the Private
and Higher Schools for Colored People in the United States,” ed.
Department of the Interior, Bulletin (Washington, DC: Government
Printing Office, 1917), p. 10. Accessed through www.archive.org.
18. Ibid., p. 9.
19. Ibid., p. 15.
20. Rucker C. Johnson, “Long-Run Impacts of School Desegregation
& School Quality on Adult Attainments,” in NBER Working Papers
(Cambridge, MA: National Bureau of Economic Research, 2014).
21. Table 104.10, “Rates of high school completion and bachelor’s degree
attainment among persons age 25 and over, by race/ethnicity and sex:
128 M. M. WAY

Selected years, 1910 through 2015”, in National Center for Education

Statistics, “Annual Reports and Information, NCES”; Digest of
Education Statistics (Washington, DC, 2016).
22. Thomas A. Kessinger, “Efforts toward Educational Reform in the United
States Since 1958,” American Educational History Journal 38, no. 2
(2011).
23. Amber Noel, Patrick Stark, and Jeremy Redford, “Parent and Family
Involvement in Education, from the National Household Education
Surveys Program of 2012,” ed. Institute of Education Sciences National
Center for Education Statistics (Washington, DC: U.S. Department of
Education, 2016).
24. Church and Sedlak, Education in the United States: An Interpretive
History.
25. See Table 301.20 “Historical summary of faculty, enrollment, degrees
conferred and finances in degree-granting postsecondary institutions”
in National Center for Education Statistics, “Annual Reports and
Information, NCES.”
26. See Table 318.10 “Degrees conferred by postsecondary institutions,
by level of degree and sex of student: Selected years, 1869–70 through
2026–27” in ibid.
27. Campbell F. Scribner, The Fight for Local Control: Schools, Suburbs, and
American Democracy (Cornell University Press, 2016).
28. Snyder and National Center for Education Statistics, 120 Years of
American Education: A Statistical Portrait, 32.
29. Goldin, “The Human-Capital Century and American Leadership: Virtues
of the Past.” 286.
30. Daphne Kenyon, The Property-Tax School Funding Dilemma (Cambridge,
MA: Lincoln Institute of Land Policy, 2007).
31. Richard J. Murnane, “Improving the Education of Children Living
in Poverty,” The Future of Children 17, no. 2 (2007); and Sean F.
Reardon, “The Widening Academic Achievement Gap Between the Rich
and the Poor: New Evidence and Possible Explanations,” in Whither
Opportunity?: Rising Inequality, Schools, and Children’s Life Chances,
ed. Greg J. Duncan and Richard J. Murnane (New York: Russell Sage
Foundation, 2011).
32. Carol Everett, Karen Lee Ryan, and Stephen Smith, “Public Schools:
A Toolkit for Realtors” (National Association of Realtors, 2005); and
Elizabeth Warren, “Families Alone: The Changing Economics of Rearing
Children,” Oklahoma Law Review 58, no. 4 (2005).
33. Annette Lareau, “Social Class Differences in Family-School Relationships:
The Importance of Cultural Capital,” Sociology of Education 60, no. 2
(1987); and Laurence Steinberg et al., “Impact of Parenting Practices on
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 129

Adolescent Achievement: Authoritative Parenting, School Involvement,

and Encouragement to Succeed,” Child Development 63, no. 5 (1992).
34. Gregory D. Squires, “Demobilization of the Individualistic Bias: Housing
Market Discrimination as a Contributor to Labor Market and Economic
Inequality,” The Annals of the American Academy of Political and Social
Science 609 (2007).
35. Gary Orfield and Susan E. Eaton, “Back to Segregation,” Nation, March
3, 2003.
36. Erica Frankenberg, Chunmei Lee, and Gary Orfield, “A Multiracial
Society with Segregated Schools: Are We Losing the Dream?”
(Cambridge, MA: The Civil Rights Project, Harvard University, 2003).
37. Warren, “Families Alone: The Changing Economics of Rearing Children.”
38. Isabel Wilkerson, The Warmth of Other Suns: The Epic Story of America’s
Great Migration, 1st ed. (New York: Random House, 2010), 84.
39. United States Senate, “Senate Executive Documents for the First Session
of the Thirty-Ninth Congress 1865–66,” ed. United States Senate
(Washington, DC: Government Printing Office, 1866), 25. Also see
Charles H. Wesley, Negro Labor in the United States, 1850–1925; A Study
in American Economic History (New York: Russell & Russell, 1967), 149.
40. See Tables 7a and 11a in U.S. Census Bureau, “A Half-Century of
Learning: Historical Statistics on Educational Attainment in the United
States, 1940–2000” (Washington, DC: U.S. Census Bureau, 2006).
41. See Tables 2.1 and 2.2 in Robert A. Margo, Race and Schooling in the
South, 1880–1950: An Economic History (Chicago, USA: University of
Chicago Press, 2014).
42. Mancur Olson, “The South Will Fall Again: The South as Leader and
Laggard in Economic Growth,” Southern Economic Journal 49, no. 4
(1983).
43. Sarah Turner and John Bound, “Closing the Gap or Widening the
Divide: The Effects of the G.I. Bill and World War II on the Educational
Outcomes of Black Americans,” National Bureau of Economic Research
Working Paper Series, No. 9044. https://doi.org/10.3386/w9044.
44. John Bound and Sarah Turner, “Going to War and Going to College:
Did World War II and the G.I. Bill Increase Educational Attainment for
Returning Veterans?,” Journal of Labor Economics 20, no. 4 (2002).
45. Meredith Kleykamp and Crosby Hipes, “Social Programs for Soldiers
and Veterans,” in The Oxford Handbook of U.S. Social Policy, ed. Daniel
Béland, Christopher Howard, and Kimberly J. Morgan (New York:
Oxford University Press, 2015).
46. Bound and Turner, “Going to War and Going to College: Did World
War II and the G.I. Bill Increase Educational Attainment for Returning
Veterans?”
130 M. M. WAY

47. Suzanne Mettler, Soldiers to Citizens: The G.I. Bill and the Making of the
Greatest Generation (New York, NY: Oxford University Press, 2005), 149.
48. Ibid.
49. See Chapters 3 and 4, ibid.
50. David Autor and David Dorn, “The Growth of Low-Skill Service Jobs
and the Polarization of the US Labor Market,” The American Economic
Review 103, no. 5 (2013).
51. Federal Interagency Forum on Child and Family Statistics, “America’s
Children: Key National Indicators of Well-Being, 2013” (Washington,
DC: U.S. Government Printing Office, 213); Henry M. Levin et al.,
“The Costs and Benefits of an Excellent Education for All of America’s
Children” (New York, NY: Teachers College, Columbia University,
2006); and Vivian C. Wong et al., “An Effectiveness-Based Evaluation
of Five State Pre-Kindergarten Programs,” Journal of Policy Analysis and
Management 27, no. 1 (2008).
52. Table 202.20. “Percentage of 3-, 4-, and 5-year-old children enrolled
in preprimary programs, by level of program, attendance status, and
selected child and family characteristics: 2015,” in National Center for
Education Statistics, “Annual Reports and Information, NCES”; Digest
of Education Statistics (Washington, DC, 2016).
53. Hirokazu Yoshikawa, Christina Weiland et al., “Investing in Our Future: The
Evidence Base for Preschool Education,” Policy brief, Society for Research
in Child Development and the Foundation for Child Development (2013).
Retrieved from the Foundation for Child Development website: fcd-us.org/
sites/default/files/EvidenceBaseonPreschoolEducationFINAL.pdf; and
Levin et al., “The Costs and Benefits of an Excellent Education for All of
America’s Children.”
54. Boston Research Advisors, “10th Annual College Savings Indicator:
Executive Summary of Key Findings” (Boston, MA: Fidelity Investments,
2016).
55. Levin et al., “The Costs and Benefits of an Excellent Education for All of
America’s Children.”
56. Warren, “Families Alone: The Changing Economics of Rearing Children.”
57. Eric A. Hanushek and Steven G. Rivkin, “Does Public School
Competition Affect Teacher Quality,” in The Economics of School Choice,
ed. Caroline M. Hoxby and Research National Bureau of Economic
(Chicago: University of Chicago Press, 2014).
58. Dennis Epple, Richard E. Romano, and Miguel Urquiola, “School
Vouchers: A Survey of the Economics Literature,” National Bureau of
Economic Research Working Paper Series No. 21523 (2015).
59. Julie Berry Cullen and Steven G. Rivkin, “The Role of Special Education
in School Choice,” in The Economics of School Choice, ed. Caroline M.
 4 PRIVATE AND PUBLIC INVESTMENTS IN CHILDREN … 131

Hoxby and Research National Bureau of Economic (Chicago: University

of Chicago Press, 2014).
60. Paul E. Peterson et al., “School Vouchers: Results from Randomized
Experiments,” in The Economics of School Choice, ed. Caroline M. Hoxby
and Research National Bureau of Economic (Chicago: University of
Chicago Press, 2014).
61. Dennis Epple et al., “School Vouchers: A Survey of the Economics
Literature.”
62. Ibid.
63. Jennifer Ma et al., “Trends in College Pricing 2016,” in Trends in Higher
Education (The College Board, 2016).
64. Clive R. Belfield and Thomas Bailey, “The Benefits of Attending
Community College: A Review of the Evidence,” Community College
Review 39, no. 1 (2011).
65. Ma et al., “Trends in College Pricing 2016.”
66. Ibid.
67. See Chapter 8 in Harry J. Holzer and Sandy Baum, Making College Work:
Pathways to Success for Disadvantaged Students (Brookings Institution
Press, 2017).
68. Clive R. Belfield, Fiona Hollands, and Henry M. Levin, “Providing
Comprehensive Educational Opportunity to Low Income Students; What
Are the Social and Economic Returns?” (New York, NY: Campaign for
Educational Equity, Teachers College, Columbia University, 2011).
 CHAPTER 5

Labor Force Participation and Home

Production: Evolving Rights, Roles,
and Opportunities for Women and Men

Introduction
In 1941, at around the same time that the US War Department was try-
ing to get married female workers into the workforce to help resolve the
labor shortage in war and other industries resulting from World War II,
the Boston Public Schools were keeping them out. Helen Corrigan, a
37-year-old first-grade teacher with over 15 years of experience, was mar-
ried on June 8, 1941, and was not even allowed to finish the school year,
so absolute was the ban on married women teachers.1 Boston was not
alone. In a poll by the National Education Association of 1500 school
districts, 77% of them did not hire married teachers, and half of these
districts fired women when they got married.2 While social norms rein-
forced the ideal of women as keepers of the home, in the case of mar-
riage bars on women in public sector jobs, public policy pulled women
out of the workforce and relegated them to home production, whether
they wanted that or not. To an economist, it represents a misallocation
of human capital when someone educated and experienced at production
for a market setting is not allowed to apply their productive efforts in the
labor force. It also represents a violation of their rights as citizens, as they
are understood today. In 1941, however, these rights were not complete.
Men’s labor force participation is rarely mentioned in the same breath as
the word “family,” but for women the two have been inextricably entwined
since the second half of the nineteenth century, when middle-class

© The Author(s) 2018 133

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_5
134 M. M. WAY

women’s activity in the paid labor force increased due to industrializa­

tion and urbanization. Women’s new roles outside the realm of traditional
women’s work spurred a backlash against working women, working wives,
and mothers in particular, and inspired a new cult of domesticity.
It was not always this way. Women’s work and market work coin-
cided in pre-industrialized times when working together on a farm or
in a business was normal for husbands and wives, even if laws did not
allow women to be official business partners due to their married status.
With industrialization, the home and market became “separate spheres,”
and the lack of full citizenship rights for women led to laws limiting and
sometimes outright prohibiting their market work. These laws reinforced
discrimination, occupational segregation, and low wages. Women were
considered extraneous to the developing market system. Their work
became centered on home and children at the same time that household
production’s role in sustaining families was decreasing and a new con-
sumer-driven economy was emerging. In a consumer economy, people
buy more things that are “ready-made,” “store-bought,” or “mass-
produced,” and when lots of things that used to be made by women in
the home can be bought fairly easily, and within the budget set by the
husband’s wage, the role of a wife is profoundly altered.
This does not mean that no married women worked outside the
home. Black married women always worked for wages in great numbers,
for example. In 1900, around 23% of non-white married women were in
the labor force, versus around 2.3% of white married women.3 And mar-
ried women’s work in the home was instrumental in enabling their hus-
bands’ participation in a male workforce that in many sectors averaged
12- or more-hour days, six days a week. But it is puzzling that as women
advanced in education on par with men or better, at least through the
secondary level, from the nineteenth century through the twenty-first,
the labor force participation of women, and of married white women in
particular, always lagged far behind until relatively recently (see Fig. 5.1).
This chapter looks at the family economic unit and its allocation of
labor to the external market and to household production. The change
in this allocation through the twentieth century parallels the develop-
ment of the United States’ consumption economy. The consumer-driven
economy was evolving even as married women remained largely out of
the workforce, and women’s roles as the leading “consumers” in their
family were considered one of their roles as housewives. But having no
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 135

Fig. 5.1 Labor force participation and college completion rates, women and
men: 1890–2010 (Data sources Labor force participation 1890–1940—Historical
Statistics of the United States, Colonial Times to 1970 Series D29, U.S. Bureau
of the Census. Labor Force Participation 1940–2015, Bureau of Labor Statistics
Report “Women in the Labor Force”, April 2017, Report 1065. Educational
attainment data from National Center for Education Statistics, Digest of
Education Statistics 2015 Table 104.10. Rates of high school completion and
bachelor’s degree attainment among persons age 25 and over, by race/ethnicity
and sex: Selected years, 1910 through 2015)

earnings and therefore no real spending power did not leave women in
economically powerful positions, either in their homes or in the mar-
ket. Neither were women allowed to contribute to the production econ-
omy, although when barriers to working were dropped, they contributed
significantly. During World War II, the US war effort required wom-
en’s labor force participation, as a 1943 report from the Office of War
Information made clear:

Among the single women, the picture is one of almost complete employ-
ment. But only one of five [of] the married women have yet gone to work.
Moreover, the wives constitute the overwhelming majority of the female
population, so that they represent the most abundant supply of workers.
136 M. M. WAY

Since our ability to keep the production machine running in high gear
depends largely on the enlistment of women workers, the public attitude
toward this issue—and especially the attitude of wives—is of paramount
interest. 4

After the war, women were dismissed and sent home, but once
returning soldiers were assimilated into the economy, a gradual increase
in female labor force participation was one element of a long era of post-
war expansion. Greater family income enabled more consumption, driv-
ing demand, and further spurring the economy. Many public and private
policies, however, impeded married—and single—women’s full and
equal participation in the labor market.
The labor allocation decisions of married couples, and how public pol-
icy impacts their decisions, are only one part of the story, however. Not
all families are run by married or partnered heads, and the market-versus
household-production decisions of single parents—single mothers in par-
ticular—have been the object of many policy interventions. The role of
work for the widowed mother or welfare mother has been hotly debated
from the beginnings of social welfare policy at a national level. These
interventions have been among the most intrusive of the government on
family life, with mandated paternalistic supervision of women’s personal
lives and homes.
It is also the case that married and single mothers have had young
children at home for ever-smaller percentages of their potential work life,
starting since at least the early 1990s when fertility declined dramatically.
Despite this, the laissez-fairesocial welfare regime of the United States has
not been active in supporting women (and men) during their relatively
brief childrearing years, when compared with the more active social and
family policies of France, Germany, and the Scandinavian countries.5 This
has resulted in women leaving the labor force upon marriage or the birth
of a child, and finding it difficult to return, with negative ramifications
for their human capital, their lifetime earnings and retirement p ­ rospects,
their children’s and family’s economic security, as well as for the eco-
nomic advancement of the country.
With slowing population growth, economists are of a consensus that
maintaining and increasing labor force participation is vital for the main-
tenance of the US economy’s leading position in the world. As described
in the last chapter, human capital investments in men and women from
childhood through college are significant, and women’s educational
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 137

attainment at the college level increased quite steadily from a rate of

about 8% in 1970 versus 14% for men to a rate slightly above the men’s
rate, with both hovering around 33% in 2015.6 At the same time, wom-
en’s labor force participation increased from a rate of around 41% in
1967 to a rate of about 60% at the turn of the century, before plateauing
and then falling back to a rate just below 57% in 2015. Women’s cur-
rent labor force participation rate in the United States is low compared
not only to men’s 2015 rate of 69% but to women’s counterparts in
other developed countries.7 Men’s labor force participation also has been
declining, but with a very different time profile; the overall rate for men
has fallen more or less steadily since the late 1940s, from a level of above
85% to below 70% by 2015.
Most men do not face work–family conflict in the same way that
women do, but the few who drop out of the labor force to take care of
children face similar problems returning to work. More problematic for
many men is the changing structure of the labor force of the early twen-
ty-first century, which may have exacerbated a growing skills mismatch
as economic activity shifted from farm to factory to office; for men ages
25–54 years old with only a high school degree, the labor force partici-
pation rate has dropped from 91% in 1995 to 85% in 2015.8
This chapter starts with a look at how the US labor market evolved
since the 1850s, its growth, its sectors, and its divisions based on gen-
der and race. The economic roles of the family evolved at the same time,
and the role of household production changed completely, resulting in
a sharp divide between what was considered men’s work and what was
considered women’s work. The chapter will examine those changes,
and then will look at how those sharp divisions began softening with
the opportunities given to women during World War II. We will see the
macroeconomic implications of the ever-larger US workforce, as both
population growth and women’s labor force participation added human
capital to the economy.
Then we will turn to the economics of labor allocation in the fam-
ily. For couples, deciding who works in unpaid household labor and
who works in the market, or how responsibilities are divided when both
partners work outside the home, is the key question. For single parents,
deciding how much to work outside the home versus taking care of their
children is the key question. The economic factors affecting these impor-
tant decisions include wage levels and the relative wages of women ver-
sus men first and foremost. The effect of preferences, bargaining power,
138 M. M. WAY

and the ability to purchase household services, such as meal preparation,

childcare, and cleaning services, are also significant to the household
labor allocation decision.
Keeping economic factors in mind, in the next part of the chapter, we
consider three past policies, or policy categories, that impacted families’
labor market decisions. The first is the creation of a “welfare state with a
male breadwinner model,”9 which refers to the unique American social
safety net. That safety net developed to favor male workers and female
homemakers. The second is the imposition of marriage bars such as the
one for teachers described at the beginning of the chapter. The third cat-
egory includes the protective laws around women’s labor which evolved
ostensibly to protect women from the worst aspects of the loosely regu-
lated US labor market, but also had the effect of constraining women’s
choices in work.
Finally, we turn to the current state of family labor allocation, and pol-
icies that might work to encourage labor force participation for women
and men, as well as make the burden of combining work and family
less onerous. These policies include childcare, paid paternity leave, and
increased workplace flexibility. Looking to the future, we also briefly con-
sider the disruptions to the labor market posed by artificial intelligence
and robotics, and whether or not greater labor force participation will
be possible—if the labor can be absorbed—by an increasingly automated
workplace.

Industrialization and the Evolving US Labor Force

The Nineteenth Century

In 1800, almost three-quarters of the US labor force were working in
agriculture, but by 1850 that proportion had decreased to 60%, includ-
ing slave labor. By 1900, more than 60% of the labor force was work-
ing in a sector outside of agriculture. This shift was led by New England,
and lagged by the south, which still employed 60–70% of its workforce
in agriculture in 1890.10 The sectors that made up the nonfarm labor
force were primarily manufacturing (36%) followed by wholesale and
retail trade (16.5%) and business services (11.5%).11 Women made up a
small but increasing percentage of the labor force, and estimates of the
labor force participation rate of women in 1880 were around 14% over-
all, although the rates for young women, black women, and unmarried
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 139

women were at least double the overall rate.12 (Note that all references
to labor force participation in this chapter refer to engaging in any paid
work, whether part-time or full-time.)
The occupational distribution was different for white and non-white
women. In 1890, non-white women (primarily black) were almost
equally divided between domestic service work and agriculture (48 and
44%, respectively), with only 6% in manufacturing and a smattering of
women in professional, clerical, or sales roles. For white women, manu-
facturing (35%) and domestic services (31%) were the dominant occupa-
tions, but over 12% were professionals—nurses and teachers making up a
large share—with 5% each in clerical and sales roles.13
With industrialization came increasing urbanization, fertil-
ity declines, and increasing dependence on the market for what used
to be produced in the home. Home production of food and clothing
required less and less labor as people left farms and moved to cities.
Technology and urban amenities, such as water and sewer systems,
decreased the labor associated with many household tasks, although
these changes were focused on the urban population and benefited
whites over blacks and also over Hispanics, who were concentrated in
the agricultural south.
African Americans had suffered the cruelest of public policy interven-
tions in their families under the slave regime, which enforced the taking
of children and the separation of spouses at the whim of slave owners,
as well as the theft of their labor. The changes in labor for black women
in particular during the nineteenth century were dramatic in the sense
that they were able to keep some of the product of their labor, both in
and out of the household, after the Civil War.14 Household production
under slavery was in part in service to the slave owners—the children a
woman bore became property of the owner and the family members a
woman fed and looked after were human capital inputs to the owner’s
production process. After the Civil War, there were more protections
for the black family and more of what was produced in the home was
enjoyed by the family and not stolen outright.15 Participation in indus-
trial labor markets came later for black families, as a result of the Great
Migration following World War I and continuing through the 1960s, but
with the movement to cities black women underwent a similar phenom-
enon to white women of having their labor concentrated in the domestic
sphere, even though they were often paid for their work in other wom-
en’s houses.
140 M. M. WAY

Some Native American women in the 1800s suffered from the dimin-
ishment of their more prominent roles in the subsistence economies of
their nations. Not only were Native American families displaced and
moved into environments where they could not successfully continue
their traditional farming, hunting, and intertribal trade, but when they
integrated into the market economies that were functioning around
them, the work women performed was invisible and unpaid. In a descrip-
tion of Native American women’s role in the fur trade, historian Mary
Wright noted, “Since Indian women’s subsistence activities faded and
those with a cash value did not correspondingly grow, they gradually
became trapped-just as had Euro-American women earlier and as Third
World women would become later-into a sphere labeled domestic, with
limited access to public arenas. Such limitation was tragic, for Indian
societies until then had accorded women an honored place because of
their crucial political and economic roles.”16
The shift from the agrarian, pre-industrial economy to the industrial-
ized market economy left women with responsibility for the home, even
if they participated in the paid workforce as well. Prior to the industrial
revolution, there were sexual divisions of labor in households, but men
took responsibility, along with women, for home production of all kinds,
such as growing food, chopping wood, fabricating furnishings, making
leather goods, and rearing children.17 With industrialization, and the
increasing importance of paid labor for the economic viability of the
household, the work of housekeeping and childcare was left behind in
the unpaid domestic realm. There developed an ideal of women as the
nurturers and caregivers, not just in the United States but also stemming
from Victorian England with its ideals of home and family as a refuge
from the harsh conditions of the industrialized workplace and the mar-
ketplace, while men were the producers and earners.18 This idealization
left women regarded as unsuited for market work. According to one his-
torian of gender and labor history:

Given the realities of work in the home and the nurturing and self-sacri-
ficing qualities most people believed were required to sustain a household,
women could not be expected to perform effectively in the labor force.
For when they entered it, they brought with them not the competitive and
achievement-oriented attitudes required for success in that sphere but the
more cooperative and relational spirit said to be cultivated in the home.
The attribution of family-related goals and norms to women thus consti-
tuted problematic, or even negative, features in the labor force.19
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 141

This is not the only explanation for women’s exclusion from many indus-
tries and job classifications, but by relegating women to the role of car-
egiving in the late nineteenth century, it became increasingly difficult for
women, and their children, to benefit from the economic opportunities
of the twentieth century unless they were attached to a successful man.

The Twentieth Century

Claudia Goldin, in a broad review entitled “Labor Markets in the
Twentieth Century,” identified three major demographic changes in
labor in the 1900s: the near elimination of child labor; the greatly
reduced labor market participation of the elderly; and, in what she
labels the most significant, the rise of women’s participation in the labor
force,increasing from 18% of paid labor in 1900 to nearing 45% at the
turn of the twenty-first century.20 These demographic changes were
accompanied by sweeping sectoral changes, as agriculture accounted
for a decreasing percentage of the labor force, as did mining, construc-
tion, and manufacturing. Both white-collar and blue-collar service
employment comprised an increasing percentage of the workforce. Self-
employment decreased from around 22% of white male employment to
around 12%, and the average number of workers per employer grew,
concentrating power over working conditions in employers’ hands.21
Union representation of workers grew and helped move some of the
balance of power toward the worker, with collective bargaining rights
codified in the Wagner Act of 1935, otherwise known as the National
Labor Relations Act, and the extension of those rights to public sec-
tor workers in the 1960s. The increased productivity of labor—due to
technology, human capital, and physical capital investments—combined
with population increases drove late nineteenth- and early twentieth-cen-
tury US GNP growth.22 Increases in labor productivity were reflected
in increased wages, but earnings of women and of black male full-time
workers were far lower than those of white males, reflecting broad occu-
pational segregation, human capital differences (in years and type of
experience between women and men, and in education between whites
and blacks), and discrimination in hiring, advancement, and wages. In
the years prior to World War II, for every dollar per hour that white men
received, black men earned about 43 cents, and white women earned
around 65 cents.23
142 M. M. WAY

World War II represented an important turning point for the US

economy overall and for women, both single and married, and their
standing in the labor market. The War Departmentsaw the mobiliza-
tion of all women as crucial to the war effort, and acted accordingly in
its propaganda efforts and instrumentally as providers of childcare and
other services for war-related workers through the Lanham Act, or by
its official name, the Community Services Act of 1941. At their peak,
government centers cared for 1.5 million children during the war. This
instrumental support as well as public relations campaigns that empha-
sized the patriotic responsibility of women and mothers to serve in the
workforce led to a 50% increase in the number of working women dur-
ing the war, with married women and mothers comprising more than
three-quarters of the new workers.24
After the war, many of these women returned home, prompted by fir-
ings, by their positions being changed and downgraded to “women’s”
work, and new messages promoted by the media and by the government
as well, in its efforts to assimilate the returning soldiers to life back home
and incorporate them into the labor force.25 As described in Chapter 3,
the baby boom ensued, but this was driven more by younger women
than by the war workers. Many women turned their efforts back to the
domestic sphere, which was surprisingly time-consuming given that in
comparison with the late nineteenth and early twentieth centuries, fami-
lies had fewer children, new “labor-saving” devices, and the availability of
consumption goods. There are several explanations for the large amount
of time spent in home production during an era of increased home labor
productivity (explicitly pointed out by Ruth Schwartz Cowan in her
1983 book More Work for Mothers): a renewed cult of domesticity; the
lower relative cost, in time and money, of home-produced goods versus
market-produced goods due to labor-saving devices; the increasing work
associated with raising children imbued with high degrees of human cap-
ital; and the lack of demand for women workers on the labor market.26
Even though the balance of time allocated to home production shifted
between women and men over the course of the century, the number of
hours remained high. One estimate shows that after adjusting for smaller
household sizes, family members’ time allocated to home production
actually increased by 2 hours between 1900 and 2000, when the average
three-person household spent 49 hours on food preparation, cleaning,
childcare, and other chores.27
The participation of women in the paid labor force increased through
the second half of the twentieth century, supported by civil rights
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 143

legislation in the 1960s that formed the basis for combating racial and
gender-based discrimination, and by the feminist movement of the 1970s
(see Fig. 5.1). Working mothers entered the workforce in large numbers,
with increases occurring for white and non-white women (see Fig. 5.2).
By the late 1990s, women’s labor force participation across all age and
marital status categories had peaked at around 60% and started a slight
decline. Men’s labor force participation continued its long, slow decline
starting after World War II and continuing through the twenty-first cen-
tury, driven first by the exit of older men from the labor force, and later
by the exit of the least educated.28

Economic Valuation of Household Production

The lack of economic recognition of the goods and services produced in
the domestic sphere was a problem for homemakers, economically, cul-
turally, and policy-wise. The problem can be illustrated by the following
example. If a bakery worker makes a cake and sells it in a store, they add

Fig. 5.2 Labor force participation of married women with children under 18:
1880–1990. Notes Civilian non-institutionalized population age 16 and older.
Wording of 1910 Census occupation question elicited an unusually high ­positive
response rate (Data source Historical statistics of the United States millennial
edition, Series Ba 425–469)
144 M. M. WAY

to the GDP, earn a wage, are taxed, and are eligible for worker’s com-
pensation, unemployment benefits, and Social Security. But a person at
home who bakes the same cake gets no wages and no social safety net
benefits for producing a good that improves the well-being of society in
the same way as the store-bought cake. The same occurs with childcare,
cleaning services, meals, clothing, and all the goods that can be pur-
chased on the market instead of produced in the home. Some econo-
mists have attempted to assign market value to household work, starting
with Margaret Reid in 1936, with her seminal, though under-recognized
book Economics of Household Production. Reid argued that “the pro-
ductive work of the household has been overlooked, even though more
workers are engaged in it than in any other single industry.” Economic
measurement of the output of the household mattered from a macroeco-
nomic and labor policy perspective, as well as for the status of women in
society.

The household is an integral part of our whole economic system. Only if

it is viewed in this way can we become aware of the labor costs and pro-
ductive activities necessary to maintain present standards of living. Unless
this is done, we cannot rightly appraise the economic role of homekeeping
women or act intelligently in matters concerning the gainful employment
of married women.29

Governments, economists and intergovernmental organizations such as

the United Nations have debated how to measure the contributions of
unpaid labor to the economy, and an excellent summary of the issues
and the approaches that have been taken can be found in a 1999 arti-
cle by Lourdes Berneria, entitled “The enduring debate over unpaid
labor.”30 At issue is which way to approach valuing the products pro-
duced at home. One way is to add up the direct cost of purchas-
ing the same goods and services on the market—the replacement cost
method. Using replacement cost, in 2008, the value of household-pro-
duced goods and services was estimated at around 18% of GDP. The
other method is the opportunity cost method which takes the labor market
value of the time used of the person producing the unpaid goods and
services, so a woman who could earn $18 per hour would have her time
spent taking care of children valued that way. Using opportunity cost,
the value of household-produced goods and services in the US in 2008
was around 48% of GDP.31
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 145

The vast differences between these calculations highlight the urgency

for policy-makers to get the accounting of these economic activities in
order. Nancy Folbre, in a piece entitled Valuing Non-Market Work, pub-
lished by the United Nations in 2015, wrote:

Failure to measure the contribution of uncounted inputs [from household

production] exaggerates the overall efficiency as well as the overall output
of the market economy. In the long run, valuation efforts could contribute
to the construction of social accounting matrices estimating the total value
of inputs into developmental outcomes such as health and education, with
important policy implications.32

One example of how policy would be affected by an accepted

accounting process is in the compensation of family members for elder
care. Moving into the mid-twenty-first century, the costs to public wel-
fare systems like Medicaid of residential elder care are growing at a high
rate. Compensating family members who leave the labor market and
provide in-home elder care—perhaps through a system of paid family
leave—could save taxpayers billions of dollars.33 (The Medicaid systems
in many states already have limited programs that allow some families
members to be compensated.34)
Even though the public sector had not figured out how to value
household production by the early twenty-first century, families them-
selves had been doing the calculations all along and attempting to make
rational economic decisions, in the face of often irrational social norms
and expectations. This is the subject of the next section.

The Economics of Family Labor Allocations

Economists are notorious for simplifying situations that are complex—it
is one of our strategies for making economic models flexible. One exam-
ple of a simple model that can adapt quite a bit is the model of individ-
ual labor supply, also called the labor-leisure model.35 The basic model
assumes that an individual who is deciding whether or not to work or
how much to work, considers three main things: their net wage rate
(subtracting taxes and any other costs of working from their wage); their
non-labor income (such as an allowance from their parents, income from
investments, or welfare payments); and their preferences for consumer
goods (bought with their labor and non-labor income) and leisure time.
146 M. M. WAY

“Leisure” in this model includes everything that a person needs or wants

to do outside of paid work, such as sleep, beyond a basic subsistence
level, study, take care of children, cook meals for the family, go to doc-
tor’s appointments, or play video games.
The nice thing about a simple model is that you can fit the complex-
ities in by adjusting the main variables. Childcare costs and taxes, for
example, are fit in by adjusting the net wage: if a person earns $20 per
hour, pays 10% in income taxes and must pay $8 per hour in childcare
costs, their net wage is $10 if childcare costs are not tax deductible and
$10.80 if the government allows childcare to be deducted from earnings.
One could also consider the stress and hassles of an inflexible work situ-
ation to decrease the net wage. A person who is willing to work at a job
that pays $20 per hour, but has flexible work arrangements, instead of a
job that pays $24 per hour with no scheduling flexibility shows that they
value flexibility to be worth at least $4 per hour in wages.
For many people, higher wages entice them to work more—in effect,
the price of leisure increases when the wage goes up because a person is
sacrificing more dollars in order to take time off. (This is called the sub-
stitution effect of a wage increase.) It is also true, however, that higher
wages can cause someone to think, “I have enough money, I will cut
back on work hours and spend more time doing something else.” (This
is called the income effect of a wage increase.) These two effects compete
against each other when people already are in the workforce, making it
hard to predict if someone will work more or less in response to a wage
increase. But for those who are not working—say a mother at home tak-
ing care of children—a net wage increase that is high enough will pull
her into the labor market. If a job came along that paid more per hour
than she had previously been offered, or if childcare costs decreased, or if
she valued flexibility and a more flexible job came along, these net wage
increases could result in her entering the paid workforce.
When someone’s non-labor income or wealth increases, it is likely to
decrease their work time or pull them out of the labor market altogether.
Economists say leisure is a “normal good,” that is, something people
want more of when they are richer and have more flexibility about the
choices they make. Some of their consumption good needs may be met
by the rent they get from an investment property, their lottery winnings,
or their Social Security check, so they can afford more leisure. This phe-
nomenon is important in policy discussions because government transfer
payments for Social Security, unemployment insurance, and Temporary
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 147

Assistance for Needy Families (TANF)—the temporary welfare payments

for very low-income families—can incentivize people to work less or not
at all. On the other hand, they can also support a person’s participation
in the job market when they are used while someone is pursuing more
training or education, resolving a difficult family situation, and spe-
cifically in the case of unemployment insurance, spending time search-
ing for a job in which a person’s skills are well matched with the job
requirements.
Now let’s add in the family and household production aspect. Using
a similar model, called the unitary model of household decision-making,
spouses consider how much of each spouse’s productive time should be
spent in market work or household production, keeping in mind four
basic things. The first two are the wages of one spouse relative to the
wages of the other and the household productivity of one spouse rela-
tive to that of the other. These ratios will determine who works more
in the market and who works more at home. According to this model,
spouses will also consider their non-labor income and their joint prefer-
ences for consumption goods and services versus household goods and
services—restaurant meals versus home-cooked meals, hiring a cleaning
service or taking their leisure time for cleaning, exotic vacations ver-
sus time spent with toddlers. Considering all this, they jointly allocate
their time between market labor and household labor. If one spouse has
higher wages, that spouse would allocate more of their time to the mar-
ket versus the home. If one is a super-productive homemaker and the
other one cannot boil water but makes a decent wage, the homemaker
works at home. An inheritance might reduce the hours of work for both
spouses. And preferences are very important: two couples in which the
husbands and wives have the exact same earnings potential and home
productivity may have different allocations of time because their prefer-
ences differ. One couple may want more money to pay for private educa-
tion for their children, and the other may prefer home-cooked meals and
home-schooling. But anything that increases the relative net wage of the
lower earner makes it more likely that both spouses will allocate at least
some of their time to the labor market.
The unitary model of household decision-making is based on one
important assumption—that either the spouses are in complete agreement
regarding their preferences, or that one spouse has the say and that per-
son’s preferences dominate. This, common-sense tells us, is one of those
economic simplifications that may not reflect reality. Instead, we might
148 M. M. WAY

consider the bargaining model outlined in Chapter 2, which described

a more realistic scenario for the late twentieth century, particularly as
women gained in legal and economic rights. We will consider bargaining
scenarios for household allocation of resources more in Chapter 6.
Over the course of the twentieth century, the factors affecting house-
hold labor allocation—the relative wages between men and women,
relative household productivity, non-labor income and preferences—
changed dramatically. Women’s wages increased relative to men’s, as
seen in Fig. 5.3. It became generally recognized that there was nothing
specific about women that made them more productive in the house-
hold, except when it came to breastfeeding children. Social norms and
expectations that affected people’s preferences changed, most dramati-
cally in the acceptance of married women working. “Public opinion in
1929 tolerated the employment of only a few classes of married women,
notably blacks, immigrants, women with grown children, and, occasion-
ally, ‘women of rare talents.’”36 The status of working women—if not

Fig. 5.3 Ratio of women’s median annual earning to white men’s median
annual earnings (Data source Author’s calculations from Historical Statistics of the
United States Millennial Edition, Series Ba 4512–4520. Median earnings of full-
time workers by sex and race: 1960–1997)
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 149

necessarily working wives and mothers—increased, and little-by-little

policy started supporting their advancement in the workforce.37 More
and more single-mother families emerged, as well as single-father fami-
lies. Instead of resulting from widowhood, however, many resulted from
divorce and increasing numbers from out-of-wedlock childbearing, espe-
cially among lower-income women. The twentieth-century policies that
supported (or not) the working lives of single and married parents influ-
enced how they allocated their labor to market or non-market work. The
welfare system, employer-level prohibitions on married women working,
and legal protections for female workers all promoted the male-bread-
winner, female-caregiver division of labor, in many cases limiting families’
economic potential and well-being, and women’s individual rights. How
they affected family economic decision-making is the next topic.

Government and the Labor Market Decisions

of Households—Past Policies

Welfare Based on the Male-Breadwinner Model

The development of the American welfare system, at the local, state, and
federal levels, reinforced the model of (white) women at home and men
at work. In a comparative study of institutional and policy regimes for
families across countries, Lynne Prince Cooke and Janeen Baxter seemed
to be describing the United States when they stated:

Policies in liberal welfare regimes…can structure relative group access to

employment or responsibility for the domestic sphere. Policies granting
men preferential access to vocational training and more lucrative profes-
sions, generous dependent tax allowances, household rather than individ-
ual taxation, high marginal tax rates that penalize second earners along
with extensive maternity leave and limited public child-care provision rein-
force a male breadwinner-female carer model.

Except for the “extensive maternity leave” (which, in contrast to

“parental leave” relegates women to infant and toddler care as opposed
to men), the United States welfare regime was developed along the
above lines and continues to have these characteristics today. Going back
to an early form of public welfare, mother’s pensions, provides a vivid
illustration of the norms enforced through welfare systems. Mothers’
150 M. M. WAY

pensions were first enacted by local governments or charity groups in

the 1800s. They were offered to poor women—usually widows or aban-
doned women claiming to be widows—in an attempt not only to provide
relief but to mold these women to middle-class norms idealizing moth-
erhood and women’s place in the home. White widows were heavily
favored, often on the requirement that they not work outside the home
and accept a high degree of supervision.38 The decade of 1910–1920
saw 40 states enacting mothers’ pensions as the result of middle-class
female activism.39 But they were offered with many strings attached,
including requirements to stay at home with children rather than work-
ing, and involved often heavy-handed and intrusive interactions with
social workers and inspectors. They were withheld when poor women
were deemed unworthy. Women of color, divorced, and never-married
mothers were often denied help.40
As mothers’ pensions evolved in the 1920s, legal pressure on men
to support their children was increasing. This pressure included a
“court-centered regime for policing delinquent husbands” through fam-
ily courts. These courts often required poor women who applied for
pensions to track down their husbands and hand them over to the law,
which then supervised them and punished them for unemployment or
drunkenness.41 Public welfare systems in the United States as regards
to men supported the male worker, growing to include unemployment
and worker’s compensation programs, disability insurance, generous vet-
eran’s benefits, and social security based on earned wages. All of these
supports were free of the stigma applied to welfare for poor mothers, but
the flip side was that support for men outside of the labor system barely
existed. The stingy welfare benefits for poor mothers also reflected the
male-breadwinner model. “One explanation for the tentative nature of
such redistributive strategies as the 1920s mothers’ pensions initiatives
(which were punitive in nature, discriminatory in their application, and
incorporated requirements that revolved around women’s successful
performance of their home roles) lies in the violation of male claims to
providerhood.”42
For poor, female-headed households, the economic choice facing
them if they were eligible for mothers’ pensions tied their non-labor
income to not working. Women had to accept a meager pension with
no chance to supplement it with earnings, or do without and attempt
to support themselves and their children by working. Work outside the
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 151

home required them to enter an economy that offered few job options
for uneducated, unskilled women that provided the pay and the flexibil-
ity needed to care for children simultaneously. Both solutions consigned
many mothers to poverty, reinforced the idea that mothers belonged at
home, and left poor working mothers and their children at high risk of a
panoply of preventable harms.
During the Depression, a federal program using the mothers’ pension
model, Aid to Dependent Children (ADC), was established, providing
money to states for the purposes of supporting poor mothers. While
there were some federal eligibility controls, state-level administration
guaranteed widespread discrimination against any woman not considered
worthy, and against black women in particular. State control was a bar-
gain made with southern lawmakers, however, in return for their support
of the legislation.43 While many state welfare offices required moth-
ers not to work as a condition of participation, they also pushed many
black and Hispanic women to find work, instead of going on ADC. Few
provided the services that might have facilitated this, such as job train-
ing and childcare. As more women of color accessed ADC benefits, the
stigma associated with receiving ADC grew, and there was much concern
about welfare benefits discouraging mothers from working. (Further
discussion of the emergence of this race-linked stigma is in Chapter 6.)
Some federal work support services, including childcare support, were
provisioned with the expansion of ADC in 1962, when it was renamed
Aid to Families with Dependent Children (AFDC) and provided more
transfers to two-parent families. It remained a highly stigmatized pro-
gram and due to its limits on earnings, it still discouraged marriage by
disqualifying many married couples from aid on the basis of income lim-
its reflecting single earner incomes.44 In 1996, another welfare reform
was enacted and a new program, TANF, was made more open to mar-
ried couples, but it implemented work requirements on recipients, and
limited the cumulative time a person could receive benefits to five years
across the lifespan, with some exceptions. By this time, the acceptance of
mothers in the workforce had greatly increased, and the objective with
welfare reform was to find ways to move welfare recipients into paid
work. The work requirements could be difficult, however, for women
with few labor market opportunities due to where they resided, lack of
public transportation, low-levels of education and experience, and diffi-
culties with childcare.
152 M. M. WAY

Marriage Bars—Imposing Constraints on Married Women

Marriage bars, which prohibited the hiring of married women, and in
many cases enforced the firing of female employees who married, dis-
criminated against and impeded the economic choices of women and
families in stark ways. The first marriage bars emerged in the 1880s in
precisely those white-collar fields that white women predominated in and
that married women would predominate in once the bars were lifted—
teaching and clerical work, including work in banks, insurance compa-
nies, and public utilities. Not all firms in these areas discriminated in
such a way, and while data from private firms are scarce, one survey from
1931 of private firms in Kansas City and Philadelphia showed that 61%
of insurance companies, 37% of publishing houses, and 35% of banking
firms had strict policies against hiring married women, while 46%, 34%,
and 21% of insurance, publishing and banking firms would fire single
women who married.45 (While marriage bars did not affect black women
the same way, pure discrimination on the basis of race prevented single
and married women’s employment into many jobs in these industries.)
That laws did not prohibit such discrimination is not surprising for
that era, when women did not enjoy equal protection of the law in
employment. What is more surprising is that so many local and state gov-
ernments imposed these policies in teaching and other clerical positions,
such as librarians and even nurses. A survey by the National Education
Association in 1928 revealed that 61% of school boards did not hire
married teachers and as noted at the beginning of the chapter, by 1941,
77% of the school boards surveyed did not hire married women.46 Nine
states had marriage bars prior to the Depression, and by 1940, 26 states
restricted married women’s employment in state government jobs. The
federal government imposed similarly discriminatory policies, including
Federal Order 213 in 1932 which specified that in the event of firings or
layoffs in government agencies, the female government employees who
were spouses of male federal workers should be fired, resulting in many
women losing needed jobs.
The justification for marriage bars was varied—simple prejudice, allo-
cating jobs to single women who did not have a man to support them,
allocating jobs to men who had to support wives and families (although
most bans were in primarily female occupations), and keeping turnover
high and wages low in industries where tenure resulted in pay raises.
Whatever the reason, the effects on families were clear. First, it greatly
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 153

limited the options for middle-class couples to allocate women’s labor to

the workforce. Second, it lowered women’s wages. Women who lost jobs
had to search for work outside their fields or in less desirable firms, form-
ing inefficient job matches and losing the pay increases associated with
experience and tenure. The wages of single women were also depressed
because the system discouraged them from investing in further education
or in their own careers if they expected to get married someday. 47 These
limits on women’s economic freedom and on families’ economic poten-
tial did not start to be lifted until the 1950s. Marriage bars also affected
people’s preferences by stating a preferred social order. “When govern-
ments at any level removed married women from public sector jobs, it
was an important signal to the nation about priorities in employment.”48

Regulation of Women’s Labor—Discriminatory

Constraints on Women
Industrialization’s ills—poor working conditions, extremely long hours,
overnight shift work, and low wages—were apparent to many by the late
1800s. Urbanization led to increased fears of crime and new social prob-
lems. Family life was being shaken by the lifestyle changes brought about
as the economy changed. The women’s movement of the 1800s—led by
primarily middle-class activists seeking social and legal reforms such as
the right to vote, women’s property laws, and mothers’ pensions—took
as one of its causes the protection of working women.
In the late 1800s, disputes over the regulation of labor for any work-
ers mostly centered upon the rights of the individual to contract for
themselves, so the only regulations on labor that tended to hold up in
court were those dealing with public safety—limits on the length of shifts
for streetcar and railroad workers, for example—and those dealing with
groups that did not have the rights to contract for themselves, such as
children. Women were on the ragged edge of this category, and a 1908
Supreme Court Case, Muller v. Oregon, confirmed it.49 The justifica-
tion for upholding the state of Oregon’s working hours limitations on
women was found in their role as mothers, which directly impacted the
welfare of the country. In the decision, Louis Brandeis wrote:

When the health of women has been injured by long hours, not only is
the working efficiency of the community impaired, but the deterioration is
handed down to succeeding generations. Infant mortality rises, while the
154 M. M. WAY

children of married working women, who survive, are injured by inevitable

neglect. The overwork of future mothers thus directly attacks the welfare
of the nation.50

Muller v. Oregon was a major legislative victory for labor activists and
social reformers, who had been unsuccessful in achieving gender-neu-
tral protections for all workers. Legislation across the states quickly
ensued and by 1920, “thirty-nine of the forty-eight states regulated
hours for women; thirteen states and the District of Columbia passed
minimum-wage laws; sixteen states passed laws that expressly forbade
night work for women.”51 The feminists of the 1920s and 1930s were
sharply divided regarding these laws, which were highly relevant to the
Equal Rights Amendment (ERA) campaign, started in the 1920s. Social
reformers feared that ERA would outlaw women’s protective labor legis-
lation. Other pro-ERA feminists saw the protective laws as paternalistic
and discriminatory.52 The impact of these laws fell disproportionately on
poor women, for better or for worse. Although a very small percentage
of women worked at night, a 1919 survey of 100 night-working women
in New Jersey found that ninety-six of them were married and almost all
the married women had children.53 Ironically, if husbands worked days,
night work helped solve the childcare issue that activists and courts were
so concerned with.
While women’s labor protections were promoted by activists intending
to protewas a major legislative victoryct women and the family, and were
justified by legal rulings that women were essentially wards of the state, to
be protected based on their procreative function, without the same rights
of contract as men, their impact echoed through the labor allocation deci-
sions of poor families. The ability to decide to assign more than eight
hours of a wife’s labor to the workforce was removed, and in many cases
the decision to assign her day hours to household production and her
evening hours to work was removed as well. (At least the assignment of
those hours to the regular workforce was removed—as with many labor
regulations there were ways around it that resulted in working for less pay
and in more deleterious working conditions.) The reinforcement of wom-
en’s roles as mothers and keepers of the home influenced preferences and
contributed to the stigma of women “having to work” due to a less than
successful male-breadwinner. While such limitations were born of good
intentions, their effect for many women and families was negative. The
opinion of economist Margaret Reid of these policies was clear.
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 155

On the whole, it seems desirable to free the family from hampering restric-
tions so that it may increase its income wherever possible. … If present
trends continue, such restriction becomes more and more unjust and
greatly increases family hardship.54

Household Labor Allocation

in the Twenty-First Century

In the late twentieth and early twenty-first centuries, the growing rights
of women and evolving gender expectations around work have led to a
“convergence” in men’s and women’s labor force participation. Gender
earnings disparities are decreasing on average, but these averages are
often driven by the youngest cohorts in the labor market, and the phe-
nomenon of men’s and women’s wages diverging as they age continues.55
Occupational segregation is starting to decline, particularly in high human
capital professions such as medicine and law, but the concentration of men
at the highest levels of private and public sector leadership and pay contin-
ues, and women face continuing discrimination and disadvantage in highly
lucrative industries such as high tech and finance, for example.
The convergence in terms of women’s and men’s allocation of time
between paid and unpaid work is happening as well, although less dra-
matically for mothers and fathers than for women and men overall. In
1965, mothers spent about 20% of the time of fathers in the paid work-
force and about 420% of the time of fathers in unpaid housework and
childcare. In their total work time and their free time, mothers and
fathers were about equal. By 1998, mothers spent 60% of the time of
fathers in paid work and only 160% of the time of fathers in unpaid work.
The change was due, in large, part to mothers decreasing their time in
unpaid work by about 100 minutes per day, to about 5.5 hours, on aver-
age, and men increasing their time in unpaid work by about 100 min-
utes, to about 3.3 hours per day. There remained a more than two-hour
difference in unpaid work by women, and a new deficit in their free time,
since paid work time increased for women by more than unpaid work
time decreased.56 This does not mean, however, that in a dual-earning
couple the average woman is doing two hours more of housework per
day than the average man; mothers who are not in the labor force at all
bring up the unpaid work average of all women.
The plateau in women’s labor force participation is probably related
to their continuing responsibilities in the home, their inability to find
156 M. M. WAY

jobs with the flexibility to accommodate these responsibilities, and also

to continuing inequality in earnings. Wages are especially unequal for
mothers versus fathers because of the motherhood wage penalty and the
daddy bonus. The motherhood wage penalty refers to the difference in
wages between childless women and mothers which is unexplained
by factors such as years of experience, education or job characteristics.
In the United States, having one child is estimated to reduce women’s
wages by between 5 and 15% on average, with the effect more severe
for married mothers than unmarried mothers. Each additional child
drives wages down more. Explanations include discrimination, assump-
tions about the productivity of working mothers, actual differences in
the productivity of mothers, and negative selection of women into moth-
erhood, meaning that lower-earning women on average are more likely
to become mothers, whatever their occupation level.57 There is also evi-
dence that mothers are less likely to be hired at all than non-mothers in
studies using identical resumes in which one group’s resumes include an
item related to motherhood—like being treasurer of the Parent Teacher
Association—and the other group does not.58
Fathers, on the other hand, experience an increase in pay as a result
of fatherhood. The daddy bonus goes disproportionately to white, edu-
cated men in male-dominated occupations. Married men earn substan-
tially more than unmarried men, controlling for differences in education,
experience, and other factors,59 and fatherhood seems to provide an
additional bump. The bump holds across all education levels and eth-
nicities, but benefits white, college-educated men the most (for whom
it provides over $5000 per year on average, according to a 2010 study)
and Hispanic high school dropouts the least (for whom it is only around
$1400 per year). Men living in traditional male-breadwinner house-
holds receive the highest bonus. This could reflect unobserved produc-
tivity increases on the part of fathers, assumptions about fatherhood
making men more productive, or simple discrimination in favor of the
male-breadwinner employee.60
Given these differences, it seems understandable that after having chil-
dren, with relative wage differences between mothers and fathers increas-
ing, many couples would opt for the woman doing less paid labor and
the man doing more. A higher daddy bonus for white men helps explain
the difference between white and non-white married mothers’ labor
force participation seen in Fig. 5.2.
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 157

The other early twenty-first-century phenomenon is the declining

labor force participation of men in general. Throughout the twentieth
century, men’s labor force participation declined, driven mostly by ear-
lier retirement ages and some of the economic freedom accorded to men
once their wives picked up more earnings responsibilities. Between 1996
and 2016, the decline continued with overall male participation rates
dropping from 76 to 70%, and black male participation rates from 69
to 64%.61 These participation rates do not count the incarcerated pop-
ulation, of which black men make up a disproportionate percentage.
Incarceration contributes to the trend, however, as men with criminal
records have serious difficulties in finding work and may drop out of the
labor force as a result. Another group of concern is high school gradu-
ates. Among the second youngest working cohort, 20- to 24-year olds
with a high school diploma and no further education, labor force par-
ticipation dropped around six percentage points for men and women
between 2000 and 2015, down to 85% for men and 73% for women.62
This is a very serious decrease for younger adults who should be starting
their career advancement at this stage in their lives.

Future Policies to Support Family

Labor Force Participation
Maintaining the strength of the twenty-first-century US economy in the
short to medium term may require high labor force participation rates
among its population due to the stresses of declining fertility levels,
the increasing dependency ratio as baby-boomers retire, and predicted
declines in immigration from Mexico in particular. Although the demand
for middle-skilled jobs in industries already hit by automation, trade, and
globalization has been declining, demand for lower skilled service sec-
tor workers and higher-skilled knowledge workers and professionals in
occupations that are not easily outsourced or automated continues to
grow.63 The groups with the most room to grow in their participation
are women in general, followed by black men and high school graduates
who have not continued in college. The discussion below deals specif-
ically with policies that could increase female labor force participation.
Concerning the other groups, the ideal policies targeted at increasing the
labor force participation of high school graduates are likely those that try
to get them out of the “high school only” category, encouraging further
158 M. M. WAY

schooling and training. Raising community college certification and four-

year college graduation rates would make these students more prepared
for the higher human capital requirements of the twenty-first century-la-
bor force, as discussed in Chapter 4. Policies encouraging more black
men to participate in the paid workforce have to tackle an enormous
variety of issues, from discrimination, to segregation, education, and the
lifelong effects of incarceration on employability. More about these issues
will be discussed in Chapters 6 and 8.
Of course, in the early twenty-first century, the disruption of the
labor market by accelerating advances in automation and artificial intelli-
gence(AI) begs the question of whether greater labor force participation
in the long run will even be possible. In his 2018 book, The Future of
Work, Darrell West of the Brookings Institute lists the number of indus-
tries and occupations in which jobs are already declining due to auto-
mation and AI—restaurant and hospitality, retail, customer service,
warehouse operations, manufacturing—and those where disruptive change
is soon to come—transportation, medicine, elder care and home services,
and security and education, to name a few.64 One 2017 study of the occu-
pations at risk of extensive automation estimated that “47% of total US
employment is in the high risk category, meaning that associated occupa-
tions are potentially automatable over some unspecified number of years,
perhaps a decade or two.”65 A McKinsey Global Institute Report from
2017 entitled “Jobs Lost, Jobs Gained: Workforce Transitions in a Time
of Automation” estimated that by 2030 between 75 million and 375 mil-
lion workers worldwide will need to change occupations due to automa-
tion, or between 3 and 14% of the global workforce. These changes they
predict will affect advanced economies more than emerging or developing
economies due to higher labor costs providing more incentive to auto-
mate. At the same time, they forecast job growth in many industries due
to overall increases in productivity, increased demand for consumer goods
and services, and investments in infrastructure and construction.66
How the US political system will address the problems and issues aris-
ing from technologically displaced workers in the future is still unknown,
so the policies below assume that greater labor force participation in the
short to medium term is necessary for both US economic growth—per-
haps a strong assumption—and for improving a family’s economic pros-
pects—an assumption that few would challenge. The policies below are
those that will encourage female labor force participation, including the
most obvious, those that enhance access to childcare. They also include,
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 159

however, the access of men to paid paternity leave, and policies that help
increase workplace flexibility and decrease work–life conflict. All of these
affect, directly or indirectly, the net wages of women, and also on the
preferences of couples by reinforcing the norm of women working for
pay and in some cases the norm of men taking more responsibility for
home and children.

Child Care—Increasing the Net Wage

It is often the case that the earnings of the mother in lower-income groups
are seldom adequate to pay for the costs of really good nursery school
care. This may be true even if the mother felt she could turn all her earn-
ings to this purpose.67

This statement by Margaret Reid in 1934 is still true today. Child care
availability and costs are probably the most significant barrier to partic-
ipation in the labor force for mothers of young children. While a fed-
erally-run child care program seems unlikely going forward, it has been
proven to be possible in the World War II mobilization of female work-
ers. State-run programs are also feasible. One inspiring example from
California in the mid-twentieth century was described in a documen-
tary history by Natalie Fousekis.68 In Demanding Child Care: Women’s
Activism and the Politics of Welfare, 1940–1971, Fousekis documented
how the federally operated childcare centers established by the Lanham
Act during World War II era were shut down soon after the war ended.
Children were sent back home with their mothers, in theory, but for
low-income working mothers, the closures created a crisis. In California,
mothers, social workers, and educators banded together to convert the
federal centers to state centers. After the state took over the centers in
1946, offering spaces on a means-tested basis to families, enrollment
in California’s child care centers went up from 13,000 children to
16,000 in five months, surprising legislators who thought that with
men returning from war the need of working mothers for childcare
would decrease. The network of centers was never large, enrolling only
23,000 children statewide in 1971 after funding from AFDC expanded
the program. Means-testing limited its reach, and tens of thousands of
children were turned away because there were no places for them. But,
the California state system was operated outside of the welfare system
for three decades, thanks to sustained advocacy convincing conservative
160 M. M. WAY

governors and legislators to allocate state dollars to the centers inde-

pendent of mothers’ status as welfare recipients. This created a pro-
gram free of the welfare stigma. The demise of the centers occurred in
the 1970s after they were absorbed into the realm of welfare work sup-
port programs. “Policymakers failed to realize that requirements they
placed on child care would alter local programs and favor mothers on
public assistance over those with low-wage jobs and young children. …
In California, the option of being a poor working mother without being
subjected to scrutiny by a welfare caseworker disappeared.”69
The California example shows that effective state-run programs are
possible, and the need has only increased since the 1970s. Many low-
er-income families with children, whose ranks include a wide variety of
young families at the beginnings of their earnings trajectories, earn too
much to qualify for government subsidies for childcare, but too little
to be able to pay on their own for high-quality private care. Failure to
help young parents pay for the care their children need while the par-
ents build their careers stymies the development of needed human capital
through work experience. Under one federal program, the Child Care
and Development Fund, block grants for low-income child care subsidies
are provided to the states which then can set their own income limits and
copayments paid by the family. One cross-state study of the CCDF sub-
sidies revealed that for a single parent family with two children earning
$12,500 per year in 2011 (the poverty level for a family of three in that
year was $18,40070), only three states required no copayment by parents
while Louisiana required a $153 per month copayment. Copayments are
one way to spread the benefit of the block grant to more families, so they
are often higher in states with greater needs.71 But they also prevent fam-
ilies from using the subsidy if they are unaffordable.
For middle-income families, the needs are acute as well. State child-
care costs vary, but in Alabama the average cost for childcare was over
$5600 per child in 2016. This figure was more than 12% of median
household income in Alabama.72 Families with more than one child
would be extremely burdened by costs at this level. In Massachusetts in
2016, infant care averaged more than $17,000 per year, which is $6000
per year more than the average annual cost of college.73 Even care for a
4-year old was $2000 per year more than average college costs. These
costs dramatically lower the net wage of a single parent or whomever is
the second-earner in a household, greatly decreasing their likelihood of
working for pay. A national or state-run system, whether government
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 161

operated or providing subsidies to private providers, would be a positive

step toward increasing labor force participation, and improving the wel-
fare of millions of families.

Paid Paternity Leave— Decreasing Discrimination

While Changing Preferences
The United States is unique among higher-income countries in its lack
of paid leave for parents at the birth of a child. Paid (or unpaid) mater-
nity leave works to increase women’s attachment to the labor force, as
long as it is fairly limited in duration, by making it evident that they still
are a part of the labor force, even when they are recovering from child-
birth and taking care of an infant. It allows them to return to positions
where they are already invested in their firm-specific human capital, at
the same level at which they left, keeping their wages from falling as a
direct consequence of having a baby.74 But the mother-only maternity
leave model has pernicious indirect effects on the hiring, promotion,
and wages of women. Employers hiring women and men of childbearing
age will assess their risk of having the employee take a leave differently
based on sex, and depending upon how expensive that leave would be
(even unpaid leaves have insurance expenses, replacement expenses, and
other administrative costs as well as disruption in work processes), may
discriminate in favor of men, or invest less in the human capital of the
female employee. This has negative wage effects for all women, not just
mothers. One 2016 study found that while labor force participation for
women increased as a result of the implementation of the Family Medical
Leave Act (FMLA) of 1993, the likelihood of promotion decreased for
all women as a result. This impacts earnings significantly.75
While the FMLA covers men who want to take an unpaid leave as well
as women, a very low proportion of men take parental leave under its
coverage—one study showed only 3% of men taking any time off at all
during their child’s birth month—and only about 50% of workers in the
United States are covered by its job protections.76 Even as more men
take active roles in infant care, taking unpaid leave may be economically
challenging for families, and it is certainly not the custom in the United
States. Paid paternity leave administered through a gender-neutral paid
parental leave federal system would do two things for women and fam-
ilies, besides providing paid time to care for an infant. First, it would
increase the number of men taking leave, and thus decrease the gap in
162 M. M. WAY

work experience for women and men. This would help close the gender
wage gap. Second, it would decrease the part of discrimination in hiring
and promotion that is associated with different leave-taking by men and
women. This would also decrease the wage gap. Finally, it would increase
the time spent by men with their children in infancy, which increases
fathers’ time spent with their children as they get older. The gender divi-
sion in household labor would decrease, giving women more time to
spend on paid work.
Our basic economic model predicts that these results of parental
leave would increase women’s labor force participation by increasing
their wages relative to men’s, and changing couples’ preferences for who
works at home versus who works in the market to favor men at home rel-
atively more. Having fathers more active and involved in caring for their
children also boosts the flexibility for mothers in attending to their paid
work, and that leads to the third policy.

Policies That Improve Work Flexibility

Work–family conflict was an ongoing phenomenon for women and men
throughout the twentieth century and the first decade of the twenty-first
century, and the effects on health and mental health in particular were
severe. “A meta-analysis of 67 articles focused on the consequence of
WTF [work-to-family] conflict demonstrated a strong link to strain,
depression, somatic symptoms and burnout.”77 The conflicts as related
to time spent with children were especially stressful for mothers, and
greater flexibility in paid work was identified as one of the potential rem-
edies. In a 2014 Kaiser Family Foundation Poll, women who identified
as homemakers most frequently cited family responsibilities as the reason
they were not in the workforce, and overwhelmingly cited more work
flexibility as a reason they would return to paid labor.78 Another study
from the Work and Family Institute found that around 85% of the cur-
rently employed, male and female, also rated workplace flexibility as very
or extremely important to them.79
Greater flexibility has also been cited as a potential factor in closing
the gender wage gap. In an ongoing study of those professions where
the gender wage gap was lowest, two factors were cited as favoring gen-
der equality in work occupations: the lack of reward for working certain
hours; and the lack of concern for an employee putting in long hours, or
just being present on the worksite for long hours. For example, in the
legal profession, being available at all hours for clients, and being in the
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 163

office working during normal business hours and even later, is consid-
ered important. One reason for the wage gap in the legal profession is
that men can fulfill these conditions more easily due to a lower expecta-
tion that they will be available for childcare. “A flexible schedule comes
at a high price, particularly in the corporate, financial and legal worlds,”
according to Claudia Goldin, citing the decreased rates of advancement
for women and men seeking more flexibility in those fields. For pharma-
cists, who do not have to be available at all hours to particular clients and
who can clock in and out on a more flexible shift basis, the gender wage
gap has almost disappeared. 80
Flexibility can emerge in an industry without government interven-
tion, particularly as technology enables teams of workers to handle units
of work—handling a client case, dealing with a patient, working on a lab
experiment—in relatively seamless ways without everyone being physi-
cally present at the same time. But it is difficult for large-scale change
to occur when it relies on employee–employer negotiation under condi-
tions of an imbalance of power. 81 Government regulations could require
firms to invite or at least allow requests for flexibility in work arrange-
ments without fear of retaliation, for example. Countries such as the
United Kingdom and Australia have “right-to-request” regulations that
prohibit retaliation against employees requesting flexibility.82 The gov-
ernment can also conduct educational and promotional campaigns citing
a wide variety of research that touts the benefits of worker flexibility for
firms, including lower turnover, fewer sick days, and greater employee
satisfaction.83 As often happens when change comes to the labor mar-
ket, the government can spearhead change in its own role as employer of
around 13% of the labor force, between the federal, state, and local gov-
ernments. Pilot programs in the federal Office of Personnel Management
and in the Utah State Government have shown positive results for flexi-
ble work schedules. Employee satisfaction and efficiency have increased,
and there have been spillover benefits, such as reducing commutes
during peak travel hours, making work less costly for people and the
environment.84

Conclusion
Government economic interventions in family life do not get much more
effective than the marriage bars of the first half of the twentieth century,
or the coercive and discriminatory implementation of mothers’ pensions.
The refusal of federal and state legislatures to address the childcare needs
164 M. M. WAY

of working families outside the context of welfare programs is another

effective policy stance that reinforces the male-breadwinner, female-car-
egiver model. This approach to families and their work inside and out of
the home may be consistent, but it is increasingly seeming out of touch
with the realities of the US economy and the American family. In the first
place, policies that encourage workforce participation are going to be
crucial for US economic leadership going forward. In the second place,
the assumption that the married, two-parent, family—that can either
afford day care or afford one of the parents leaving work for a few years
to raise kids—is still the context for work–family policies is evidence that
policy-makers have not been taking the evolution of the American family
seriously, or are fighting a quixotic battle to turn back time and reverse
the new trends in family formation and structure. These trends and the
ever-changing makeup of the American family since the nineteenth cen-
tury are the subject of the next chapter.

Notes
1. Helen Corrigan was my grandmother, who often spoke of this indignity.
2. L ynn Y. Weiner, From Working Girl to Working Mother: The Female Labor
Force in the United States, 1820–1980 (Chapel Hill: University of North
Carolina, 1985), 109.
3. Susan B. Carter et al., Historical Statistics of the United States Millennial
Edition Online, ed. Matthew Sobek (New York: Cambridge University
Press, 2006). Table Ba425–469.
4. Sherna Berger Gluck, Rosie the Riveter Revisited: Women, the War, and
Social Change (Boston: Twayne Publishers, 1987).
5. L ynn Prince Cooke and Janeen Baxter, “‘Families’ in International
Context: Comparing Institutional Effects across Western Societies,”
Journal of Marriage and Family 72, no. 3 (2010).
6. See Table 104.10 “Rates of high school completion and bachelor’s degree
attainment among persons age 25 and over, by race/ethnicity and sex:
Selected years, 1910 through 2015” in National Center for Education
Statistics, Digest of Education Statistics. Accessed 2018 at https://nces.
ed.gov/programs/digest/d15/tables/dt15_104.10.asp.
7. Ronald G. Ehrenberg and Robert Stewart Smith, Modern Labor
Economics: Theory and Public Policy, 13th ed. (New York: Routledge,
2017). Tables 6.1 and 6.3.
8. Table 3 in Steven F. Hipple, “Labor Force Participation: What Has
Happened Since the Peak?,” Monthly Labor Review, no. September, 2016
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 165

(2016), https://www.bls.gov/opub/mlr/2016/article/labor-force-par-
ticipation-what-has-happened-since-the-peak.htm#top.
9. Cooke and Baxter, “‘Families’ in International Context: Comparing
Institutional Effects across Western Societies.”
10. Robert A. Margo, “The Labor Force in the Nineteenth Century,” in
The Cambridge Economic History of the United States, ed. Stanley L.
Engerman and Robert E. Gallman (Cambridge, UK: University of
Cambridge, 2000). Table 5.3.
11. Ibid. Table 5.4.
12. Ibid. Table 5.2.
13. Claudia Dale Goldin, Understanding the Gender Gap: An Economic
History of American Women, NBER Series on Long-Term Factors in
Economic Development (New York: Oxford University Press, 1990).
Table 3.3.
14. This may have been less true of market labor, however, and more true
of household production. For example, the sharecropping system under
Jim Crow extended white landowner economic control over the fruits
of farming activity and limited the ability of black agricultural families to
escape dire poverty. For a perspective on this, see Douglas A. Blackmon,
Slavery by Another Name: The Re-enslavement of Black Americans from the
Civil War to World War II (New York: Anchor Books, Random House.
2009).
15. For perspectives on the black woman’s family and labor force roles under
slavery, see Angela Davis, “Reflection on the Black Woman’s Role in the
Community of Slaves,” in The Intersection of Work and Family Life, ed.
Nancy F. Cott (Boston: De Gruyter, 1992); and Jacqueline Jones, ““My
Mother Was Much of a Woman”: Black Women, Work, and the Family
Under Slavery,” Feminist Studies 8, no. 2 (1982).
16. Mary C. Wright, “Economic Development and Native American Women
in the Early Nineteenth Century,” American Quarterly 33, no. 5 (1981).
17. Ruth Schwartz Cowan, “Women’s Work, Housework, and History: The
Historical Roots of Inequality in Work-Force Participation,” in Families
and Work, ed. Naomi Gerstel and Harriet Gross (Philadelphia: Temple
University Press, 1987), 164–77.
18. Ibid.
19. Alice Kessler-Harris, Gendering Labor History, The Working Class in
American History (Urbana: University of Illinois Press, 2007), 192.
20. Claudia Goldin, “Labor Markets in the Twentieth Century,” in The
Cambridge Economic History of the United States, ed. Stanley L.
Engerman and Robert E. Gallman (Cambridge, UK: University of
Cambridge, 2000), 550.
21. Ibid., 550–72.
166 M. M. WAY

22. Moses Abramovitz and Paul A. David, “American Macroeconomic

Growth in the Era of Knowledge-Based Progress: The Long-Run
Perspective,” in The Cambridge Economic History of the United States,
ed. Stanley L. Engerman and Robert E. Gallman (Cambridge, UK:
University of Cambridge, 2000), 13–17.
23. Carter et al., Historical Statistics of the United States Millennial Edition
Online. Tables Ba4224–4233 and Ba4431–4439.
24. Stephanie Coontz, The Way We Never Were: American Families and the
Nostalgia Trap (New York, NY: Basic Books, 1992), 159.
25. Goldin, Understanding the Gender Gap: An Economic History of American
Women, 153–154; and Coontz, The Way We Never Were: American
Families and the Nostalgia Trap, 158–160.
26. Joel Mokyr, “Why “More Work for Mother?” Knowledge and Household
Behavior, 1870–1945,” The Journal of Economic History 60, no. 1
(2000).
27. Valerie A. Ramey, “Time Spent in Home Production in the Twentieth-
Century United States: New Estimates from Old Data,” The Journal of
Economic History 69, no. 1 (2009).
28. For labor force participation data of both sexes since 1948, see Federal
Reserve Economic Data (FRED) St. Louis. https://fred.stlouisfed.
org/categories/32449. Data on men’s labor force participation, FRED
series LNS11300001, accessed in 2018. Details on forces driving men’s
declining labor force participation in Steven F. Hipple, “Labor Force
Participation: What Has Happened Since the Peak,” in Monthly Labor
Review of the Bureau of Labor Statistics, September 2016.
29. Margaret G. Reid, Economics of Household Production (New York: Wiley,
1934). Accessed through the Internet Archive at https://archive.org.
30. Lourdes Beneria, “The Enduring Debate Over Unpaid Labour,”
International Labour Review 138, no. 3 (1999).
31. Nadim Ahmad and Seung-Hee Koh, “Incorporating Estimates of
Household Production of Non-Market Services into International
Comparisons of Material Well-Being,” in OECD Statistics Working Paper
Series (Paris: Organization for Economic Cooperation and Development,
2011).
32. Nancy Folbre, “Valuing Non-Market Work,” in Think Piece (New York:
UNDP Human Development Report Office, 2015).
33. Mignon Duffy, Randy Albelda, and Clare Hammonds, “Counting Care
Work: The Empirical and Policy Applications of Care Theory,” Social
Problems 60, no. 2 (2013).
34. American Elder Care Research Organization, “Paying for Senior Care”
website, with information on family paid caregiving accessed in 2018 at
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 167

https://www.payingforseniorcare.com/longtermcare/resources/cash-
and-counseling-program.html#title8.
35. For more on the labor-leisure model and its adaptation to the family, see
Chapters 6 and 7 in Ehrenberg and Smith, Modern Labor Economics:
Theory and Public Policy.
36. Weiner, From Working Girl to Working Mother: The Female Labor Force in
the United States, 1820–1980, 104.
37. Reid (1934) has an excellent chapter (XIX) entitled “How Household
Production Affects the Status of Women”, where she treads very carefully
through the issue of the relative status of working women versus those
who work in the home. This was a hot button issue even in 1934.
38. Weiner, From Working Girl to Working Mother: The Female Labor Force in
the United States, 1820–1980, 129.
39. Ellen Reese, Stephanie D’Auria, and Sandra Loughrin, “Gender,” in The
Oxford Handbook of U.S. Social Policy, ed. Daniel Béland, Christopher
Howard, and Kimberly J. Morgan (New York: Oxford University Press,
2015), 244.
40. Weiner, From Working Girl to Working Mother: The Female Labor Force in
the United States, 1820–1980, 129–31.
41. Michael Willrich, “Home Slackers: Men, the State, and Welfare in
Modern America,” The Journal of American History 87, no. 2 (2000).
42. Nancy F. Cott, Public Vows: A History of Marriage and the Nation
(Cambridge, MA: Harvard University Press, 2000), 171–2.
43. Reese, D’Auria, and Loughrin, “Gender.”
44. Ibid., 239–44.
45. Goldin, Understanding the Gender Gap: An Economic History of American
Women, 160–79.
46. Weiner, From Working Girl to Working Mother: The Female Labor Force in
the United States, 1820–1980, 109.
47. Goldin, Understanding the Gender Gap: An Economic History of American
Women, 178–79.
48. Nancy F. Cott, Public Vows: A History of Marriage and the Nation
(Cambridge, MA: Harvard University Press, 2000), 173.
49. Lawrence M. Friedman, A History of American Law, 2nd ed., (New York:
Simon & Schuster, 1985), 562.
50. Brandeis quote found in Women’s Joint Legislative Conference of New
York State, “The Eight Hour Day,” ed. Harvard University Arthur and
Elizabeth Schlesinger Library on the History of Women in America
(Harvard University Women’s Studies Archive, 1919).
51. Kessler-Harris, Gendering Labor History, 223.
52. Susan Ware, Holding Their Own: American Women in the 1930s, American
Women in the Twentieth Century (Boston: Twayne, 1982), 107.
168 M. M. WAY

53. Kessler-Harris, Gendering Labor History, 227.

54. Reid, Economics of Household Production, 374.
55. Pew Research Center. “On Pay Gap, Millennial Women Near Parity—
For Now: Despite Gains, Many, See Roadblocks Ahead.” In Pew Social
Trends. (Washington, DC: Pew Research Center, 2013).
56. Tables 2 and 3 in Liana C. Sayer, “Gender, Time and Inequality: Trends
in Women’s and Men’s Paid Work, Unpaid Work and Free Time,” Social
Forces 84, no. 1 (2005).
57. Michelle J. Budig and Paula England, “The Wage Penalty for
Motherhood,” American Sociological Review 66, no. 2 (2001); Deborah
J. Anderson, Melissa Binder, and Kate Krause, “The Motherhood Wage
Penalty: Which Mothers Pay It and Why?,” American Economic Review
92, no. 2 (2002); and Shelly Lundberg and Elaina Rose, “Parenthood
and the Earnings of Married Men and Women,” Labour Economics 7, no.
6 (2000).
58. Shelley J. Correll, Stephen Benard, and In Paik, “Getting a Job: Is There
a Motherhood Penalty?,” American Journal of Sociology 112, no. 5
(2007).
59. Sanders Korenman and David Neumark, “Does Marriage Really Make
Men More Productive?,” The Journal of Human Resources 26, no. 2
(1991).
60. Melissa J. Hodges and Michelle J. Budig, “Who Gets the Daddy
Bonus?Organizational Hegemonic Masculinity and the Impact of
Fatherhood on Earnings,” Gender and Society 24, no. 6 (2010).
61. See Table 3.3 Civilian labor force participation rate, by age, sex, race,
and ethnicity, 1996, 2006, 2016, and projected 2026 (in percent) in
Bureau of Labor Statistics, “Employment Projections, Table 3.3 Civilian
Labor Force Participation Rate by Age, Sex, Race and Ethnicity,”
in Employment Projections Program, ed. U.S. Department of Labor
(Washington, DC, 2017).
62. See Table 2 in Hipple, “Labor Force Participation: What Has Happened
since the Peak?”.
63. David Autor and David Dorn, “The Growth of Low-Skill Service Jobs
and the Polarization of the US Labor Market,” The American Economic
Review 103, no. 5 (2013).
64. See Chapter 1 of Darrell M. West, The Future of Work: Robots, AI, and
Automation (Washington, DC: Brookings Institution Press, 2018).
65. Carl Benedikt Frey and Michael A. Osborne, “The Future of
Employment: How Susceptible Are Jobs to Computerisation?,”
Technological Forecasting and Social Change 114.
66. James Manyika, Susan Lund, Michael Chui, Jacques Bughin, Jonathan
Woetzel, Parul Batra, Ryan Ko, and Saurabh Sanghui, “Jobs Lost, Jobs
 5 LABOR FORCE PARTICIPATION AND HOME PRODUCTION … 169

Gained: Workforce Transitions in a Time of Automation” (New York:

McKinsey Global Institute, December 2017).
67. Reid, Economics of Household Production, 366.
68. Natalie Marie Fousekis, Demanding Child Care: Women’s Activism and
the Politics of Welfare, 1940–1971, ed. Anne Firor Scott, et al., Women in
American History (Champaign: University of Illinois Press, 2011).
69. Ibid.
70. Kathleen Sebelius, “Annual Update of the HHS Poverty Guildelines,”
ed. Health and Human Services, Federal Register (Washington, DC:
Government Publishing Office, 2011).
71. Sarah Mnton and Christin Durham, “Low-Income Families and the Cost
of Childcare: State Child Care Subsidies, Out-of-Pocket Expenses and
the Cliff Effect,” (Washington, DC: Urban Institute, 2013).
72. Median household income in Alabama in 2016 comes from the Census
Bureau, American Community Survey, Quick Facts, https://www.census.
gov/quickfacts/fact/table/AL/PST045217.
73. Child Care Aware of America, “Parents and the High Cost of Childcare,”
ed. Lynette Fraga (Arlington, VA: Child Care Aware of America, 2017).
74. Jane Waldfogel, “Understanding the “Family Gap” in Pay for Women
with Children,” The Journal of Economic Perspectives 12, no. 1 (1998).
75. Mallika Thomas, “The Impact of Mandated Maternity Benefits on the
Gender Differential in Promotions: Examining the Role of Adverse
Selection” (Cornell, 2016). Accessed from Cornell University, ILR
School, Institute for Compensation Studies site: http://digitalcommons.
ilr.cornell.edu/ics/16.
76. Wen-Jui Han, Christopher Ruhm, and Jane Waldfogel, “Parental Leave
Policies and Parents’ Employment and Leave-Taking,” Journal of Policy
Analysis and Management 28, no. 1 (2009).
77. Suzanne M. Bianchi and Melissa A. Milkie, “Work and Family Research in
the First Decade of the 21st Century,” Journal of Marriage and Family
72, no. 3 (2010).
78. Liz Hamel, Jamie Firth, and Mollyann Brodie, “Kaiser Family
Foundation/New York Times/Cbs News Non-Employed Poll” (Menlo
Park, CA: Kaiser Family Foundation, 2014).
79. Ellen Galinsky, Shanny L. Peer, and Sheila Eby, “2009 Guide to Bold
Ideas for Making Work Work: New Ideas from the 2008 Winners of the
Alfred P. Sloan Awards for Business Excellence in Workplace Flexibility”
(New York, NY: Families and Work Institute, 2009).
80. Claudia Goldin, “A Grand Gender Convergence: Its Last Chapter,” The
American Economic Review 104, no. 4 (2014).
81. Danna Greenberg and Elaine M. Landry, “Negotiating a Flexible Work
Arrangement: How Women Navigate the Influence of Power and
170 M. M. WAY

Organizational Context,” Journal of Organizational Behavior 32, no. 8

(2011).
82. Heather Boushey, “The Role of the Government in Work-Family
Conflict,” The Future of Children 21, no. 2 (2011).
83. Kathleen Christensen and Barbara Schneider, “Introduction: Making a
Case for Workplace Flexibility,” The Annals of the American Academy of
Political and Social Science 638 (2011).
84. Boushey, “The Role of the Government in Work-Family Conflict.”
 CHAPTER 6

The Economics of Changing Family

Structures: The Public Interest in Marriage
and Family Formation

Introduction
Preservation of social order, procreation, and rearing of children, the
assignment of rights and property—these are just a few of the interests
that the government maintains in marriage and the family structure. In
articulating the principles underlying their Obergefell v. Hodges decision
in October of 2015, which effectively legalized same-sex marriage across
the United States, the Supreme Court pointed to some of these interests
as well as the rights of individuals with respect to marriage. The first two
principles the court highlighted were that individuals have autonomy and
liberty and that individuals have the right to intimate association. The
third principle, described in the quote from the decision below, pointed
to the government’s interest in the social, emotional, and economic
well-being of children.

A third basis for protecting the right to marry is that it safeguards children
and families and thus draws meaning from related rights of childrearing,
procreation, and education. … Without the recognition, stability, and pre-
dictability marriage offers, children suffer the stigma of knowing their fam-
ilies are somehow lesser. They also suffer the significant material costs of
being raised by unmarried parents, relegated to a more difficult and uncer-
tain family life. The marriage laws at issue thus harm and humiliate the
children of same-sex couples.1

© The Author(s) 2018 171

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_6
172 M. M. WAY

The fourth principle was the role of marriage as “a keystone of the

Nation’s social order.” The Justices described the individual states’
assignments of a “constellation of benefits” to the married couple as a
result of marriage’s key role in society, and the instability resulting for
couples denied those benefits on the basis of sexual orientation.2
Governments across the world legislate terms of marital contracts, and
enforce the contract once signed, highlighting the function of marriage
as both a private and a public institution. Marriages and the families cre-
ated from them are recognized with privileges, as well as responsibilities,
and because of those privileges, the legal recognition of marriage has
been denied to marginalized groups such as slaves, or even very recently,
interracial couples. Children born out of wedlock used to be accorded
fewer or no automatic rights to inheritance, for example, compared to
children born within marriage. The rights within marriage also favor
dominant groups over marginal groups, a phenomenon illustrated in the
ways that men’s rights over their wives’ property, labor, and even bodies
have been enforced throughout much of US history. The responsibilities
of married couples to each other and to society have been the justifica-
tion for the regulation of many types of behavior within marriage. Laws
around sexual behavior, violence, adultery, property ownership, pro-
viding for children, and divorce have reflected social norms as well as
enforced penalties when those norms were violated.
The male-breadwinner family model pervaded all legislation surround-
ing marriage and family until very recently and it is still the basis for much
of US social policy. From coverture laws and property rights in marriage,
to the structure of Social Security, welfare requirements for women with
children and the denial of welfare for indigent men—the enforcement
of family gender roles in the United States has been vigorously pursued
through laws and policy regulations often leading to economic hardship.
This family model haunts our nostalgic view of the past, leading us to ide-
alize the “long decade of the ‘traditional’ marriage” in the 1950s.3
But, the short-lived traditional family of TV sitcoms and Norman
Rockwell paintings was never the true picture of the typical family—if
any such thing existed—even in the 1950s, as scholars such as Stephanie
Coontz and Nancy Cott have well established. American ways of mar-
riage were always influenced by a high degree of mobility and a high
degree of turnover.4 For example, in the 1800s the law could not reach
the frontier so marriages were often informal there, desertion was not
uncommon, and when a formal marriage did exist, it was not uncommon
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 173

for desertion to be followed by bigamous marriages.5 Enslaved African

Americans could not marry legally, and “any master could override a
slave’s marital commitment,” making their unions less stable even if
couples were not forcibly separated.6 Later, as the twentieth century
progressed and divorce became easier to obtain, the reentry of individ-
uals into new marriages happened with unusual speed, typifying a serial
monogomy model.7
The American family was completely transformed between the Civil
War era and the twenty-first century, legally and socially (see Fig. 6.1).
And as evidenced by the Obergefell v. Hodges decision of 2015, the trans-
formations are still happening. As Stephanie Coontz pointed out in her
book, Marriage, a History: How Love Conquered Marriage, the changes
at the end of the twentieth century have brought about an amalgam of
family types like never before: divorced, step, blended, one-parent, gay
parents, cohabiting parents, artificially inseminated single parents, and
the now minority, two-biological-parent family who may or may not
have used their own eggs and sperm to conceive their children. And of
course, there are still widows, parents who are incarcerated, and addicted
parents whose children are raised by relatives or are wards of the state.
The stigma of non-marital childbearing largely disappeared in the course
of the past 25 years or so (perhaps since 1991 when the sitcom “Murphy
Brown” made professional white single motherhood the stuff of prime-
time television) and DNA testing became available helping the courts
(and parents) to determine paternity.
In the early twenty-first century, ironically, with marriage open
to so many and the rights within marriage more fairly distributed, the
retreat from marriage which began during the 1980s took hold, with
more people postponing marriage or perhaps never-marrying than ever
before. Many social and cultural changes have caused this phenomenon,
but there are strong economic forces at work affecting two ends of the
socioeconomic scale differently. On the more highly educated, mid-
dle-to-upper-income end, the difficulties of combining work and family
and the expense of children have led people to delay parenthood, which
reduces the “demand” for marriage.8 With little stigma to sex outside of
marriage and the wide acceptance of cohabitation as an option, many of
these people have opted to marry later. On the low-educated, low-in-
come end of the scale, marriage can seem unattainable. Poor women, not
having men in their marriage markets that meet the male-breadwinner
ideal, put children before marriage in their life course, seeing themselves
174 M. M. WAY

as better able to care for their children without a low-income mate

legally joined to them and financially depending upon them as well.9
Despite all this, families are still the building blocks of society.
Marriage is still considered to be a means of keeping social order, espe-
cially by conservative politicians and citizens, although this function may
not be that important given the example of orderly countries like Sweden
which have seen cohabitation replace marriage. The labor force participa-
tion, consumption, and savings decisions of families still largely drive the
economy, even though an increasing number of people live alone (see
Fig. 6.1c). The caring functions within the family, for children, disabled
and the elderly, are critical economic functions in a country with a weak
social safety net. And perhaps most importantly, the production of chil-
dren and their infusion with human capital is one of the determinants of
the success of the US economy in the next century.
This chapter continues with a look at the government’s interest in
American marriage at the state and federal level, moving on to an over-
view of the economics of marriage and family formation. Then, it surveys
the trends in marriage and family formation from the late 1800s through
the early twenty-first century. Finally, it looks at past policies that affected
women’s and men’s economic decisions around marriage, and at future
policies that could deal with the instability of family structures and the
accompanying poverty that often results, in order to improve children’s
outcomes.

Fig. 6.1 Percent of US households by household type: a 1870, b 1960, and

c 2010. Note Cohabiting couples could be included in non-family households
or in female-led or male-led households depending upon their relationships to
other household members (Data sources Data for 1870 and 1960 from Historical
Statistics of the United States, Millennial Edition, Table Ae 128 (Susan B.
Carter et al., Historical Statistics of the United States Millennial Edition Online,
ed. Matthew Sobek (New York: Cambridge University Press, 2006)). Data for
2010 from “Table 2: Households by Type: 2000 and 2010” in US Census
Brief: Households and Families: 2010 (Daphne Lofquist et al., “Households and
Families: 2010,” in 2010 Census Briefs (Washigton, DC: U.S. Census Bureau,
2012)))
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 175

(a)

(b)

(c)
176 M. M. WAY

Government’s Role in Marriage

and Family Regulation

The states, in theory, are the primary regulators of marriage, divorce, and
child welfare in the United States. State legislatures, and courts decide
who can contract marriage, who can divorce, how alimony, child cus-
tody, and child support are allocated, and what constitutes child neglect.
For example, states determine the age of consent for marriage, with
some states allowing marriage between children as young as 14 years-
old with parental consent. States have sweeping and often controversial
rights over child well-being, which gives state agencies the ability to sep-
arate families and remove children from their homes—a right the federal
government has also asserted when it removed Native American children
from their families, for example, in the 1800s.10
While in theory, the states control marriage and family law, the US
Government has its own interests and intervenes often. In the nineteenth
century, Congress declared its right to regulate marriage in US territo-
ries when no state government was yet present, as a means of asserting
control.11 “The nation originally had few technologies of governance to
monitor and control a people strewn unevenly over a huge expanse of
land. Monogamous marriages that distinguished citizen-heads of house-
holds had enormous instrumental value for governance, because orderly
families, able to accumulate and transmit private property and to sustain
an American people, descended from them.”12 Other examples of federal
control include the intervention of the federal court system to protect
individual rights under the US Constitution, which was the basis for the
Supreme Court’s 1967 Loving v. Virginia decision. That decision, which
overturned states’ anti-miscegenation laws, also was a basis for the 2015
Obergerfell v. Hodges decision.
The federal government has also inserted itself into marriage policy
directly and indirectly through its social policy, governing who is eligi-
ble for pensions, social security, disability relief, and tax benefits. Other
channels for federal influence over marriage are immigration, citizenship
and international relations laws. The “Violence Against Women Act,”
enacted as part of the Violent Crime Control and Law Enforcement Act
of 1994, can be viewed as the federal government’s attempt to standard-
ize domestic violence policy. Laws affecting many marital rights of the
military and veterans are federal. And, through welfare law, the federal
government has at times assigned itself the job of promoting marriage.
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 177

The Personal Responsibility and Work Opportunity Reconciliation Act of

1996 (PRWORA)—better known as welfare reform—began with familiar
themes:
The Congress makes the following findings:

1. Marriage is the foundation of a successful society.

2. Marriage is an essential institution of a successful society which
promotes the interests of children.
3. Promotion of responsible fatherhood and motherhood is integral
to successful childrearing and the well-being of children.13

As a pre-emptive strike against calls for same-sex marriage, the US

Congress also passed the Defense of Marriage Act (DOMA) in 1996,
which asserted that the federal government would not recognize any
marriage except that between a man and a woman in its administra-
tion of any federal program or for any federal employees, regardless of
whether states decided to recognize same-sex unions. Nevertheless,
states began to allow so-called “civil unions,” and before much more
time had passed, gay marriage as well, starting with Massachusetts in
2003. By 2015, the Supreme Court had struck down DOMA with the
Obergefell v. Hodges ruling.14
Marriage rights have been closely aligned with citizenship rights. For
example, during the campaign to recognize male ex-slaves as full citizens
through ratification of the Thirteenth Amendment, the right to mar-
riage was one of the leading issues in the argument in favor of citizenship
rights. Mormons who did not swear an oath to uphold a monogamous
lifestyle were deprived of voting rights through the Edmonds Act of
1882—a federal law also upheld by the Supreme Court.15 The 1907
Immigration Act stipulated that any US woman who married a foreigner
automatically lost her citizenship, unlike US men whose foreign wives
were automatically granted US citizenship upon marriage. This asymme-
try was upheld by the Supreme Court, and women did not gain the right
to hold onto their US citizenship after marrying a non-citizen until after
Nineteenth Amendment granted women the right to vote.16
The interests that state and federal authorities have had in regulating
marriage have been political and economic, as well as cultural. Andrew
Cherlin and others have pointed out that in no other Western democracy
is governmental advocacy of marriage quite as active as in the United
States. He cites Britain as being the closest to the United States in that
178 M. M. WAY

respect, but even there the purpose of policy is to encourage parents to

stay together (married or cohabiting) in order to improve the well-be-
ing of children.17 In the United States, the purpose often seems to be
maintaining marriage itself. Without children, and without a functional,
healthy marriage, the societal purpose of two people remaining married
is lessened, and the economic benefits decrease as well.

Economic Factors That Encourage

and Discourage Marriage

The decision to marry from an economist’s perspective is a simple one:

marry if the utility one gains in marriage—the satisfaction and happiness
gained from the relationship as well as any material well-being improve-
ments—is greater than one’s utility in the single state. “Satisfaction and
happiness” are very complex concepts, however, so economists focus on
material well-being in their models. According to Gary Becker’s origi-
nal model, published in his 1973 paper, “The Theory of Marriage,
Part I,” the decision to marry depends upon the relative wages of each
spouse, their non-labor income, the human capital and wealth they
bring to the marriage, and their abilities to contribute to household pro-
duction. In Becker’s model, higher relative wage ratios, meaning more
wage disparity between spouses, lead to a greater likelihood of marriage.
This is because, in Becker’s view, the specialization of spouses in mar-
ket work or household production and the resulting exchange of market
and household goods between the spouses generate the primary gains
from marriage. Complementarities in production are highly valued in
this model, meaning that the productive activities of one spouse, such
as the homemaker, make the productive activities of the other spouse,
such as the breadwinner, even more efficient. Otherwise, taking relative
wage ratios as given, in Becker’s model individuals with more similar
human capital—education, physical attractiveness, health—and financial
prospects deriving from wealth will be more likely to pair up due to the
productive value of those traits outside the market and the sorting mech-
anism in his model.18
The decision to marry further depends upon the marriage market
which is made up of the pool of potential spouses. The marriage market
can be characterized by sex ratios, education levels, racial and religious
characteristics when homogamy (meaning marriage within one group) is
common, and geography. Anything that thins the marriage market for
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 179

an individual or for a larger socioeconomic group, such as high incarcer-

ation rates, low rates of high school, or college completion or epidemics
of disease or addiction, makes marriage less likely.
Gary Becker’s basic model is still relevant, but for one thing: The
gains from specialization have decreased as men’s and women’s earnings
potentials have become more similar. Women are much higher earners,
and have higher expectations of sustained engagement in the paid work-
force, than in 1973, so they are less likely to apply their human capital to
home production. Men do not have a great disadvantage in household
production (if they ever had it) and participate today to a much greater
extent than in earlier eras in cooking, cleaning, and childcare. Men also
value the financial benefits of having a working spouse.19 But the other
benefits to marriage and family formation, initially explored in Chapter
2, are still relevant. Economies of scale, enjoyment of household pub-
lic goods, risk-sharing, and production of children, for example, are all
benefits of marriage, but these benefits can be enjoyed in committed
non-marital relationships as well, and some can be enjoyed with simply a
roommate.
Many social and economic changes have increased the well-being of
people outside of marriage, most obviously women’s increasing abil-
ity to achieve economic independence through their own labor force
participation. These changes decrease the probability of marriages tak-
ing place because the net benefits of being married over being single go
down. Other examples of these changes include increased sexual freedom
and decreased social stigma associated with non-marital childbearing.
The institutional benefits of marriage—the laws governing beneficiaries
for Social Security, pensions, insurance, tax-free inheritances from the
other spouse, joint property rights, property settlements when a marriage
ends, immigration rights, and many others—still exist as long as gov-
ernments continue to provide them to married couples only and do not
grant them to partners outside of marriage. Of course, any asymmetries
between, for example, tax treatment of inheritances from spouses versus
from a non-spouse/partner, could and do change.
These factors explain the economics of the marriage decision, but
what about the economics of well-being within marriage, and the deci-
sion to divorce? Many marriages involve a highly unequal distribution of
resources, for example.20 Both spouses need bargaining power to assert
their preferences and obtain an objectively or even arguably satisfactory
division of whatever divisible resources there are within the marriage.
180 M. M. WAY

This could include money, free time, labor allocations to the market or
to unpaid home production, or even control of the TV remote. Divorce
laws, joint property division, alimony, child support, and welfare provi-
sions, combined with increased wages, have improved women’s bargain-
ing power over the years by giving them a better “threat point.” This has
made women’s satisfaction in marriage, when they remain in marriage,
more likely, at the same time as making the likelihood of divorce increase
as well. Women and men do not have to endure unhappy or abusive
marriages the way many did in the past, and greater bargaining power
on the part of the spouse getting the short end of the stick will improve
their outcome in marriage in many cases, or give them an exit option.
As more and more couples have divorced, the benefits of divorce have
increased because the likelihood of remarriage or a new partnership has
increased. More divorced people results in better marriage markets for
single parents with children, for example, increasing their likelihood of
forming a new relationship.21
All of the factors encouraging or discouraging marriage mentioned
above have to do with the gains to marriage, and the availability of suit-
able partners on the marriage market. Both of these categories changed
over the course of US history as the United States. went from an agrar-
ian to an industrial economy, women’s rights advanced, and socioeco-
nomic inequality increased. We will relate the trends in marriage to those
factors, considering especially the legal rights of women, in the next
section.

A Historical Look at Marriage

and Family Structure

1850–1910
Economic and political changes in the mid-to-late 1800s resulted in a
volatile mix as far as marriage was concerned. The Civil War had resulted
in death or injury to hundreds of thousands of marriage-age men.
Migratory patterns for urban and rural populations made household for-
mation less likely and less stable than it had been in Colonial times. Life
in hotels and boarding houses, as long-term residences for mostly sin-
gle men, was a growing trend that continued through the early 1900s.22
There was a looseness in biological ties that required other kinship struc-
tures to take their place. Ex-slaves in the post-war period and African
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 181

American migrants to the north during the twentieth century “Great

Migration” shared in this phenomenon. Loosening of family ties was
unique to the United States in comparison with European countries.23
Even before the Civil War, the Mormons had emerged as a new religious
sect that endorsed polygamy, and new demands from women and men
for lifestyles outside of monogamy had also emerged in both highly sex-
ual and asexual ways, typified by free love movements and communities
which rejected the institution of marriage, such as the Oneida commu-
nity in upstate New York, and the celibate Shakers, respectively.24
Contraceptive technology had improved throughout the nineteenth
century, with the vulcanization of rubber leading to cheaper and more
reliable condoms and diaphragms, for example. By the 1870s, “con-
doms, douching syringes and solutions, vaginal sponges, diaphragms,
and cervical caps could be purchased from mail-order houses, wholesale
drug-supply houses, pharmacies, and dry-goods and rubber vendors,”
with relative openness giving new sexual freedom to married and unmar-
ried people alike, until the Comstock Laws of 1873 made acquisition of
these items more difficult.25
The ownership of women’s property and labor by their husbands
seemed especially egregious after Emancipation, with women’s rights
advocates pointing out that married women alone were left the official
chattel servant class, and “the convergence of proslavery and antislav-
ery rhetoric on marriage gave renewed prominence to the comparison
between the wife and the slave.”26 The women’s rights and suffrage
movements gained energy from the awarding of citizenship rights to
ex-slaves, and the campaigns for women’s rights in marriage, out of mar-
riage, and as citizens grew more intense through the early 1900s.
Increasing ages at marriage and higher rates of non-marriage had
many policy-makers concerned in the late 1800s, in light of the rapidly
declining fertility that resulted. Divorce rates, which had been extremely
low, increased fivefold between 1870 and 1930, causing consternation
among clerics and politicians, as well as the public.27 Even with these
changes and concerns, household formation patterns were strongly cen-
tered on married couples (see Fig. 6.1a). In the 1870 census, the first
year in which blacks in the south were counted as full people and not
property, married-couple-led families made up 78% of the nation’s
households, followed by female-led family households at 9%, male-led
family households at 5%, non-family households at 4% and single-person
households at 3%.
182 M. M. WAY

The newly legitimized black family was finding its footing as well.
New marital rights under the Thirteenth Amendment were taken up at
varying rates, depending upon a variety of factors. These factors included
the presence of a Freedmen’s Bureau in the locale, which regulated the
marriages of ex-slaves until state legislatures could be reconstituted,
the enthusiasm with which authorities touted the benefits of legal mar-
riage, or the penalties of non-marital cohabitation, and the willingness of
local authorities and religious leaders to facilitate marriages among for-
mer slaves.28 The family ties that existed under slavery tended to per-
sist despite the slave-era forced separation of family members, although
there was a lot of sorting out to do, as ex-slaves searched for lost parents,
children, and spouses. The relative success of the black family belied the
insistence of many white southerners that black family formation relied
on the example and coercion of white slave owners.29
Many Native Americans married at high rates, although depending on
their specific nation’s traditions, their definition of marriage was more
fluid and characterized by more freedom to separate and remarry under
some tribal laws and customs. A comparable measure of the rates of mar-
riage between whites, blacks, and Native Americans is the percentage
of women never married by age 49, which gives a good approximation
of being single through the lifetime. For five Native American nations,
surveyed in the 1900 census, the highest rate of non-marriage by age
49 was 2.7% among the Cherokee. Black female non-marriage was 5.7%.
Among white women, the rate was 11.3%, twice the rate of black women
and almost five times the rate of Native Americans.30

1910–1960
The victory of the women’s suffrage movement with the ratification of
the Nineteenth Amendment in 1920 energized many women in contin-
ued pursuit of their rights. But with the onset of the Great Depression
in 1929, the women’s rights movement took a back seat to economic
crisis, and then World War II. In the years leading up to the Depression,
the age at first marriage was on the decline and it continued a steady
decline for almost 60 years, reaching its low point in 1962 at 20.3 years
for females and 22.7 years for males, down from highs of over 22 and
26 for females and males, respectively, in the 1890s (see Fig. 6.2).31
Annual marriage rates were falling, but only initially, declining to a low
of 7.9 per one-thousand in the worst year of the Depression in 1932
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 183

Fig. 6.2 Median age at first marriage for men and women: 1890–2016 (Data
source U.S. Census Bureau, Historical Marital Status Tables, Table MS-2,
November 2017. https://www.census.gov/data/tables/time-series/demo/fam-
ilies/marital.html)

(see Fig. 6.3).32 Then, through the 1930s and the World War II, the
marriage rate climbed, peaking in 1947 at over 13.9 marriages for every
one-thousand people.33
Non-marital childbearing was low throughout the 1910–1960 period.
The recorded rate declined from 8.2% of first births to women in the
1930–1934 time period, to 7.0% during World War II, and rising to
10.3% in the 1960–1964 timeframe.34 The percentage of births con-
ceived prior to a subsequent marriage mirrored these percentages, mean-
ing that by 1960 around 20% of all pregnancies were conceived outside
of marriage, but half of those couples were either already planning mar-
riage or engaged in “shotgun” marriages undertaken under pressure of a
pregnancy.
As described in Chapter 3, the decline in birth rates halted in 1932
at a Total Fertility Rate (TFR) of 2.2, and then climbed to the unusual
level of over 3.5 births per woman in the late 1950s. By the height of
the baby-boom, traditional marriage seemed well-entrenched as the pre-
vailing family structure. Rates of divorce had decreased 50% from their
postwar high of 4.3 per thousand people per year in 1946 to 2.2 per
184 M. M. WAY

Fig. 6.3 Marriage and divorce rates: 1920–2015. Note Data missing for 1996–
1999 (Data source Historical Statistics of the United States, Table Ae 507–513.
Marriage and Divorce Rates 1920–1995. CDC/NCHS National Vital Statistics
System. Provisional Marriage and Divorce Rates 2000–2015)

thousand in 1959.35 The number of children living in households with

two parents present had barely changed since 1910, at around 85%, and
relatively low rates of divorce meant that in most cases the two parents
were the biological parents of the child.36
It is not surprising that the family found itself in this seemingly secure
situation. Every New Deal social policy created in response to the Great
Depression was conditional on the male-breadwinner model, from
Aid to Dependent Children to workfare programs such as the Civilian
Conservation Corps (CCC) and the Works Progress Administration
(WPA). Social Security was targeted at working men, as were unem-
ployment and disability insurance, and scant relief was available for poor
mothers. Working women had access to Social Security and other ben-
efits, but discrimination against working married women was rampant
during the Depression, and 10 years later, after women had been pulled
into the workforce to get the United States through the war, they were
quickly returned home with the not-so-subtle message that home was
where they belonged. The economic benefits of marriage were very high
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 185

for women given the disparities in employment opportunities and wages

between women and men. The benefits were also high for men, consid-
ering the technological and educational factors that improved women’s
productivity in the home. But the disparities between in-groups and out-
groups, whites and blacks, middle-class, and poor were starting to grow,
at the same time that the dissatisfaction with the limitations of domestic
life took hold for women in whom the growing US educational system
had created so much human capital. So, began the most tumultuous era
in US family history.

1960–2015
The states had kept a tight rein on access to divorce up to the 1960s,
but the demand for greater access was high and divorce rates were rising.
The liberalization of divorce laws did not begin in force until the 1970s.
Prior to that time, most states required the establishment of “fault” by
one of the spouses, as well as long waiting periods before divorces were
granted. Adultery, abandonment, and violence were common faults, but
even if those had not occurred in the marriage it was not uncommon for
the couple to attest that they had. When one spouse wanted a divorce
and the other did not, they either came to an agreement between them-
selves—with the spouse wanting out of the marriage agreeing to cede
property if they controlled it (and women generally did not) or other
rights—or the divorce did not happen. “Migratory divorce” was another
phenomenon, with individuals “moving” (often only temporarily) to
more liberal divorce law states. Nevada held the premier spot as the capi-
tal of divorce until the 1970s.37
The adoption of no-fault, unilateral divorce by virtually all states by
the end of the 1970s will be discussed below, but one should not assume
that the adoption of these laws was the main driver of higher divorce
rates. Higher demand for divorce led to relaxations in state control over
family structure. The annual divorce rate per thousand people peaked in
the early 1980s at around 5.3 per thousand, up 140% since 1960, and
then began a slow decline.38
Americans were not sour on marriage, however. Marriage rates
remained high through the 1980s (see Fig. 6.3) and remarriage or
cohabitation with a new partner became extremely common, meaning
that children of divorce or non-marital childbearing were very likely to
live with a stepfamily of some type during their childhood. By 2012, the
186 M. M. WAY

Fig. 6.4 Non-marital childbirth, single-parent families, and poverty rates of sin-
gle-mother and married-parent families: 1960–2010 (Data sources Children born
to unmarried mothers—CDC Data Brief 162, 2014. Children living with single
parent—U.S. Census Historical Living Arrangements of Children, Table CH-1,
2017. Single-mother and married-parent families in poverty—U.S. Census
Historical Poverty Tables: People and Families, Table 4, 2017. Data not available
for married families prior to 1980)

percent of American women and men who had married twice or more
was near 25% for both sexes.39 In one rather stunning testimony to what
Andrew Cherlin terms the marriage-go-round, in his book of the same
name, he cites a study showing that around the year 2000, 10% of US
women had married or lived with three partners or more by the age of 35.
This serial partnering was unlike that of other Western countries such as
Italy and Spain, with less than 1%, and France and Canada, with less than
2%. The closest country to the United States in data analyzed by Cherlin
was Sweden with 4.5%.40
Non-marital birth rates (including births to cohabiting couples)
increased eight-fold from 1960 to 2010, from 5% of all births to over
40%, although the percentage of teenagers having children outside
of marriage was falling more or less continuously during this period
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 187

(see Fig. 6.4).41 Non-marital birth rates varied highly by demographic

categories, with only 17% of children born outside of marriage to moth-
ers with a primary ethnic heritage from Asia or Pacific Islands, 29% to
non-Hispanic white mothers, 53% to Hispanic mothers, 66% to Native
Americans and Alaskan Natives, and 72% to non-Hispanic black moth-
ers.42 As more and more children lived outside of the two-biological-par-
ent family, concern grew for the effects of non-traditional and high
turnover—repeat remarriage or parental cohabitation—families on chil-
dren. In 1980, 35% of children lived with a single or remarried parent.
By 2014, 48% of children lived with a single, cohabiting or remarried
parent, and the number of children living with neither parent was around
5%, up from 4% in 1980.43 Same-sex couples, who prior to gay marriage
legalization would be counted as unmarried parent households if they
had children, comprised almost 1% of all households in 2010, and about
20% of them had children under 18 living with them, according to the
2010 Census.44 All of this meant that children who experienced the tra-
ditional two-parent family were now in the minority.
Household composition, as distinct from family composition, had
changed dramatically as well. Not only were married households in the
minority at 44% of all US households (see Fig. 6.1c), but single-person
households were the second most common type of household in 2010,
up from 13% in 1960 and only 3% in 1870.
Economic growth had been fairly steady from the 1960s to the 2010s,
but serious recessions occurred in each decade bringing the most eco-
nomically vulnerable to policy-makers’ attention. Children’s poverty lev-
els relative to adults were increasing. Although overall official poverty
had decreased significantly since the 1950s, children had always com-
prised a disproportionate number of the poor, and their poverty rates
were rising. In the recession of 1974, 15.4% of children under the age
of 13 were in poverty, compared with 8.3% of adults between the ages
of 18 and 64, and 14.6% of the elderly. In the recession of the 1990s,
22.7% of children were in poverty, compared with 12.4% of adults and
12.2% of the elderly. Poverty rates were far lower for children in mar-
ried-parent households, and far higher for children in female-headed
households.45
Is it any wonder then that some federal legislators saw potential
solutions to increased child poverty in passing legislation to combat
the retreat from traditional marriage and family patterns? With welfare
reform and the DOMA in 1986, and legislation of all sorts providing
188 M. M. WAY

funding to states for “marriage promotion” programs (and, with what

seemed to many to be questionable logic, suppressing sex education and
family planning programs in the name of traditional values), policy-mak-
ers got busy attempting to regulate their way back to higher marriage
rates. Several southern states provided for stricter marriage contracts
on a voluntary basis, called covenant marriages, which made divorce
requirements more onerous. But almost no couples chose the covenant
marriage option over regular marriage—the highest rate of covenant
marriage occurred in Louisiana in 2010 at around 2% of marriages that
took place that year—perhaps because few couples went into marriage
anticipating they would need protection from divorce.46
Trends in marriage, divorce, and non-marital childbearing were
unchanged by marriage promotion policies. The futility of legislatures’
efforts did not decrease the growing concern about two characteristics
of the decline of traditional marriage and family. One was that the trend
was highly correlated with poverty. The other was that children were
increasingly residing in low-income, high-turnover households which
were associated with worse educational, criminal justice, teen pregnancy,
and poverty rates in adulthood.47 Poverty led to low marriage rates,
and low marriage rates led to high rates of single parenthood and sin-
gle parenthood led to poverty, in a cycle that affected large numbers of
children, endangering their future prospects. The correlation between
poverty and race meant that even if, all else equal, blacks, Hispanics, and
whites had similar aspirations to marry—which studies seemed to indi-
cate48—the income differences between the races led to higher rates of
non-marital childbearing among blacks and Hispanics.
Some politicians and policy-makers from the 1970s through at least
the early 1990s focused on the breakdown of the family along racial
rather than economic lines, identifying a crisis in the black family. An
early and prominent entry in this debate was a highly controversial 1965
report by Daniel Patrick Moynihan, The Negro Family: The Case for
National Action, which argued that black family “disorganization” was
a remnant of the black family condition under slavery. Sociologist Hylan
Lewis disputed this interpretation of the empirical fact that black families
had higher rates of non-marriage and female headship, arguing that the
labor market situation for black males characterized by ongoing struc-
tural unemployment was the real issue. “The answer to the problem of
family disorganization is not one of inculcating marriage and family val-
ues in young couples; there is ample evidence that they exist. The critical
test is to find ways and means for the young marriage and family life.”49
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 189

The values issue was also being questioned when it came to cohab-
itation. The example of Europe, where more and more families were
made up of two unmarried biological parents who lived with their child
or children, outside of marriage, clearly demonstrated that the marriage
certificate was not the important factor in child outcomes if the parents’
relationship was long-term and committed. One characteristic of the sec-
ond demographic transition, described in Chapter 3, is increasing rates of
cohabitation as an alternative to marriage, making cohabitation “indis-
tinguishable legally and socially from marriage.” Cohabitation was for
many couples a trial run, or a stepping-stone to marriage, but for others
it increasingly became an end in itself.50
The economic reasons for choosing marriage over cohabitation or
over the single life had not disappeared but they had eroded signifi-
cantly. More female labor force participation meant less specialization
and exchange in the household. Lower demand for children lowered the
motivation for marriage. Risk-sharing in marriage for middle-class and
higher-income couples lost value when divorce rates increased and peo-
ple saw that being married did not guarantee being with a high-earn-
ing partner for life. For lower-middle and lower-income women, being
married could actually increase risk due to high rates of job loss and
unemployment in certain male populations. Thin marriage markets char-
acterized the prospects for many of these women.
One other phenomenon, which will be explored more in Chapter 8,
was assortative mating or the tendency of people at similar income lev-
els to marry each other. Women had always valued earnings potential in
seeking a husband, especially when they had little access to high-earning
careers. As women’s labor market and earnings potential increased, men
came to value earnings in a mate as well, making them choosier. Women,
having less social pressure to marry at all, also continued to remain rel-
atively choosy in seeking a partner with similar or better income pros-
pects and educational background. This resulted in delayed marriage,
higher rates of non-marriage, and increasing income stratification, and it
remains a trend that is not likely to reverse.51

Past Policies That Affected

the Economic Value of Marriage

A wide variety of laws and programs have affected the economic value
of marriage, not always in the ways that one would expect. We consider
below one policy that unambiguously increased the value of marriage
190 M. M. WAY

by improving economic security in retirement for many married women

relative to unmarried women: Social Security. The other two policies,
regarding child-support and unilateral divorce, both affected the costs
and benefits of divorcing, as well as affecting the risks associated with
marriage and bargaining power within marriage. These have ambiguous
consequences for the overall economic benefits of marriage, as explained
below.

Social Security—Increasing the Value of Marriage

Social Security was formulated during the Great Depression in negoti-
ations that pitted progressive reformers who wanted universal old-age
support against firms and legislators that feared the intermediation of the
government in the employer–employee relationship and the work-dis-
couraging effects of a universal pension system. Chapter 7 will review the
history of the legislation, but one consequence of the compromise that
linked retirement benefits to a spouse’s earned income was the bonus
given to non-working wives. The 1939 amendment to Social Security
increased support for married husbands and non-working wives and
widows, in part by enabling the primary earner to increase their benefit
by 50% if they were married at the time of retirement. It also provided
widows with three-quarters of the husbands’ benefit upon his death.
(That percentage was later increased to the total benefit of the deceased
worker.)52
The pro-marriage effects of Social Security resulted from its favoring
of wives over working women. Due to gender pay differences, women
were likely to be better off in retirement, and as widows, with the Social
Security benefits of their husbands, than with the benefits they could
receive as single working women. Through the 1990s, even wives who
were working and could choose between collecting from their own
benefits or collecting through their husbands chose collecting through
their husbands more often than getting their own benefits.53 It was
also the case that more than a third of working women were not cov-
ered by Social Security at the time of its enactment because they worked
as “domestics,” that is, in other people’s houses, or in agriculture, or in
some other “uncovered sector.”54 Social Security increased the overall
benefit of marriage relative to non-marriage, as part of a social welfare
system that strongly favored white male earners over any other category
of welfare recipients.
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 191

The Family Support Act of 1988—Supporting

the Income of Single Parents
Child support after a divorce was not routinely awarded to custo-
dial parents, usually mothers, until the 1970s, and even then awards
were low and collections of those awards were even lower. According
to Census Data, in 1975 “only 25% of the 4.9 million divorced, sepa-
rated, remarried, or never married women with a child or children in the
home received the child support they were due.”55 One analysis of the
under-awarding and underpayment of child support concluded that if the
standards of the early 2000s had been applied, fathers in 1983 “should
have been paying between $25 and $32 billion in child support; in fact
they owed only $10 billion and paid only $7 billion.”56 Child support
was legislated by the states, but few had consistent guidelines and awards
were usually left up to the discretion of a family court judge hearing
arguments from both parties. Legal representation was expensive, and
the process was complex, so many women did not even bother to sue for
support.
Motivated in large part by concern that AFDC recipients’ children
were being supported by welfare when they had fathers capable of sup-
porting them, Congress began to act in 1975. The Child Support
Enforcement Program, an amendment to the Social Security statutes,
required states with an AFDC program to have a child support enforce-
ment office associated with it in order to enforce non-custodial parents’
obligations. Those offices were tasked with assisting in “locating absent
parents, establishing paternity, obtaining and modifying support orders
and enforcing those orders.”57 This helped mothers who were poor
enough to be on welfare, but it did nothing for other mothers who were
not welfare recipients but were still burdened by the enormous legal,
financial, and administrative efforts involved in getting child support
awarded.
By 1984, however, Congress required that states at least review
the support level implied by a specific (but non-binding) mathemati-
cal formula to award support, and in The Family Support Act of 1988
those formulas were made more binding. The Family Support Act also
required computerized cross-state tracking of parents and their child sup-
port payments, as well as automatic withdrawal of child support from
paychecks of non-custodial parents who were in arrears, regardless of
whether or not the custodial parent received AFDC.58 These measures
192 M. M. WAY

greatly simplified the system and increased child-support payments to

custodial parents. While many problems with child support still exist—in
most cases awards are not indexed to increase with the cost of living or
with non-custodial parents’ increases in income, for example—the system
has improved at a time when nearly 50% of children are potentially eligi-
ble for support at some time during their childhoods.
What effect did deficiencies in child support awards and enforcement
and then the later increase in child support collection have on the eco-
nomic value of marriage? There are at least two ways to look at this ques-
tion thmade obtaining a divorceeoretically. Under a low-divorce regime,
such as existed in the United States prior to the 1960s, a mother’s low
likelihood of receiving child support in the case of divorce would lower
her well-being outside of marriage and make remaining married relatively
more valuable, in an economic sense. It would also lower her bargaining
power within marriage, because her husband would know her options
in the case of divorce were grim. Under a high-divorce regime, how-
ever, such as has existed since 1980, the enhanced security of knowing
child support would be awarded, and the improved bargaining power
that resulted, may have led to women’s greater willingness to enter mar-
riage and have children, even as it improved their outcomes in the case of
divorce.59 With divorce eventually affecting between 40 and 50% of mar-
riages, the risk of marriage and parenthood, without financial protection
of some sort for the custodial parent in the case of divorce, is very high.
(A similar set of effects could apply for men in high divorce regimes who
would have been at higher risk of losing contact with their children with-
out today’s more egalitarian custody laws.60) When divorce rates are
high, and child support is low, getting married and having children is a
much riskier proposition for the spouse most likely to wind up with child
custody than it would be when divorce rates are low, or when child sup-
port is more generous. This is an understudied area of family economics,
but more research might show marriage and fertility enhancing effects of
a more effective child support system.

Unilateral Divorce—Making Divorce Cheaper

No-fault and unilateral divorce laws made obtaining a divorce far easier,
allowing divorce based on jointly declared “irretrievable breakdown” of
the relationship, or allowing divorce on request of one spouse without
the agreement of the other and without a long separation period. Prior
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 193

to 1968, only three states, Alaska, Nevada, and Oklahoma, had what is
termed unilateral unrestricted divorce, but as of 2015 most states allowed
unilateral “divorce on demand.”61 The vast majority of unilateral divorce
laws took effect in the late 1960s and 1970s, and because this time also
saw a surge in divorce rates, the effect of unilateral divorce on the divorce
rate was scrutinized by researchers. One of the difficulties in establish-
ing a connection between unilateral divorce and the divorce rate was
that states with a high demand for divorce were probably most likely to
enact more liberal divorce laws—another example of a chicken-and-egg
problem. Research results have been mixed, with some studies showing a
positive effect of unilateral divorce on divorce rates and a negative effect
of unilateral divorce on children’s outcomes. In a 2004 study, Jonathan
Gruber concluded that “Adults who were exposed to unilateral divorce
regulations as children are less well educated, have lower family incomes,
marry earlier but separate more often, and have higher odds of adult sui-
cide.”62 Other studies revealed only a short-term positive effect of unilat-
eral divorce on the divorce rate—basically a “catching up” on divorce by
those people who wanted to get divorced in the past and could not due to
the stricter codes—and then a reversion to pre-unilateral divorce trends.63
What would the basic economics of decision-making predict would be
the outcome of unilateral divorce laws after any “catching up” divorces
have worked their way through the system? One is that by making
divorce itself less costly, people considering divorce would be more likely
to obtain one—this is a simple law-of-demand prediction. Another is that
people would have to factor in the risks of divorce when they calculate
the benefits of marriage. Higher risks have the effect of lowering the
benefit of marriage, all else equal. Continuing in this vein, divorce risk
may also lead people to hold out for better matches, with higher bene-
fits and less risk of a bad relationship. A countervailing prediction, how-
ever, is that in a time when the pure economic benefits of marriage over
being single are decreasing, and people increasingly measure the benefits
of marriage in the happiness and fulfillment of the spouses as individu-
als, unilateral divorce decreases the risk associated with entering marriage
prior to having full information of how happy one will be in marriage.
In this way, it potentially increases the value of marriage by lowering risk
and in that way would increase the likelihood of marriage, much like
enhanced child support provisions.64
The other effect of unilateral divorce is on bargaining power in mar-
riage. Unilateral divorce increases the bargaining power of the spouse
194 M. M. WAY

who otherwise might be at a disadvantage. This can have life and death
consequences, as found in a Betsey Stevenson and Justin Wolfers study
which concluded that due to improvements in women’s bargaining
power, unilateral divorce significantly decreased domestic violence and
suicide rates among women.65 Again, this increase in bargaining power
may make marriage less risky and costly from one party’s point of view,
but it may make it more risky and costly from the other’s. This increased
risk seems to be a plausible source of an increase in the use of pre-nuptial
agreements for the allocation of property in the case of divorce on the
part of people who are wealthier and higher-earning than their spouses.66

Policies That May Increase Family Stability

The government response, both to family stability concerns and to the
poverty resulting from increases in non-marriage, divorce, and remarriage,
should probably focus on the economic well-being of families, regard-
less of their formal living and marriage arrangements. It is very difficult
to claim that families led by married couples are the building blocks of
US society when looking at Fig. 6.1c. That is not the composition of the
country, and it is increasingly not the composition of any high-income,
developed country, although cohabiting two-parent families (with or
without marriage) are predominant in countries that have focused on gen-
der equality such as the Nordic countries and France. Most researchers
who study families and family policy do not believe that a return to tra-
ditional male-breadwinner, female-caregiver, two-parent families will ever
happen in the United States regardless of policy incentives, and, in the
view of many, nor should it. The idealization of that family structure rein-
forced by social policy that effectively pushed many women into marriage
and locked them in once they were married masked a lot of suffering, eco-
nomic instability, and inequality that we should hope to move beyond.
At the same time, most children would be better off with the more
stable economic and emotional life that results from having two parents
participating in and contributing to their upbringing. This stability does
not exist for most low-income children, and the widening gap between
the lives of high socioeconomic status children and low have diverged
on family structure characteristics in troubling ways. It may be that the
only way to improve family stability in the United States is to start by
ensuring that all children have their economic needs met, that they have
the resources they need to complete high school and possibly college,
and that they avoid early pregnancy and childbearing.67 Other policies
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 195

that target groups with particular labor market issues, such as incarcer-
ated men and those with criminal records, could have ancillary benefits
that improve life experiences and outcomes for their children. The com-
plexity of families makes policies targeted at those who are already par-
ents difficult. For example, multipartner fertility is extremely common.
Thirty-five to 40% of men cohabiting with one woman have a child or
children by another woman and over 12% of married fathers have one or
more children with another woman.68 Targeting a man’s child in another
household, over his child with his partner in his current household, for
financial or time transfers from the father is tricky. Having a father pay
child support into a family where half-siblings to his child exist, means
that his child support payments are probably treated as part of a com-
mon pool of income, benefiting other children to the detriment of his
own.69 All this is to say that increasing the economic stability for chil-
dren of single-parent and complex families has serious challenges, but
there are policies that could improve outcomes for children, and lessen
the probability that the cycle of poverty leading to family instability
continues.

Teen Pregnancy Prevention Programs

Teen pregnancies “are the most likely to be unintended, to interfere with
schooling, and to lead to poorer outcomes for the children involved and
higher costs for taxpayers.”70 While the teen birth rate in the United
States has been declining over the last 25 years, it is still is extremely
high compared to other high-income countries, with teenage girls in the
United States. being two-and-a-half times more likely than Canadian
girls to give birth, and four times more likely than German girls to give
birth. Sex education and access to birth control are both policies that
are effective in preventing teen pregnancy, but many states do not have
legislated sex education requirements in their curriculum and few actively
provide teen reproductive health services in the places where they are
most accessible, such as high schools. Federal dollars allocated to teen
pregnancy prevention are often required to teach abstinence only and are
prohibited from teaching about contraception, and while these require-
ments can ebb depending upon the political party controlling Congress,
abstinence-only education is common.71 Teens in abstinence only pro-
grams end up having as much sex and more unprotected sex than those
in programs that teach birth control.72 Improving the standards for sex
education curricula and improving reproductive health access for all
196 M. M. WAY

teens, but especially low-income teens, would result in delayed childbear-

ing for many, which improves family stability outcomes.
Income inequality in the United States also accounts for dramatic dif-
ferences in the teen birth rate across states, meaning that pregnancy pre-
vention and birth control access alone may only get at the easier cases
to prevent. As suggested by economists and long-time scholars of teen
childbearing, Melissa Kearney and Philip Levine, “to address teen child-
bearing in America will require addressing some difficult social problems:
in particular, the perceived and actual lack of economic opportunity
among those at the bottom of the economic ladder.”73

Criminal Justice Reform

Particular criminal justice system reforms may provide paths to improve
the opportunities for those at the bottom of the income distribution and
least able to enjoy the benefits of stable family life. Incarceration in the
United States is a juggernaut that targets low-income and black popula-
tions—whether intentionally or unintentionally—and the post-incarcera-
tion probation and parole systems that follow men and women who are
released from prison makes working, getting public assistance and find-
ing housing extremely difficult if not impossible.74 The criminal justice
system’s effect on socioeconomic inequality is discussed in Chapter 8,
but as a policy area to promote family stability, changes aimed at keeping
young men out of prison so that they can work and participate in sup-
porting their children emotionally and financially would be a start. Most
likely, this would require employment support programs as well as diver-
sion programs that help young people avoid criminal activity and reforms
to sentencing guidelines for many types of crimes. Reducing the ongoing
limitations put on those with felony convictions would by itself result in
more men working, making their value as prospective mates or husbands
higher and contributing to relationship stability. Giving them access to
welfare support programs, currently precluded by a felony conviction,
could help prevent recidivism and make their lives more stable for their
own sakes and those of their children.

Universal Basic Income

Universal basic income (UBI), also called a citizen’s income, would rep-
resent a radical departure from the traditional welfare and social safety
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 197

net programs in the United States. Rather than have welfare conditional
on income, or work, or age, or motherhood, UBI would provide a living
income to all citizens regardless of age or work status, at the same time
that it eliminates other welfare programs. UBI is a policy that was dis-
cussed in the United States in the form of a negative income tax (NIT)
during the Nixon administration. As conceived at the time, UBI/NIT
meant that all citizens would receive a basic income through the tax
refund system and then would pay taxes only on any additional earnings.
The UBI/NIT proposal was never taken up by Congress. There have
been experiments in Canada and European countries, and consideration
of various types of full-scale adoption of a UBI, especially in more fam-
ily-friendly welfare regimes but in the United States as well. Interest in
UBI proposals has increased with automation and globalization threaten-
ing the job market for large shares of the population.75
The complications of implementing UBI are many, including the risk
of inflation with such a large program that likely would be financed by
borrowing and perhaps ultimately monetization of the resulting debt,
the taxes needed to run a UBI program on a pay-as-you-go basis, and
the disincentives to work that any non-labor income implies.76 On the
other hand, at a time of high poverty rates for so many US children and
families, UBI could promote family stability by pulling families out of
poverty while eliminating many of the unintended consequences of other
welfare programs that threaten the loss of welfare benefits when people
work or get married. It would also remove the expensive and intrusive
bureaucracies that are required to administer traditional welfare pro-
grams. The universal aspect of UBI would reduce the stigma associated
with public support. By tackling the insecurity of life in poverty, UBI
could increase investments in children and reduce the stresses that lead
young people to drop out of school, have children early, cross paths with
the criminal justice system, and lose hope for their futures.

Conclusion
Marriage has been affirmed in the twenty-first century as a right that
affords protections to individuals, couples and their children. It is
increasingly being described by economists, however, as a “luxury
good,” becoming more and more unappealing, inaccessible, or imprac-
tical for lower-income people. The economic value of marriage relative
to cohabitation or staying single has decreased, resulting in many groups
198 M. M. WAY

retreating from marriage altogether, although not from childbearing

or cohabitation. These changes in US family structure require an active
response by policy-makers in order to counter some of the serious eco-
nomic consequences of non-marriage and divorce on the well-being of
children and families. Negative consequences for children spill over to
the greater economy as those children grow up to be the workforce, the
citizens, and the parents of the next generation.
Stubbornly high rates of child poverty call out for attention, especially
when contrasted with the decreasing rates of poverty among the elderly,
who are a focus of the next chapter. Not surprisingly, the decrease in
elder poverty rates during the twentieth century resulted from intense
investments on the part of the federal government into Social Security
and Medicare, providing a UBI of sorts to most elderly American cit-
izens. The next chapter looks at how this transformation in the living
standards of the elderly came about, its spillover effects on families, and
how demographics and entitlement funding pressures might put it at
risk.

Notes
1. Anthony M. Kennedy, Associate Justice, “Obergefell V. Hodges, No.
14-566,” ed. Supreme Court of the United States (Washington, DC,
2015).
2. Ibid.
3. Quoted phrase comes from the title of Chapter 14 in Stephanie Coontz,
Marriage, a History: From Obedience to Intimacy or How Love Conquered
Marriage (New York: Viking, 2005).
4. Andrew J. Cherlin, The Marriage-Go-Round: The State of Marriage and the
Family in America Today, 1st ed. (New York: Alfred A. Knopf, 2009), 4.
5. See Chapter 2 in Nancy F. Cott, Public Vows: A History of Marriage and
the Nation (Cambridge, MA: Harvard University Press, 2000).
6. Ibid., 32.
7. Ibid., 16–17.
8. Coontz, Marriage, a History: From Obedience to Intimacy or How Love
Conquered Marriage, 287.
9. Kathryn Edin and Maria Kefalas, Promises I Can Keep: Why Poor Women
Put Motherhood Before Marriage (Berkeley, USA: University of California
Press, 2005).
10. Meg Devlin O’Sullivan, ““More Destruction to These Family Ties”,”
Journal of Family History 41, no. 1 (2016); and Roxanne Dunbar-Ortiz,
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 199

An Indigenous Peoples’ History of the United States, Revisioning American

History; Revisioning American History (Boston: Beacon Press, 2014),
211–14.
11. Chapter 3 in Cott, Public Vows: A History of Marriage and the Nation.
12. Ibid., 157.
13. “H.R. 3734–104th Congress: Personal Responsibility and Work
Opportunity Reconciliation Act of 1996” (www.GovTrack.us, 1996).
Found also in Cherlin, The Marriage-Go-Round: The State of Marriage
and the Family in America Today.
14. Jill Elaine Hasday, Family Law Reimagined (Cambridge, MA: Harvard
University Press, 2014), 31.
15. Cott, Public Vows: A History of Marriage and the Nation, 118.
16. Ibid., 143.
17. Cherlin, The Marriage-Go-Round: The State of Marriage and the Family in
America Today, 128.
18. Gary S. Becker, “A Theory of Marriage: Part I,” Journal of Political
Economy 81, no. 4 (1973).
19. Francine D. Blau, Marianne A. Ferber, and Anne E. Winkler, The
Economics of Women, Men and Work, 6th ed. (Boston: Prentice Hall,
2010), 274.
20. Frances R. Woolley and Judith Marshall, “Measuring Inequality Within
the Household,” Review of Income & Wealth 40, no. 4 (1994).
21. Betsey Stevenson, “The Impact of Divorce Laws on Marriage-Specific
Capital,” Journal of Labor Economics 25, no. 1 (2007).
22. Daniel J. Boorstin and Daniel J. Boorstin Collection (Library of
Congress), The Americans, the National Experience (New York: Vintage
Books, 1965), 144.
23. Herbert George Gutman, The Black Family in Slavery and Freedom, 1750–
1925, 1st ed. (New York: Pantheon Books, 1976), 454.
24. Cott, Public Vows: A History of Marriage and the Nation, 72.
25. Tone, Andrea, Devices and Desires: A History of Contraceptives in America
(New York: Hill and Wang, 2001), 14.
26. Cott, Public Vows: A History of Marriage and the Nation, 65.
27. W. Elliot Brownlee and Mary M. Brownlee, Women in the American
Economy: A Documentary History, 1675 to 1929 (New Haven: Yale
University Press, 1976), 24.
28. Cott, Public Vows: A History of Marriage and the Nation, 85–95.
29. Gutman, The Black Family in Slavery and Freedom, 1750–1925, 166,
414–15.
30. Table 3.5 in Nancy Shoemaker, American Indian Population Recovery in
the Twentieth Century, 1st ed. (Albuquerque: University of New Mexico
Press, 1999).
200 M. M. WAY

31. U.S. Census Bureau Current Population Survey, “Table Ms-2. Estimated

Median Age at First Marriage, by Sex: 1890 to the Present” (U.S. Census
Bureau, 2006).
32. “Table Ae507–513 Marriage and divorce rates: 1920–1951” by Michael
Haines in Carter et al., Historical Statistics of the United States Millennial
Edition Online.
33. Ibid.
34. Table 1 in Amara Bachu, “Trends in Premarital Childbearing: 1930 to
1994,” in Current Population Reports (Washington, DC: U.S. Census
Bureau, 1999).
35. Table Ae507–513 Marriage and divorce rates: 1920–1951 by Michael
Haines in Carter et al., Historical Statistics of the United States Millennial
Edition Online.
36. Table Ae128–190. Living arrangements of children, by age and race:
1850–1990, ibid.
37. Cherlin, The Marriage-Go-Round: The State of Marriage and the Family in
America Today, 60.
38. “Table Ae507–513 Marriage and divorce rates: 1920–1995” by Michael
Haines Carter et al., Historical Statistics of the United States Millennial
Edition Online.
39. Jamie M. Lewis and Rose M. Kreider, “Remarriage in the United States,”
in American Community Survey Reports (Washington, DC: U.S. Census
Bureau, 2015).
40. Cherlin, The Marriage-Go-Round: The State of Marriage and the Family in
America Today, 19.
41. Joyce A. Martin et al., “Births: Final Data for 2011,” in National Vital
Statistics Reports, ed. Division of Vital Statistics (Hyattsville, MD:
National Center for Health Statistics, 2013); and Herbert S. Klein, A
Population History of the United States (New York: Cambridge University
Press, 2004), 214–15.
42. Martin et al., “Births: Final Data for 2011.”
43. Pew Research Center, “Parenting in America: Outlook, Worries,
Aspirations Are Strongly Linked to Financial Situation,” in Social &
Demographic Trends (Washington, DC, 2015).
44. The Census Bureau’s counting of same-sex couple households has been
controversial because questions about sexuality are not asked directly and
techniques identifying the sex of partners by their first names have been
used. The percent of same-sex households and children in those house-
holds comes from, Daphne Lofquist, “Same-Sex Couple Households,”
in American Community Survey Briefs (Washington, DC: U.S. Census
Bureau, 2011). There are subsequent working papers available from the
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 201

U.S. Census Bureaus’ web site describing the attempts to improve same-
sex couple census measurement.
45. See Tables 3 and 4 in Annual Social and Economic Supplements
Current Population Survey, “Historical Poverty Tables: People and
Families—1959 to 2016,” ed. U.S. Census Bureau (Washington, DC,
2017).
46. Naomi R. Cahn and June Carbone, Red Families V. Blue Families: Legal
Polarization and the Creation of Culture (Oxford and New York: Oxford
University Press, 2010), 125.
47. The literature on these outcomes is extensive. Several full-volume
resources are Greg J. Duncan and Richard J. Murnane, eds., Whither
Opportunity?: Rising Inequality, Schools, and Children’s Life Chances
(New York: Russell Sage Foundation, 2011); Kathryn M. Neckerman,
ed. Social Inequality (New York: Russell Sage Foundation, 2004); Sara
McLanahan and Gary D. Sandefur, Growing up with a Single Parent:
What Hurts, What Helps (Cambridge, MA: Harvard University Press,
1994); Sara McLanahan, “Fragile Families and the Reproduction of
Poverty,” The Annals of the American Academy of Political and Social
Science 621 (2009). Good journal articles include Frank F. Furstenberg,
“If Moynihan Had Only Known: Race, Class, and Family Change in
the Late Twentieth Century,” The Annals of the American Academy
of Political and Social Science 621 (2009); and McLanahan, “Fragile
Families and the Reproduction of Poverty.”
48. Gutman, The Black Family in Slavery and Freedom, 1750–1925, 462–63.
49. Ibid.
50. Coontz, Marriage, a History: From Obedience to Intimacy or How
Love Conquered Marriage, 272; Steven Philip Kramer, The Other
Population Crisis: What Governments Can Do About Falling Birth Rates
(Washington, DC: Woodrow Wilson Center Press, 2013), 5–6.
51. June Carbone and Naomi R. Cahn, Marriage Markets: How Inequality Is
Remaking the American Family (Oxford, USA: Oxford University Press,
2014), 62–3
52. Daniel Béland, Social Security: History and Politics from the New Deal
to the Privatization Debate, Studies in Government and Public Policy
(Lawrence: University Press of Kansas, 2005), 62–96.
53. Cott, Public Vows: A History of Marriage and the Nation, 176.
54. Stephanie Coontz, The Way We Never Were: American Families and the
Nostalgia Trap (New York, NY: BasicBooks, 1992), 137–38.
55. Nancy Folbre, “The Pauperization of Motherhood: Patriarcy and Public
Policy in the United States,” in Women in the Political Economy, ed.
Naomi Gerstel and Harriet Gross (Philadelphia: Temple University Press,
1987).
202 M. M. WAY

56. Irwin Garfinkel, Marygold S. Melli, and John G. Robertson, “Child

Support Orders: A Perspective on Reform,” The Future of Children 4, no.
1 (1994).
57. Paula G. Roberts, “Child Support Orders: Problems with Enforcement,”
The Future of Children 4, no. 1 (1994).
58. Melli Garfinkel and Robertson, “Child Support Orders: A Perspective on
Reform.”
59. One study has shown a similar effect for increased alimony awards to
homemakers. Ho-Po Crystal Wong, “Credible Commitments and
Marriage: When the Homemaker Gets Her Share at Divorce,” Journal of
Demographic Economics 82, no. 3 (2016).
60. June Carbone and Naomi R. Cahn, Marriage Markets: How Inequality Is
Remaking the American Family (Oxford, USA: Oxford University Press,
2014), 197.
61. Jonathan Gruber, “Is Making Divorce Easier Bad for Children? The
Long-Run Implications of Unilateral Divorce,” Journal of Labor
Economics 22, no. 4 (2004).
62. Gruber, “Is Making Divorce Easier Bad for Children? The Long-Run
Implications of Unilateral Divorce.”
63. Justin Wolfers, “Did Unilateral Divorce Laws Raise Divorce Rates? A
Reconciliation and New Results,” The American Economic Review 96, no.
5 (2006).
64. A good summary of the theories of the effects of unilateral divorce on
divorce and marriage rates is found in Scott Drewianka, “Divorce Law
and Family Formation,” Journal of Population Economics 21, no. 2
(2008).
65. Betsey Stevenson and Justin Wolfers, “Bargaining in the Shadow of
the Law: Divorce Laws and Family Distress,” The Quarterly Journal of
Economics 121, no. 1 (2006).
66. Carbone and Cahn, Marriage Markets: How Inequality Is Remaking the
American Family, 197.
67. Melissa S. Kearney and Phillip B. Levine, “Why Is the Teen Birth Rate
in the United States so High and Why Does It Matter?,” The Journal of
Economic Perspectives 26, no. 2 (2012).
68. McLanahan, “Fragile Families and the Reproduction of Poverty”; Marcia
J. Carlson and Frank F. Furstenberg, “The Prevalence and Correlates
of Multipartnered Fertility Among Urban U.S. Parents,” Journal
of Marriage and Family 68, no. 3 (2006); and Daniel P. Moynihan,
Timothy M. Smeeding, and Lee Rainwater, The Future of the Family
(New York: Russell Sage Foundation, 2004), 14–15.
69. Carlson and Furstenberg, “The Prevalence and Correlates of
Multipartnered Fertility Among Urban U.S. Parents.”
 6 THE ECONOMICS OF CHANGING FAMILY STRUCTURES … 203

70. Will Marshall and Isabel V. Sawhill, “Progressive Family Policy,” in The

Future of the Family, ed. Daniel P. Moynihan, Timothy M. Smeeding,
and Lee Rainwater (New York: Russell Sage Foundation, 2004).
71. Kaiser Family Foundation Fact Sheet, “Abstinence Education Programs:
Definition, Funding and Impact on Teen Sexual Behavior” (Menlo Park,
CA, 2017).
72. Nancy Folbre, “Disincentives to Care: A Critique of U.S. Family
Policy,” in The Future of the Family, ed. Daniel P. Moynihan, Timothy
M. Smeeding, and Lee Rainwater (New York: Russell Sage Foundation,
2004).
73. Kearney and Levine, “Why Is the Teen Birth Rate in the United States so
High and Why Does It Matter?”
74. See Chapter 4: “The Cruel Hand” in Michelle Alexander, The New Jim
Crow: Mass Incarceration in the Age of Colorblindness, Revised edi-
tion (New York: The New Press, 2012); and Marshall and Sawhill,
“Progressive Family Policy.”
75. Kody Carmody, “The Resurgence of Universal Basic Income,” Econ Focus
22, no. 3 (2017); Ed Dolan, “The Pragmatic Case for a Universal Basic
Income,” The Milken Institute Review: A Journal of Economic Policy,
July 2104; Evelyn L. Forget, “The Town with No Poverty: The Health
Effects of a Canadian Guaranteed Annual Income Field Experiment,”
Canadian Public Policy/Analyse de Politiques 37, no. 3 (2011); and
Anthony Painter, “A Universal Basic Income: The Answer to Poverty,
Insecurity and Health Inequality?,” BMJ: British Medical Journal 355
(2016).
76. Heiner Flassbeck, “Universal Basic Income Financing and Income
Distribution—The Questions Left Unanswered by Proponents,”
Intereconomics 52, no. 2 (2017).
 CHAPTER 7

Intergenerational Economics: Public

and Family Support for Retirees in US
History and Looking Forward

Introduction
When Franklin Roosevelt and his Secretary of Labor, Frances Perkins,
took the political opportunity presented by the Great Depression to
transform a hodgepodge of state and local programs for the old and des-
titute into a massive federal retirement insurance program, they created
in its beneficiaries—the elderly—a national interest group unique in the
US experience. No other demographic group has had the privilege of a
widespread income transfer program, or (eventually) universal health-
care. No other group has wielded the political clout to make their trans-
fer programs the “third rail” of public policy—not to be touched by any
politician unless it is to enhance and improve the program’s effectiveness.
Family policy advocates have never been able to achieve the sustained
public support for children’s programs that Social Security receives, and
healthcare advocates have failed in attempts to bring the Medicare model
of healthcare provision for all to younger members of the American
population. Throughout US history, a key factor in the debates over
social welfare has been the “deservedness” of the populations being
helped. Elderly former workers and their non-working spouses seem to
fall squarely in the “deserving” category.1 Because of this, the poverty
rate for the elderly has been brought down over the last 50 years, from
around 30% in the mid-1960s to around 9% in the mid-2010s.2

© The Author(s) 2018 205

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_7
206 M. M. WAY

The elderly have benefited, across the socioeconomic spectrum, from

an implicit social contract which promises that those who work in the
paid labor force (or are attached through marriage to someone who
does) will be kept out of poverty and provided healthcare when they
retire or become disabled. But Social Security also is a multigenerational
contract in its funding structure and is a multigenerational program in its
impact on families’ economic decisions. Social Security withholding from
paychecks is a constraint on preretirement economic decision-making
and a source of income postretirement. It has changed intergenerational
economic relationships—such as those between parents and children—
and intertemporal economic decisions—or the consumption and sav-
ings tradeoffs between today and the future. The income provided from
Social Security and the savings on medical costs enabled by Medicare
trickle down to other generations. They protect older generations’
wealth from being consumed by medical bills and thereby allow it to
be passed on in the form of gifts or inheritances. Social Security and
Medicare also enable workers at middle or even at lower levels of the
income distribution to choose retirement versus working as long as they
possibly can. This loosening of financial constraints can free up willing
grandparents to provide unpaid household labor to their children in the
form of childcare and housework. Improved health of the elderly that
can result from earlier retirement and better medical care can mean
their children may have to dedicate less time to caregiving. Finally, the
increased financial independence of the elderly means younger families
may have more space in their homes.
The implicit contract between society and the elderly is being strained,
however. Increasing life expectancy, the large size of the baby boom gen-
eration, and declining fertility are demographic issues leading to grave
fiscal problems for funding the programs seniors rely on. The population
pyramids shown in Fig. 7.1 illustrate the change in the ratio of work-
ing-age people to elderly between 1980 and 2010, as the baby boomers
moved from being twenty-somethings to fifty-somethings, and the pro-
jection for 2040, when baby boomers sit atop the pyramid as if on the
bridge of a giant ship heading toward us. The lack of political will to fix
the demography-based problems with Social Security and ensure that it
can provide expected benefits past the 2020s is a serious challenge. The
same lack of political will to tackle soaring healthcare costs means that
Medicare spending is constantly being examined and the assurance it
currently provides is under continual threat, while it eats up larger and
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 207

(a) 1980
100+
95-99
90-94
85-89
80-84
75-79
70-74

Age Ranges
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
1,50,00,000 1,00,00,000 50,00,000 0 50,00,000 1,00,00,000 1,50,00,000

Male Female

2010
(b)
100+
95-99
90-94
85-89
80-84
75-79
70-74
Age Ranges

65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
1,50,00,000 1,00,00,000 50,00,000 0 50,00,000 1,00,00,000 1,50,00,000

Male Female

2040
(c)
100+
95-99
90-94
85-89
80-84
75-79
70-74
Age Ranges

65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
1,50,00,000 1,00,00,000 50,00,000 0 50,00,000 1,00,00,000 1,50,00,000

Male Female

Fig. 7.1 Historic and projected US population pyramids by 5-year age ranges:
1980, 2010, 2040 (Data source US Census Bureau International Data Base,
downloaded from https://www.census.gov/data-tools/demo/idb/information-
Gateway.php, December 2017)
208 M. M. WAY

larger percentages of the federal budget. Smaller families and more paid
labor force participation among daughters especially mean that the baby
boomers will have fewer informal caregivers as they age and will need to
rely more on paid services for support.
While the elderly have voting power, vested business interests behind
them, and a very effective lobbying organization watching their backs—
the American Association of Retired Persons (AARP)—their strength
could be part of their downfall. Their political influence has managed to
keep Social Security and Medicare relatively generous even as these pro-
grams have moved to the brink of a funding crisis. The unwillingness of
the US Congress to make the changes needed to keep Social Security
and Medicare solvent means that benefits could automatically decrease
as early as 2030 when the systems no longer can cover deficits. Social
Security has a financial structure that is separate from the rest of the
federal system, and so it cannot fund deficits with general tax revenues.
Social Security has been covering shortfalls with savings from earlier years
of the program, but that source of funding is gradually disappearing as
the age structure of the population advances. Medicare, meanwhile, stag-
gers along with patches such as reductions in payments to providers.3
Another source of strain is that in the early twenty-first century,
Americans save very little outside of Social Security for retirement.
According to Teresa Ghilarducci, an economist and policy analyst at the
New School for Social Research, “A shocking number of older workers
are underprepared for retirement. Over a third of Americans a­ pproaching
retirement age have less than $10,000 in liquid assets, which means at
least 37 percent are projected to be poor or near poor in retirement.
That translates into an average budget of about $7 per day for food and
$600 per month for housing.”4
What this means for families is that the assumptions grounding some
of their economic decisions may be shifting under them; “the way things
used to be done” may not provide much wise guidance. Families may
have to plan differently for their own futures or find themselves facing
unpleasant consequences. They may need to help the older generation
in their immediate and extended family networks in ways that force new
economic tradeoffs. The coming problems in fulfilling the social contract
with the elderly also remind us how important it is to invest in the rela-
tively small coming generation of children in order to prepare it to sup-
port the relatively large generation of future retirees who, one way or
another, will be relying on it.
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 209

This chapter continues with a brief description of US elder support

and care policies up to the passage of Social Security in 1935, and the
expansions in public supports for the elderly during the twentieth cen-
tury. Then it will look at the economics of retirement and intergener-
ational transfers—the passing of money between the generations of a
family—focusing on family economic decisions that may be impacted by
potential changes in public spending on Social Security and Medicare,
and on decisions around informal, unpaid caregiving. The chapter then
turns to demographic and economic changes that have shaped the expe-
riences of twenty-first century senior citizens, their unique character-
istics, and the state of their preparation for retirement. Because Social
Security and Medicare are so important to financial security for the
elderly, we then focus on the things that families need to know about
how these programs’ potential changes will affect their futures. Finally,
we will look at policies that might increase caregiving support for elderly
family members and these policies’ potential impact on the younger
generation.

The Evolution of Public Support for the Elderly

In the nineteenth century, older Americans earned income as farmers,
laborers, entrepreneurs, or employees in white-collar or professional
fields. Those no longer able to work due to their age or health usually
supported themselves from savings or were supported to varying extents
by their children. Parents might move in with children, or alternatively,
parents who had managed to pay for a family home might allow children
to raise their own families under the parental roof, on a temporary or
permanent basis. For some categories of elderly, such as veterans, police,
firefighters, and their widows, public pensions were available. The first
major national pension program was enacted to support Civil War vet-
erans, but only those on the Union side. The enactment of Civil War
pensions for disabled Union Army veterans and for Union widows in the
1860s and 1870s represented a significant expansion of existing veterans’
programs during a time of high national debt following the war. After
the debt was resolved and the federal government was running surpluses
in the 1880s and 1890s, veterans’ lobbying groups pushed for and won
pensions for all Union soldiers, regardless of disability, and for all widows
of veterans.5 According to Richard Sylla, writing about the economics of
US federalism
210 M. M. WAY

The number of military-related pensioners soared to nearly a million by

1893, and pension payments rose to 40 percent of federal spending. The
growth of pension spending slowed from then to 1914, when its budget
share was around 25 percent. But the principle was firmly established that
the federal government had a responsibility to provide large-scale transfer
payments to Americans whom Congress deemed worthy of such support.
The Civil War veteran’s entitlement program thus provided a preview of
big government in the twentieth century.

The enactment of this program only fueled resentment in the South,

whose veterans and widows had no such protections. For them, and for
most elderly Americans at the end of the nineteenth century, not hav-
ing family or resources to support oneself—not uncommon during
a highly mobile phase in American history—meant relying on locally
run charities, “old soldiers’ homes” funded in the South from a patch-
work of sources, or in the worst instances, the poorhouse. In the late
1800s, it was estimated that around 2% of the elderly lived in poor-
houses, mixed in with the most indigent and ill populations who also
had no other recourse.6 The inadequacy of the local provisioning of sup-
port for the elderly was becoming increasingly obvious to many, espe-
cially with decreases in mortality resulting in Americans living to older
ages.7 Starting with the territory of Alaska in 1915, states began to enact
large-scale old-age pension programs, although battles raged in many
states about the constitutionality of such provisions, and pension pro-
grams passed by state legislatures were often rolled back by their courts.8
Large business interests were usually opposed to state pension programs,
thinking they would loosen businesses’ control over their workers, argu-
ing instead that they could provide pensions, healthcare, and other social
services to their workers and their workers’ families, an approach to the
working population known as welfare capitalism. By 1931, however, 28
states and two territories had approved some type of old-age support,
spurred by economic crisis. Usually these programs were means-tested,
meager and had payback provisions in case a beneficiary died with any
assets, but they represented a stopgap measure against some of the most
severe poverty.
The effects of the Great Depression made the crisis of poverty in the
elderly more acute.9 Of the 28 states with pension programs, none were
in the South where some of the worst poverty was found. The financial
collapse that initiated the Great Depression wiped out individual savings
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 211

and pensions as banks and businesses failed. Many workers who had ben-
efited from employer-provided pensions, about 15% of the working pop-
ulation, saw their pensions disappear.10 Adult children became less able
to support their elderly parents as unemployment increased.
The dire situation facing many elderly citizens in the 1930s revived a
political debate about the role of the US government in providing old-
age pensions, a debate which had begun during the Progressive Era. As
pictures of destitute elderly in bread lines became part of the national
consciousness, politicians were called upon to act. The Social Security
Act created a compromise between the federal government, states,
and businesses whose ability to oppose a national old-age pension sys-
tem was now weakened by the dramatic failure of the private enterprise
system to ensure prosperity or even fulfill the commitments to workers
made in the welfare capitalist approach. Rather than cover all citizens,
as some policymakers wanted, the Act provided only workers with a
retirement pension. It also initially excluded agricultural and domestic
labor—an incremental approach that was supported by the 14 northern
and 4 southern congressmen on the House Ways and Means Committee
who were ultimately responsible for the bill that went before Congress.
Some argue that this exclusion, which disproportionately affected African
Americans, was necessary to win the support of southern congressmen,
but others argue it was necessary to gain broad backing for a federal
approach to old-age support that was new and untested.11
The genius of Social Security was in its insurance-like model, which
the public perceived differently from a universal entitlement or a hand-
out to the poor. It was targeted at the middle class, white, male-bread-
winner and his wife—deservedness was built into its very structure.
“Roosevelt wanted to encourage middle-class people to think of Social
Security as an insurance system in which their ‘premiums’ established
investments that had to be protected. He explained that ‘with those
taxes in there, no damn politician can ever scrap my social security pro-
gram.’”12 That was for sure.
In the years that followed, Social Security, both the retirement insur-
ance called Old Age and Survivors’ Insurance (OASI) which is normally
referred to as simply Social Security, and other measures that we often
forget fall under the Social Security Act—Aid to Dependent Children
(ADC) and Unemployment Insurance (UI), for example—remained a
permanent legacy of the New Deal.
212 M. M. WAY

In 1950, eliminating the prior exclusions, the coverage of Social

Security was expanded to include domestic workers and agricultural
workers, as well as the self-employed, broadening the coverage of work-
ers from 60% to almost the entire work force.13 Coverage for the male
widowers of deceased female workers was added in 1950, Disability
Insurance (DI) was added in 1956, and benefits were indexed to infla-
tion by the 1972 Cost of Living Adjustments (COLA) legislation.
Medicare, another payroll-tax financed benefit for the elderly and dis-
abled non-elderly was enacted in 1965, providing health insurance on
a universal basis to all Americans aged 65 and older. Before Medicare,
only about 25% of the elderly were covered by comprehensive insurance
plans, and even though medical care was relatively less expensive than it
would become, the high poverty rate among seniors made it difficult to
either pay for a policy or pay for care.14 In addition, the high-risk sta-
tus of elderly and retirees resulted in a market failure which is typical to
most insurance markets in that there is adverse selection—those needing
insurance the most are the costliest to insure, driving up prices for all
subscribers, and pushing the healthier customers out of the market. In
addition to Medicare, Medicaid, a state-run, federal, and state-funded
health insurance program targeted at the poor, also partly covered
an enormous gap in long-term care coverage for the elderly; by 1970,
Medicaid was the primary source of payment for nursing home care.15 It
continued to fill this role through the twenty-first century.
Poverty rates in the early 1960s were very high for seniors, and
Medicare combined with increases in Social Security and the creation
of Medicaid were hallmarks of Lyndon Johnson’s War on Poverty (see
Fig. 7.2). Poverty rates dropped dramatically.
As retirement became a more financially secure phase of life, older
men exited the workforce sooner. The labor force participation rate of
men over 65 had steadily dropped since the 1880s, but began a rapid
decline after the first recipients started becoming eligible for Social
Security in the 1940s. Between 1950 and 1970, the labor force partici-
pation rate for senior men dropped from 41 to 25%, and then to 19% by
1980.16 This reflected the contradictory work incentives resulting from
the Social Security program—one had to work to contribute to the sys-
tem and benefits increased with earnings, encouraging work. But having
non-labor income meant one could also leave the workforce at a younger
age than they might have otherwise and could even start collecting
reduced benefits as young as age 62, or even younger with a permanent
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 213

35%

30%
Percent Living In Poverty

25%

20%

15%

10%

5%

0%
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Men 65 and older Women 65 and older

Fig. 7.2 Percent of women and men ages 65 and older living in poverty:
1966–2016 (Data source: US Census Bureau, Historical Poverty Tables: People
and Families—1959 to 2016, Table 7. https://www.census.gov/data/tables/
time-series/demo/income-poverty/historical-poverty-people.html)

disability. The non-labor income provided by Social Security gave older

Americans more choices in how to spend their time, and many opted to
work less.
The United States was late to the game when it came to social
insurance for old, poor, and unemployed citizens when compared to
European countries that put comprehensive health insurance, old-age
pensions, and anti-poverty programs in place on a universal basis start-
ing in the late 1800s. The United States has never caught up in provid-
ing an adequate safety net for all. But the enactment of Social Security
and Medicare (and Medicaid for the very poor) may have represented
the best start that the US government could achieve politically, given
the federal nature of the system, public opinion being opposed to sup-
porting the “undeserving poor” (with negative attitudes often reflecting
214 M. M. WAY

racial divisions), and very active political and business interests opposed
to redistributive policies of any sort. In some ways, the Great Depression
blessed American seniors by providing a window of opportunity for a
more rational retirement system, as limited as it was. With greater eco-
nomic power resulting from financial transfers from the younger genera-
tion to the old, senior citizens’ lives changed in many ways, especially in
the context of their families.

Economics of Retirement
and Intergenerational Transfers

Economic decision-making regarding retirement planning and timing

revolves around many of the factors we have considered already: income
and wealth constraints, wage levels, the tradeoff between labor and lei-
sure, the tradeoff between paid market work and unpaid household
production, people’s preferences for consumption today versus saving
for the future, and the impact of non-labor income on the work deci-
sion. Economists contextualize these individual decisions as part of the
life-cycle model of labor supply or the life-cycle model of consumption. These
models assume that people look ahead at the expected trajectory of their
lives and try to allocate their resources over time in such a way that they
do not suffer large swings in their ability to consume needed and wanted
goods. They work hardest when their work is most productive and has
the highest payoff in the labor market, and also save the most during
their most productive years to enable themselves to consume sufficiently
when they are older and their work is not as productive. These mod-
els can be expanded to include family members. In the family context,
one person’s retirement planning decisions are co-determined with other
resource allocation decisions. For example, a parent’s savings for retire-
ment may take away from funds available for their child’s college tuition,
or viewed from the other perspective, college tuition may put a big dent
in the parent’s retirement funds. Family considerations may make people
“impatient,” or even “myopic,” in an economic sense, concerned with
meeting their family’s needs and wants in the present and heavily dis-
counting their own needs in the future. Retirement timing decisions may
be influenced by an adult child having a baby, and wanting trusted (and
perhaps unpaid) childcare from the grandparent in order to return to
work. And the adequacy of retirement income from Social Security ben-
efits, private pensions or other savings is judged in part according to how
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 215

many family members are depending upon that income, affecting if and
when an elderly person decides to exit the paid labor force completely, or
move to part-time work.
In addition to the timing of their retirement decisions, the well-being
of retirees is affected by intergenerational resource allocation decisions.
Families allocate their scarce time and money to their immediate and
extended family members when they make caregiving decisions, provide
financial support or choose to allow family members to live with them,
or decide themselves whether or not to move in with adult children.
Resource sharing extends across widening networks of family members
due to changes in family structure that have given children of divorce,
for example, two elderly parent households to be concerned with, as well
as stepparents. (This change in the ratio of parents to children is even
more dramatic since fertility rates have fallen—it has been said that par-
ents used to have a lot of children but now children have a lot of par-
ents.) Support for one parent no longer helps the other when parents
live apart and so even well-off adult children’s resources may not go as
far as if parents had stayed together, and decisions about allocations of
money and time become more complex.

Altruism and Exchange

As the population ages, understanding the motivations for intergenera-
tional transfers has become more important. These motivations can pro-
vide clues as to which policies best nudge families into better supporting
each other, and in this context, the discussion of altruism and exchange,
started in Chapter 2, takes on new relevance.
For example, say that an older parent’s financial gifts to their child are
motivated by the idea of exchange. They use financial gifts as a way to
maintain and improve ties with their children in the implicit (or explicit)
expectation that the child will be available now or at a later date to pro-
vide practical help.17 Empirical studies of the exchange motivation help
to explain a common phenomenon, that financial transfers from parents
to children while the parents are alive (also called inter-vivos transfers)
tend to be highly unequal among siblings, while bequests upon a par-
ent’s death tend to be given to all children equally. One of the plausible
reasons for unequal inter-vivos transfers is that siblings provide infor-
mal help to their parents unequally and those that provide more help
are then rewarded.18 Children who have received prior transfers from
216 M. M. WAY

parents are also more likely to step forward and provide caregiving.19
Knowing this, policy-makers could find ways to bolster parents’ abili-
ties to compensate their children for help given, through subsidies or tax
credits for family elder care, which could reduce Medicare or Medicaid
spending on formal caregivers. The child who wants to help their parent
in exchange for transfers must weigh the opportunity cost of their time—
wages they earn on the market or household goods and services they
produce such as care for young children, or simply time spent enjoying
other activities—in deciding how much time to give. A public subsidy
could tip the balance toward more caregiving.
Another motivation for sharing between the generations is altruism.
Parents give to their adult children because their children’s utility—or
well-being—increases the parents’ own utility. Many studies have found
transfer behavior consistent with altruism, including studies showing that
parents’ giving increases with their child’s need, such as in the case of
a child’s divorce or job loss.20 A child’s help to their parent could also
depend on the child’s level of altruism, and how much their parent’s
well-being affects them. In this case, policy-makers might want to know
how far altruism will go, and how much families can be depended upon,
instead of the government, for emergency financial help and services.
Again, the opportunity cost of children’s time matters when it comes
to caregiving, even when children are very altruistic toward their parents.
Economic theory predicts that children with a high opportunity cost of
their time would provide less care and empirical studies support this.21 It
has been shown that among siblings with elderly parents, the ones with
lower opportunity costs—shorter drive time to parents, lower earnings,
no small children to care for—end up providing more care.22
Time considerations are not trivial when it comes to caring for the
baby-boom generation, who, though being boomers, did not themselves
have high fertility rates. As Courtney van Houtven and Edward Norton
pointed out in 2004, “the last of the baby boomers turns 65 in 2030, at
which time the number of people in the United States over the age of
65 will be double what it is today. Simultaneously, the supply of infor-
mal caregivers may shrink as people have smaller families, as more daugh-
ters join the labor force, and as family structures change, with children of
divorced parents and children living far away providing less care.”23
Policymakers are often confounded by the interplay of so many peo-
ple and interests when it comes to trying to create policies that support
one type of family member without negatively impacting other family
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 217

members, as we will see below in the discussion of subsidies for family

caregiving. Because there are spillover effects, it is important to under-
stand how family decisions around retirement and senior care could be
impacted by future changes in the social safety net. Looking specifically
at the impacts of Social Security and Medicare on these decisions in the
past and potential changes to Social Security in the future provides some
good examples.

Family Economics, Social Security, and Medicare

With the enactment of Social Security, and later Medicare, the economic
behavior of many families could change in a variety of ways. The spend-
now-or-save-for-later decision was taken out of people’s hands, for at
least a portion of their income. The private savings activity of households
became less critical to well-being in retirement, although whether Social
Security actually caused people with the ability to save to decrease their
savings is disputed.24 Social Security and Medicare set a reference point
for the retirement age at 65 in our national consciousness, because that
was the original age at which full benefits could be received. This influ-
enced preferences over work versus leisure across the lifecycle. Social
Security and Medicare taxes also affected working families’ income con-
straints, reducing take-home pay by increasing percentages as Congress
recognized funding shortfalls that needed to be fixed by taking more
from the working population. This lowered the net wage, an important
factor in the decision to work described in Chapter 5.
The financial burden of taking care of the elderly—or more specifi-
cally, retired workers and their spouses—was suddenly spread from the
elderly themselves and their families to every working, payroll-tax-paying
citizen of the United States. Money given by the government in many
cases replaced money or nonmonetary support that had been or likely
would have been given by children to their elderly parents. Studies
have shown a crowding-out effect, meaning money paid through Social
Security to the elderly reduces, by a certain proportion, the financial sup-
port they receive from their children.25 Parents less dependent on their
children financially were able to live on their own, often choosing to
move to warmer climates, or to senior living communities, and the secu-
rity provided by Social Security and Medicare may have, in part, con-
tributed to this trend. These social support programs were not the only
factor, however, in seniors’ improved living standards after the 1950s.
218 M. M. WAY

The Evolution of the Twenty-First

Century Senior Citizen
The second-half of the twentieth century saw trends in economic
growth, wages, medical care, and consumption that changed older peo-
ple’s expectations for retirement. Real GDP growth per capita aver-
aged around 2.5% per year between 1950 and 2000, higher than the
2.0% average per capita growth for the prior 50 years, and higher than
almost any year since 2000.26 Wages reflected this growth with inflation-
adjusted median earnings for men increasing through the mid-1970s
and then starting to decline, while median earnings for women climbed
throughout the second-half of the century.27 Ordinary Americans’ par-
ticipation in the stock market increased as mutual funds made invest-
ing easier. The value of investments increased at a rapid clip, so people
who had extra money to save or who prioritized saving over consump-
tion increased their wealth considerably.28 Homeownership, a way to
assess people’s standard of living, increased among male senior citizens
between 1940 and 1990 from around 42% to over 70%, very close to the
homeownership rate of younger men in the work force.29 Improvements
in medicine and public health combined with access to medical care for
the elderly resulted in life expectancy at age 40 increasing by almost six
years for both women and men between 1950 and 1998, to 81 and
76 years, respectively.30 In addition to basic standard of living changes,
the twentieth century saw American culture overall become more
focused on individual fulfillment and consumption, and for seniors, this
meant that industries catering to their needs, such as specialized real
estate, travel and recreation, emerged.
The move to living independently, which started in the late 1800s,
was supported by all these trends in health, financial security, and services
catering to seniors. Between 1880 and 1940, the percentage of retired
men (married or not) living with their children decreased from 46 to
22%. By 1990, the share was 5%.31 Between 1910 and 1990, the fraction
of elderly widows living alone increased from 12 to 70%32 and single-
person households were overwhelmingly elderly (see Fig. 7.3).33 The
percent of extended family households with a senior citizen living in
them decreased from over 25% in 1960, to 14.2% by 1980, but then
increased to over 18% by 2010.34 This rebound was probably due to
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 219

8,000

7,000
Single-Person Households

6,000
(thousands)

5,000

4,000

3,000

2,000

1,000

0
Under 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-64 65-74 75+
20 years years years years years years years years years years
years

Fig. 7.3 Single-person households by age group: 2016 (Data source US

Census Bureau, America’s Families and Living Arrangements: 2016, Table H2.
https://www.census.gov/data/tables/2016/demo/families/cps-2016.html)

several new factors, one of which could simply be longer lives of the
elderly and increasing frailty of parents of the baby boomers. Coresidence
patterns reflected another trend shaping life for twenty-first century sen-
iors, the trend in children wanting or needing to live with them in adult-
hood. One study of older parents living with adult children found that:

The patterns of intergenerational coresidence and resource flows within

coresidential households have changed in dramatic ways, paralleling the
general trends toward the greater economic security of older adults and
the increasing financial strain experienced by younger adults. […] we
found that younger adults have become increasingly needy over time, as
reflected in their likelihood of intergenerational coresidence. Our results
suggest that the needs of the older generation played a much larger role
in coresidence decisions in 1960 than in 2010, when these decisions were
clearly driven more by the economic needs of the younger.35
220 M. M. WAY

Support for Adult Children

The economic and affective ties between generations did not decline
due to Social Security, as many had predicted, but the balance of finan-
cial strength tipped toward the older generation.36 Besides coresidence,
family economic ties in the late twentieth and early twenty-first century
took the forms of financial support, time given in help with household
projects and chores, and caregiving exchanged between the younger and
older generations.37 By the turn of the twenty-first century, young adults
were increasingly relying on their parents for financial support well into
their twenties, requiring longer periods of education and more help in
establishing their financial lives in adulthood.38 Parents of even older
adults were also very likely to provide financial support to their children.
A 2011 study of adults aged 25 and older found that 25% had received a
gift from their parents of at least $100 in the prior year, with more high-
ly-educated parents more likely to give. When asked in the same survey if
their parents had ever given them long-term financial help in adulthood,
a high percentage reported that they had, with 41% receiving help with
education, 16% with help in housing, and 25% receiving help in other
categories.39 Parental transfers make up a significant percentage of the
down payment on homes for first-time home buyers, and they help fund
new businesses and help pay for grandchildren’s college tuition.40
Grandparents as a large unpaid—or, in some families, paid—labor
force provided services that working parents needed, if they lived close
enough and if they were motivated to help. Retirees at the beginning of
the twenty-first century were expected to live between 16 and 20 years
past their retirement age, depending upon race and gender, according
to the Centers for Disease Control.41 Time transfers particularly for car-
egiving services for young children were common, and although parents
were more likely to provide help to their adult children than the other
way around, as parents aged children increasingly provided an array of
practical and affective support.42

The Effects of Changing Family Structure

Changes in family composition and structure, however, affected these
support systems. The baby boom generation had fewer children than
their parents, so the availability of informal caregivers later in life was
predicted to decrease causing an increase in demand for paid home heath
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 221

aids and caregivers.43 Intergenerational exchanges of money and time

were less common in families of divorce and remarriage, and divorced
fathers in particular were less likely to support their adult children.44 In
return, children were less likely to provide help to divorced fathers than
they were to divorced mothers or widowed fathers, signaling a fraying of
intergenerational ties caused by family structure changes.45 Children of
divorced baby boomers were unsure of their responsibilities to steppar-
ents, and especially when stepparents were acquired later in life, seemed
less likely to plan on providing informal care.46
The rise in divorce rates during the 1970s not only meant that many
children were dealing with several households, it also affected adults’
capacity for retirement savings and women’s ability to claim Social
Security if their time in the workforce did not qualify them for benefits
on their own. Individuals married at least 10 years could claim a bene-
fit equal to 50% of their ex-spouse’s benefits, with no reduction in their
ex-spouse’s benefits. With less work experience, lower earnings potential,
and a lower likelihood of remarriage than men, divorce for most women
meant a decline in their standard of living.47 Elderly men’s poverty rates
had been significantly lower than women’s consistently throughout the
century, and even as poverty rates for elders started dropping in the
1960s, the percent of women living in poverty stayed about 7 percent-
age points higher than men through the 1980s and into the 1990s (see
Fig. 7.2). In the early 2000s, elderly women’s poverty slowly declined to
within 3 percentage points of men’s rate.

Preparation for Retirement

For middle-aged men and women and their families in the early twen-
ty-first century, the question of being prepared for retirement looms
large. The largest source of retirement income for the elderly is Social
Security, and given that alarm bells about the solvency of the program
have been going off since the late 1980s, this is a source of concern. In
2016, the Social Security Administration reported that 94% of the US
workforce was covered by Social Security, but there was evidence that
the elderly were too dependent on it for retirement income. Social
Security was providing more than 50% of all income for almost 50%
of married couples and more than 90% of income for 21% of married
couples.48 Among single people, 71% relied on Social Security for more
than half their income and 43% relied on it for more than 90% of their
222 M. M. WAY

income. Given that in 2015, annual Social Security income averaged

$18,000 for men and a little over $14,000 for women, this was mea-
ger funding. Poverty-level income for a single person aged 65 or older
in the United States in 2015 was $11,367.49 It is estimated that with-
out Social Security, elder poverty rates would be around 44% instead of
9%.50 However, while Social Security has dramatically reduced rates of
dire poverty in old age, seniors who rely on it for most of their incomes
are not living very comfortable lives.
After Social Security, employer pensions are the next largest source of
income for seniors, including traditional defined benefit plans and newer
defined contribution plans, such as 401 k accounts. The access of work-
ers to employer pension plans increased between 1950 and 1979 from
25% to over 60% of workers, but since then fewer employers have offered
such plans and fewer employees have participated in them due to not
being eligible (as happens when an employee works part time), or due
to not opting to contribute to 401 k plans.51 About 54% of workers con-
tributed to pension plans according to a survey by the Bureau of Labor
Statistics in March 2017, but many workers may have been counted as
participating even with minimal contributions to 401 k programs.52 In
2010, the median amount of savings in pension or retirement accounts
for all Americans aged 50–64 was $0, meaning more than 50% of the
population had no retirement account savings at all. This was shown in
a study by Teresa Ghilarducci, who also revealed that besides the median
being zero overall, for those people who had retirement accounts or pen-
sions, the median balances were $30,000 for the lowest 25% of earners,
$22,000 for the next highest 25% (oddly), $36,100 for people in the sec-
ond-to-richest 25% and $90,000 for the richest 25%. For an age group
on the verge of retirement, these were startling numbers. There may
have been other savings or assets in these middle-aged peoples’ portfo-
lios, including homes, but for retirees, personal savings and assets rep-
resent only the third largest source of income, after Social Security and
pensions. The other categories of income sources for seniors—help from
family and receipt of other welfare benefits—make up a very small per-
centage of retirees’ incomes.53
The federal government and the states are aware that Americans need
to be saving more, but the policy nudges they have given in tax advan-
tages for retirement savings have not been enough. At the same time,
the government has stood by as the Social Security funding structure
has weakened and healthcare costs for all Americans have skyrocketed,
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 223

putting tremendous burdens on Medicare and Medicaid. The pol-

icy options being proposed to improve the long-term viability of Social
Security and to deal with the costs of Medicare’s absorption of the baby
boomers suggest that families need to start preparing now for potential
changes to come.

What Families Should Know

About the Social Security “Crisis”
The US Social Security system has a pay-as-you-go structure, often
abbreviated to PAYGO, which means that current workers are paying
current retirees’ benefits out of their paychecks, and “no explicit con-
tract ties the taxes paid during the person’s working life to the benefits
received.”54 There is an implicit contract that those who contribute will
receive benefits in the future, but no law guarantees any specific level of
benefits if the system were to falter.
One of the implications of a PAYGO system is that the demographic
makeup of the population affects available funds dramatically, through
the worker-to-beneficiary ratio. In the early years of the program, the
worker-to-beneficiary ratio was high, but it declined quickly from 8.6
contributing workers per beneficiary in 1955 to 3.7 in 1970. From the
1970s through 2008, the worker-to-beneficiary ratio was fairly constant
at around 3.3. During these years, the system often ran a surplus when
OASI payroll taxes exceeded benefits paid out, and the excess revenues
were invested in the Social Security Trust Fund. By 2015, the number of
workers for each beneficiary had declined to 2.8, and the projected ratio
for 2035 was around 2.2.55
Instead of running surpluses, the Social Security system ran deficits
starting in 2010 when its outlays exceeded its revenues for the first time
(not including revenues from interest on the Social Security Trust Fund,
which were used to cover the deficit). Within five years, outlays exceeded
revenues by nine percent, and the deficit was projected to increase to
30% by 2025. The Congressional Budget Office (CBO) projected in late
2015 that with the pace of retirement by baby-boomers, the Disability
Insurance trust fund would be exhausted in 2021, and the OASI trust
fund would be exhausted in 2030. At that point, the Social Security
Administration would be unable to pay out more than it was taking
in, and full benefits would not be paid to retirees unless some funding
solution was created by Congress.56 A different government report, the
224 M. M. WAY

Social Security Trust Fund report, predicted trust-fund depletion for

OASI to take place slightly later, in 2035, but it made clear that once the
fund is depleted, only 75% of scheduled benefits could be paid out under
current arrangements.57
The difference between the CBO projections and the Social Security
Trust Fund projections are probably due to different underlying assump-
tions about how the US economy will perform, and this is an important
point for families to keep in mind. There is a great deal of uncertainty
around Social Security, and it seems likely that when Congress, which has
been unwilling to act to address these problems over the last 30 years,
finally takes action, there is going to be a cohort of people whose expecta-
tions for Social Security will not be met. The rules of the game may have
to change quickly rather than slowly, which means that people’s retire-
ment plans likely will have been made based on incorrect assumptions.
One of the last major changes in the program—to gradually increase the
full retirement age (FRA) from 65 to 67 over the course of 20 years—was
approved by Congress in 1983. The new age was phased in so as not to
take effect on anyone who retired before the year 2000. Even in 2000, the
FRA was only raised to 65 years and 1 month, with yearly increases of a
month at a time after that. The luxury of that type of time frame to allow
people to plan for retirement with the right expectations is most likely
gone, unless there are major changes to the way the program is funded.

Potential Changes to Social Security

In a report entitled “Social Security Policy Options: 2015,” the CBO
laid out five areas in which changes could be made to improve the finan-
cial stability of Social Security, emphasizing that none of these and no
combination of them could happen fast enough to get the system on
firm fiscal ground without real hardship to beneficiaries. The five policy
areas were:

1. Taxation of earnings
2. The benefit formula
3. The full retirement age (FRA)
4. Cost-of-living adjustments (COLA)
5. Benefits for specific groups58

Changes in any of these areas would impact how families allocate their
resources.
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 225

Taxation of Earnings. An increase in payroll taxes—without an

increase in promised benefits at retirement—represents a net wage decrease
from workers’ point of view, which is a disincentive to working. The pay-
roll tax rate is already high, taking a total of over 14% of most workers’
wages for OASDI and Medicare (some of which is hidden to workers
because their employers pay half of it for them before they see their pay-
check).59 Raising taxes tightens families’ income constraints, and in the
aggregate would decrease consumer spending and decrease private savings
for retirement. The income constraint tightening on workers would not be
balanced by any loosening on retirees, but it could avert a crisis in the sys-
tem that would see many seniors losing some of their benefits, and needing
to rely more on their children or simply make do with less.
Another policy option would be to increase the current taxable
income limit, an inflation-adjusted income level above which the Social
Security tax is not applied. The current cap is around $118,000, making
the Social Security tax highly regressive, with higher earning individuals
paying decreasing percentages of their income as their income rises. This
regressivity is linked to the fact that benefit checks also top out, currently
just under $2800 per month for those who have earned the maximum
taxable earnings for at least 35 years, and retire at age 66.60 The top 20%
of wage earners make more than $118,000 per year, so taxing a greater
proportion of their wages would increase tax revenue significantly.
Increasing the cap would most likely also lead to calls by high-earners
for increased benefits based on their higher contributions, which would
increase Social Security outlays. However, a solution that lifts the cap but
splits the resulting funding increase among those paying in at the higher
levels and lower income workers could stabilize the system. Since high-
er-income workers often do not earn their higher incomes for their entire
career, the sharing implied by such a change would be a form of wage
insurance for them. Whether a politically viable coalition would support
such a reform is unknown.
The Benefit Formula and Cost-of-Living Adjustments. Rather
than tighten the income constraint on current workers, these types of
changes would tighten the income constraint on retirees by reducing
benefits and reducing the increases that compensate for inflation. The
goal with benefit formula alterations would probably be to reduce overall
benefits in such a way that the poorest recipients were impacted the least.
But with both types of measures, income received by seniors would go
down, and this could cause lower-income elderly to rely more heavily on
226 M. M. WAY

their children, and probably to reduce their consumption. For middle-in-

come seniors who realized early enough that this sort of change was
on the way, a likely reaction to the expectation of lower Social Security
income could include decreasing financial support for their children.
Raising the Full Retirement Age (FRA). Raising the FRA changes
the life course of earnings for people by reducing their lifetime non-labor
income. The CBO calculates that a one-year increase in the FRA is
equivalent to having the yearly benefit decreased by between 5 and 8%,
so the lifetime value of Social Security benefits would decrease.61 Most
people would have to work longer until they reached the higher age,
but the change could also prompt people who know they want to retire
earlier to save more earlier in life, decreasing their consumption to sav-
ings ratio. People who have physically intensive jobs may be pushed onto
the disability rolls if they find they cannot physically perform their work,
making the change in FRA less effective in improving Social Security’s
finances.
Changing Benefits for Specific Groups. One of the changes pro-
posed is to reduce the spousal benefit from 50% of a living worker’s ben-
efit, to 33%. This would tighten the income constraint for couples in
which one of the spouses had not worked the required number of years
to receive Social Security on their own, or whose earnings had not qual-
ified them to receive more than the 50% of their spouse’s benefit. While
the poverty implications of this could be severe, another effect would be
that the marginal benefit of working would increase for some women.
Under the current system, many women pay into the Social Security sys-
tem and then sacrifice their contributions because they can collect more
under their husband’s benefits whether they worked or not. They do
not get their own retirement benefits from Social Security unless their
benefit is greater than the threshold 50% of their spouse’s benefit. Many
more women would claim their own Social Security benefits under the
new system, because the threshold would be lowered to 33%, meaning
that the benefit they receive from working more is greater. This reduc-
tion in non-labor income in retirement could incentivize married women
to work more before retirement in order to cross that 33% threshold and
increase their personal Social Security income. The likely increase in their
own human capital could have positive effects on their income and finan-
cial security.
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 227

Caregiving Policy Initiatives

While Social Security provides the main source of income for seniors,
Medicare and Medicaid provide medical care and, to some extent, daily
life care when the elderly have trouble managing on their own for medi-
cal reasons. These programs are also facing funding issues caused in large
part by demographics. Physical help with daily self-care and even medical
needs is increasingly required by elderly who would like to continue liv-
ing in their own homes or live with family members instead of going into
a full-time facility such as a nursing home. Home healthcare is usually far
less expensive than institutional care, but it still can be costly and becom-
ing eligible for reimbursement through Medicare or Medicaid is a com-
plex process requiring proof of medical need or indigence. Most care for
the very elderly, however, is not medical and can be handled informally if
there are caregivers available.
Women provide the vast majority of caregiving for aging husbands
and parents, with estimates centering around 70% of all caregivers being
female.62 They often retire early or cut down on paid work and can face
financial, physical, and emotional hardship depending on the degree
to which their help is provided and their own paid work activity is cut
back.63 As women’s wages increase, however, the opportunity cost of
their time increases, and they are less likely to be willing to leave work
to provide care. One study found that a 10% increase in women’s wages
led to a 36% decrease in informal parental care, all else equal.64 Working
reduces people’s available time for caregiving, and one policy debate is
whether or not family members should be encouraged to provide unpaid
caregiving as a way of dealing with the caregiving needs of the baby
boomers.
Subsidies for Family Care. There are several ways to subsidize fam-
ily care: tax credits for long-term caregivers; recognizing time spent in
family care as years worked to increase Social Security benefits; and reim-
bursing family members for care. These are all policy proposals that states
and the federal government have considered in order to reduce Medicare
and Medicaid spending on long-term elder care. One issue, however, is
that they also incentivize family members, especially women, to leave the
labor force, which could be detrimental to their own long-term finan-
cial well-being. There is a misallocation of human capital when working
women and men earning relatively high wages, reflecting human capital
specialized in other areas, transfer their labor efforts to caregiving. The
228 M. M. WAY

productivity losses are especially severe when they are not well suited for
caregiving tasks or are only providing care because they feel they have
no other options. Supporting family members who want to take care of
their family members or who have low earnings to begin with could be
a sensible policy, but pushing people who otherwise would be better off
in the labor force to exit it for caregiving may be an inefficient way to
provide caregiving services. A better option could be nudging families to
insure themselves for caregiving needs.
Incentives to Purchase Long-Term Care Insurance. Long-term
care insurance (LTC) helps pay for nursing-home care needed past the
maximum benefits allowed by Medicare, without requiring the spend-
down of assets that Medicaid requires in order to qualify for full-time
or in-home benefits. Only 10% of Americans purchase LTC insurance,
however, because it is costly, poorly regulated, there are coverage gaps
and caps, and people with common medical conditions are denied cov-
erage.65 Long-term care insurance policies also have extremely high
lapse rates, in which policyholders decide not to continue the policy
or the policy is cancelled by the insurer, for example, due to a missed
premium.66
As in all insurance markets that are voluntary, the most likely to
need care are the most likely to want to purchase insurance, resulting
in adverse selection, a market failure that calls out for government inter-
vention. An LTC insurance program that is mandatory, funded through
Medicare, is one option, but unlikely to be established given the prob-
lems Medicare alone is facing. Other tax incentives or subsidies targeted
at young people’s purchase of LTC, for themselves or for their parents,
could be an option. Insuring one’s parents is a way of insuring one’s
own earnings against having to leave paid work to provide care, and also
insures a potential inheritance that parents would have to spend down to
pay for their long-term care needs. Targeting the young could increase
the pool of LTC subscribers and lower the cost per insured, bringing
down prices for a badly needed product.

Conclusion
The economics of aging and retirement have changed dramatically since
the nineteenth century with life expectancy increasing, older genera-
tions staying healthier longer, and retirees’ financial well-being better
secured. Effective political movements gained universal financial and
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 229

medical support programs for “deserving” retirees and protected those

programs through the course of the twentieth century. Intergenerational
allocations of support continued, but older generations found them-
selves increasingly the source of support for younger family members,
due to their finances and their increasingly good health into older ages.
Disruptions in family structure caused by high rates of divorce among
the baby boom generation had ripple effects on intergenerational ties
later in life, and smaller family sizes together with higher labor force par-
ticipation among women caused concern that informal caregiving ser-
vices may not be as available to twenty-first-century senior citizens as
they were to prior generations.
As the baby boomers enter retirement in increasing numbers, and as
threats to Social Security and other entitlements have increased, it seems
like a good time to consider that children might come under more pres-
sure to assume more financial and caregiving responsibility for their
elderly parents, and that everyone should approach retirement and elder-
care planning with new strategies and a greater awareness of the risks
involved. Families at the lower-end of the income scale are especially vul-
nerable to weakening of retirement income security because increasing
savings or buying more insurance is usually not an option for them. The
widening gap between the rich and poor is evident among the elderly, as
it is among all families, and in the current political system the better-off
tend to wield more influence. Social Security and Medicare have had
redistributive benefits, but other policies, such as tax breaks for retire-
ment savings and other types of investments do more for the well-off. In
the next chapter, we take a look at growing economic inequality across
the generations and the ways in which inequality has been built into US
public policy, limiting economic opportunity and posing serious risks to
the future of the US economy.

Notes
1. For a historical perspective on the effect of “deservingness” on the devel-
opment of the social safety net, see Laura Jensen, “Social Provision before
the Twentieth Century,” in The Oxford Handbook of U.S. Social Policy,
ed. Daniel Béland, Christopher Howard, and Kimberly J. Morgan (New
York: Oxford University Press, 2015). For a more recent perspective
see Robert A. Moffitt, “The Deserving Poor, the Family, and the U.S.
Welfare System,” Demography 52, no. 3 (2015).
230 M. M. WAY

2. Table 3 in Annual Social and Economic Supplements Current Population

Survey, “Historical Poverty Tables: People and Families—1959 to 2016,”
ed. U.S. Census Bureau (Washington, DC, 2017).
3. Social Security Administration, “Annual Statistical Supplement, 2016,”
ed. Social Security Administration (Washington, DC, 2016).
4. Teresa Ghilarducci, “Private Pensions,” in The Oxford Handbook of U.S.
Social Policy, ed. Daniel Béland, Christopher Howard, and Kimberly J.
Morgan (New York: Oxford University Press, 2015), 291.
5. Richard Sylla, “Experimental Federalism: The Economics of American
Government, 1789–1914,” in The Cambridge Economic History of
the United States, Volume II: The Long Nineteenth Century, ed. Stanley
L. Engerman and Robert E. Gallman (Cambridge, UK: Cambridge
University Press, 2000), 534–5.
6. Daniel Béland, Social Security: History and Politics from the New Deal
to the Privatization Debate, Studies in Government and Public Policy
(Lawrence, KS: University Press of Kansas, 2005), 50.
7. Herbert S. Klein, A Population History of the United States (New York:
Cambridge University Press, 2004), 115.
8. Dora L. Costa, The Evolution of Retirement: An American Economic
History, 1880–1990 (Chicago: University of Chicago Press, 2014), 166–
68; and Béland, Social Security: History and Politics from the New Deal to
the Privatization Debate, 60–72.
9. Social Security: History and Politics from the New Deal to the Privatization
Debate, 62–67.
10. Ghilarducci, “Private Pensions.”
11. Béland, Social Security: History and Politics from the New Deal to the
Privatization Debate, 62–96.
12. W. Elliot Brownlee, “The Public Sector,” in The Cambridge Economic
History of the United States, ed. Stanley L. Engerman and Robert E.
Gallman (Cambridge, UK: University of Cambridge, 2000).
13. Béland, Social Security: History and Politics from the New Deal to the
Privatization Debate, 60.
14. Jonathan Oberlander, “Medicare,” in The Oxford Handbook of U.S. Social
Policy, ed. Daniel Béland, Christopher Howard, and Kimberly J. Morgan
(New York: Oxford University Press, 2015).
15. Colleen M. Grogan and Christine M. Andrews, “Medicaid,” in The
Oxford Handbook of U.S. Social Policy, ed. Daniel Béland, Christopher
Howard, and Kimberly J. Morgan (New York: Oxford University Press,
2015).
16. Table 10.1 in Claudia Goldin, “Labor Markets in the Twentieth
Century,” in The Cambridge Economic History of the United States,
ed. Stanley L. Engerman and Robert E. Gallman (Cambridge, UK:
University of Cambridge, 2000), 557.
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 231

17. Donald Cox, “Motives for Private Income Transfers,” Journal of Political

Economy 95, no. 3 (1987); “Biological Basics and the Economics of the
Family,” The Journal of Economic Perspectives 21, no. 2 (2007).
18. Edward C. Norton and Courtney Harold Van Houtven, “Inter-Vivos
Transfers and Exchange,” Southern Economic Journal 73, no. 1 (2006).
19. John C. Henretta et al., “Selection of Children to Provide Care: The
Effect of Earlier Parental Transfers,” The Journals of Gerontology 52B
(1997).
20. Kathleen McGarry, “Dynamic Aspects of Family Transfers,” Journal of
Public Economics 137, no. Supplement C (2016); and Kathleen McGarry
and Robert F. Schoeni, “Transfer Behavior within the Family: Results
from the Asset and Health Dynamics Study,” The Journals of Gerontology
52B (1997); “Transfer Behavior in the Health and Retirement Study:
Measurement and the Redistribution of Resources within the Family,”
The Journal of Human Resources 30 (1995).
21. Richard W. Johnson, “Choosing between Paid Elder Care and Unpaid
Help from Adult Children: The Role of Relative Prices in the Care
Decision,” in Caregiving Contexts, ed. Maximiliane E. Szinovacz and
Adam Davey (Springer, 2008).
22. Ibid. Merril Silverstein, Stephen J. Conroy, and Daphna Gans,
“Commitment to Caring: Filial Responsibility and the Allocation of
Support by Adult Children to Older Mothers,” in Caregiving Contexts,
ed. Maximiliane E. Szinovacz and Adam Davey (Springer, 2008);
and Natalia Tolkacheva, Marjolein Broese van Groenou, and Theo
van Tilburg, “Sibling Influence on Care Given by Children to Older
Parents,” Research on Aging 32, no. 6 (2010).
23. Courtney Harold Van Houtven and Edward C. Norton, “Informal Care
and Health Care Use of Older Adults,” Journal of Health Economics 23,
no. 6 (2004).
24. B. Douglas Bernheim and Lawrence Levin, “Social Security and Personal
Saving: An Analysis of Expectations,” The American Economic Review 79,
no. 2 (1989).
25. Elliott Fan, “Who Benefits from Public Old Age Pensions? Evidence
from a Targeted Program,” Economic Development and Cultural Change
58, no. 2 (2010); Kristopher Gerardi and Yuping Tsai, “The Effect of
Social Entitlement Programmes on Private Transfers: New Evidence
of Crowding Out,” Economica 81, no. 324 (2014); and Donald Cox,
Bruce E. Hansen, and Emmanuel Jimenez, “How Responsive Are Private
Transfers to Income? Evidence from a Laissez-Faire Economy,” Journal
of Public Economics 88, no. 9 (2004).
26. Table Ca-C “Real gross domestic product per capita-average annual
growth rates 1790–2000” in Richard Sutch, “National Income and
232 M. M. WAY

Product,” in Historical Statistics of the United States Millennial Edition

Online, ed. Susan B. Carter, et al. (New York: Cambridge University
Press, 2006).
27. Robert A. Margo, “Wages and Wage Inequality,” in Historical Statistics
of the United States Millennial Edition Online, ed. Susan B. Carter, et al.
(New York: Cambridge University Press, 2000).
28. Peter Rousseau, “Equity and Bond Markets,” in Historical Statistics of the
United States Millennial Edition Online, ed. Susan B. Carter, et al. (New
York: Cambridge University Press, 2000).
29. Figure 2.7 in Costa, The Evolution of Retirement: An American Economic
History, 1880–1990, 15.
30. Table Ab-656-703 in Michael R. Haines, “Vital Statistics,” in Historical
Statistics of the United States Millennial Edition Online, ed. Susan B.
Carter, et al. (New York: Cambridge University Press, 2000).
31. Ibid., 110.
32. Klein, A Population History of the United States, 211–12.
33. Annual Social and Economic Supplements Current Population Survey,
“America’s Families and Living Arrangements: 2017,” ed. U.S. Census
Bureau (Washington, DC, 2017).
34. Figure 1 in Joan R. Kahn et al., “Growing Parental Economic Power in
Parent-Adult Child Households: Coresidence and Financial Dependency
in the United States, 1960–2010,” Demography 50, no. 4 (2013).
35. Ibid, 1472.
36. Rachel Pruchno and Laura N. Gitlin, “Family Caregiving in Later Life:
Shifting Paradigms,” in Handbook of Families and Aging, ed. Rosemary
Blieszner and Victoria Hilkevitch Bedford (Westport, US: ABC-CLIO,
LLC, 2012).
37. For a summary of research on the levels of contact and exchange between
the generations at the beginning of the twenty-first century, see Judith
A. Seltzer and Jenjira J. Yahirun, “Diversity in Old Age: The Elderly in
Changing Economic and Family Contexts,” in Diversity and Disparities,
America Enters a New Century (Russell Sage Foundation, 2014).
38. Patrick D. Wightman et al., “Historical Trends in Parental Financial
Support of Young Adults,” in Populations Studies Center Research Report
(University of Michigan, Population Studies Center, 2013).
39. Seltzer and Yahirun, “Diversity in Old Age: The Elderly in Changing
Economic and Family Contexts.”
40. Gary V. Engelhardt and Christopher J. Mayer, “Intergenerational
Transfers, Borrowing Constraints, and Saving Behavior: Evidence from
the Housing Market,” Journal of Urban Economics 44, no. 1 (1998); and
McGarry and Schoeni, “Transfer Behavior in the Health and Retirement
 7 INTERGENERATIONAL ECONOMICS: PUBLIC AND FAMILY SUPPORT … 233

Study: Measurement and the Redistribution of Resources Within the

Family.”
41. National Center for Health Statistics, “Health, United States, 2016”
(Centers for Disease Control, 2016). Table 15.
42. Pew Research Center, “Family Support in Graying Societies: How
Americans, Germans and Italians Are Coping with an Aging Population,”
in Pew Social Trends (Washington, DC: Pew Research Center, 2015);
and Pruchno and Gitlin, “Family Caregiving in Later Life: Shifting
Paradigms.”
43. Lindsay H. Ryan et al., “Cohort Differences in the Availability of
Informal Caregivers: Are the Boomers at Risk?,” The Gerontologist 52, no.
2 (2012).
44. Frank F. Furstenberg, Saul D. Hoffman, and Laura Shrestha, “The Effect
of Divorce on Intergenerational Transfers: New Evidence,” Demography
32, no. 3 (1995); and David J. Eggebeen, “Family Structure and
Intergenerational Exchanges,” Research on Aging 14, no. 4 (1992).
45. I. Fen Lin, “Consequences of Parental Divorce for Adult Children’s
Support of Their Frail Parents,” Journal of Marriage and Family 70, no.
1 (2008); and Liliana E. Pezzin and Barbara Steinberg Schone, “Parental
Marital Disruption and Intergenerational Transfers: An Analysis of Lone
Elderly Parents and Their Children,” Demography 36, no. 3 (1999).
46. Lawrence Ganong and Marilyn Coleman, “Obligations to Stepparents
Acquired in Later Life: Relationship Quality and Acuity of Needs,” The
Journals of Gerontology. Series B, Psychological Sciences and Social Sciences
61, no. 2 (2006).
47. Gretchen Livingston, “Four-in-Ten Couples Are Saying ‘I Do,’ Again”
in Social & Demographic Trends, ed. Pew Research Center (Washington,
DC: Pew Research Center, 2014).
48. Social Security Administration, “Annual Statistical Supplement, 2016.”
49. Ibid.
50. Edward D. Berkowitz and Larry Dewitt, “Social Security,” in The Oxford
Handbook of U.S. Social Policy, ed. Daniel Béland, Christopher Howard,
and Kimberly J. Morgan (New York: Oxford University Press, 2015).
51. Ghilarducci, “Private Pensions.”
52. Bureau of Labor Statistics, “Employee Benefits in the United States—
March 2017,” News Release, 2017, https://www.bls.gov/news.release/
pdf/ebs2.pdf.
53. Ghilarducci, “Private Pensions.”
54. Price Fishback, “The New Deal,” in Government and the American
Economy: A New History (Chicago, IL, USA: University of Chicago Press,
2007), 416.
234 M. M. WAY

55. “The 2016 Annual Report of the Board of Trustees of the Federal Old-
Age and Survivors Insurance and Federal Disability Insurance Trust
Funds” (Washington, DC: U.S. Government Publishing Office, 2016).
56. Congressional Budget Office, “Social Security Policy Options, 2015”
(Washington, DC: U.S. Congress, 2015).
57. “The 2016 Annual Report of the Board of Trustees of the Federal Old-
Age and Survivors Insurance and Federal Disability Insurance Trust
Funds.”
58. “Social Security Policy Options, 2015.”
59. Social Security Administration, “Annual Statistical Supplement, 2016.”
60. Maximum benefits information acquired from the Social Security
Administration, Benefits for Workers with Maximum Taxable Earnings.
Accessed 2018 from https://www.ssa.gov/oact/cola/examplemax.html.
61. Congressional Budget Office, “Social Security Policy Options, 2015.”
62. Ann Bookman and Delia Kimbrel, “Families and Elder Care in the
Twenty-First Century,” The Future of Children 21, no. 2 (2011); and
Seltzer and Yahirun, “Diversity in Old Age: The Elderly in Changing
Economic and Family Contexts.”
63. Maximiliane E. Szinovacz et al., “Families and Retirement,” in Handbook
of Families and Aging, ed. Rosemary Blieszner and Victoria Hilkevitch
Bedford (Westport, USA: ABC-CLIO, LLC, 2012).
64. Olena Nizalova, “The Wage Elasticity of Informal Care Supply: Evidence
from the Health and Retirement Study,” Southern Economic Journal 79,
no. 2 (2012).
65. Madonna Harrington Meyer and Jessica Hausauer, “Long-Term Care
for the Elderly,” in The Oxford Handbook of U.S. Social Policy, ed. Daniel
Béland, Christopher Howard, and Kimberly J. Morgan (New York:
Oxford University Press, 2015).
66. Wenliang Hou, Wei Sun, and Anthony Webb, “Why Do People Lapse
Their Long-Term Care Insurance?” In Center for Retirement Research
Working Papers, no. 15–17 (Boston: Center for Retirement Research at
Boston College, 2015).
 CHAPTER 8

Family Economics, Public Policy,

and Inequality: Diverging Family Fortunes
and the Risk to the US Economy

Introduction
When the Great Recession of 2008–2009 hit, families across the income
spectrum felt the losses. The triple blows of a financial crisis, a housing
market crash and an unemployment spike caused economic anxiety to
millions of families, but the pain was acute for the middle class and the
poor, and was spread across racial and ethnic groups unequally. Take the
housing crisis. Between 2007 and 2015, the value of homes owned by
black college graduates declined 51%, and homes owned by Hispanic
college graduates declined in value by 45%. The declines in value for
homes owned by whites and Asians regardless of education were 25
and 6%, respectively.1 Unemployment peaked in March, 2010, for high
school and college graduates at rates of 10.8 and 4.9%, respectively.
Meanwhile, for those lacking a high school diploma, the rate hovered
around 15% from April of 2009 to December of 2010.2
While fewer low-income and non-white families had money in assets
other than their homes, the overall loss of wealth including real estate,
retirement assets, and other investments declined substantially more for
non-white families. Across the population, wealth declined around 28%,
but for African American families, the loss was closer to 48%, mostly
through housing declines.3 Recovery from the Great Recession was
uneven, to say the least. The top 1% of incomes grew by almost 35%
between 2009 and 2012, while the bottom 99% saw their incomes grow

© The Author(s) 2018 235

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5_8
236 M. M. WAY

by 0.8%, on average, in the same time frame. 2013–2015 saw robust

economic growth, but it was only in 2015 that Emmanuel Saez of the
University of California at Berkeley, a leading economist in the study of
income inequality, could say that “the incomes of the bottom 99% [of
families] finally began recovering in earnest from the losses of the Great
Recession.” The top 1% of families had already recovered, and saw their
share of all US income increase from 21.4% in 2014 to 22.0% in 2015.4
Many Americans seem remarkably sanguine about income and wealth
inequality, which may explain why they suffer more of it than citizens
of other high-income countries. Some of their apparent indifference
could be due, in part, to the deep racial divisions in American society,
which make inequality endured by “out” groups less visible or tangible
to the majority white population. Resistance to policies aimed at reduc-
ing inequality could also be due to entrenched business interests and the
influence of money in politics, which has always steered public discourse
away from identifying class divisions, and toward identifying fault in the
impoverished classes. Another theory that attempts to explain the lack of
political traction for more effective redistribution is that most Americans
just do not understand how the top 1% have influenced policy, and
rigged the game to advantage the very rich over the rest of the popula-
tion.5 There are historical reasons for the lack of interest in government
taking a more active role in redistribution of income and wealth in the
United States, ranging from an ideal of individualism rooted in a fron-
tier ethos, to the low and declining influence of unions among US work-
ers, to persistent Cold War propaganda equating any redistributive policy
with communism or socialism (which have historically been regarded as
the same system by many Americans).
At the same time, many US citizens like to consider themselves strong
proponents of process equity—the idea that the playing field should be
level for all, and that advancement should be based on merit. Evidence
of this is manifest in the historical suspicion of inherited wealth, and in
public support for high estate taxes, at least until very recently.6 This
may explain why many Americans are more in favor of leveling down
the highest earners with taxes, rather than pulling up the lowest income
earners with transfers.7 The view seems to be that there is a limit to the
legitimate income differences one would be able to achieve on merit,
but those who cannot even make it to the middle class must be doing
something wrong that we would not want to encourage with hand-
outs. Social mobility is one of the hoped-for results of process equity,
and many Americans believe that the free-market system with minimal
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 237

redistribution by the government provides the most social mobility—a

belief that is contradicted by comparisons of the United States with other
wealthy countries that have higher levels of income redistribution. The
United States, along with the United Kingdom, has much less social
mobility than highly redistributive countries such as Sweden and Norway
and also has less mobility than countries with somewhat better social ser-
vices and social safety nets, such as Canada.8
Analyses of social mobility—or the lack thereof—and the causes of
inequality start with the family. In the United States, almost 50% of the
difference in income between high-income young adults and their low-
er-earning peers is correlated with the high-income status of their fam-
ilies.9 According to John Roemer, in an article, he wrote emphasizing
the importance of understanding how the intergenerational transmission
of socioeconomic status occurs, “Parents transmit at least the following
to their children: genes, wealth and material resources, knowledge, aspi-
rations, and preferences. They also use their social connections to help
their children.”10 But they do not do this in a vacuum, as Miles Corak,
another economist who researches socioeconomic mobility stated. “Very
broadly speaking, the reasons for the differences in intergenerational
elasticity [or the transmission of economic status from parents to chil-
dren] have to do with the different balances struck between the influ-
ence of families, the labor market and public policy in determining the
life chances of children.”11
Previous chapters have provided some reasons as to why this should
be so. Centuries of unequal and segregated education both racially and
socioeconomically (Chapter 4) and higher rates of non-marital child-
birth among poorer Americans (Chapter 6) are two basic determinants
of family income that would tend to transmit low income levels from one
generation to the next. Rising numbers of female-headed households
(Chapter 6) combined with the inequality in earnings between men and
women (Chapter 5) together result in much higher poverty rates for chil-
dren in female-headed households than in male-headed or two-parent
households. The reluctance to transfer income through taxes to provide
comprehensive relief for categories of the poor who are considered unde-
serving (Chapters 5 and 7) is another factor. While children are normally
considered “deserving,” they are linked to parents who are not as readily
given the benefit of the doubt, resulting in an inability to succeed in alle-
viating poverty in children in the same way that we have alleviated much
poverty in the elderly, even though the stability of income for retirees is
eroding (Chapter 7).
238 M. M. WAY

Later in the chapter, we will examine other policies and situations

facing US families that lead to growing economic inequality, but it is
reasonable to ask, does inequality matter? Inequality is not the same as
poverty. Poverty implies physical needs that are not being met—hunger,
homelessness, untreated medical conditions and an inability to pay for
heat and electricity, perhaps even a lack of access to uncontaminated
water. The poverty rate for all family types has remained stubbornly in
the range of 9–12% since the late 1960s.12 In the meantime, the aver-
age earnings of the top 20% of households have increased by over 90%,
from $112,000 (in 2016 dollars) in the late 1960s to almost $214,000
in 2016.13 Families at the lower end of the top 20% have not captured
much of this growth, while families at the top 5%, 1% and 0.1% have
increased their earnings by even larger percentages. Does this matter?
The question almost answers itself. Our focus here is on the fact that
negative outcomes for children and families increase with the levels of
inequality for a variety of reasons, not least of which is that high levels
of economic inequality often are associated with low levels of economic
mobility, or a lack of economic opportunity for the children of poor and
middle-class families.14 Not only are so many suffering poverty—8.1 mil-
lion US families including 13.3 million children in 201615—which many
families and their children have little realistic hope of escaping, but ine-
quality itself leads to outcomes that perpetuate poverty and negatively
impact the well-being of many millions of American families strug-
gling to stay in the middle class, above the poverty line. Health status
is a striking example: Income inequality in childhood leads to inequal-
ity in health outcomes as adults, which leads to further income inequal-
ity.16 The same is true for income inequality and educational attainment
for young Americans.17 Income relative to others in the population is a
strong predictor of marital status for males.18 Teen childbearing is higher
in geographic locations where income inequality is higher.19 Low-income
relative to others is related not just to lower happiness levels.20 It could
also be related to what Anne Case and Angus Deaton refer to as deaths
of despair, meaning deaths from alcohol, drug usage, and suicide, which
has increased among people without a college degree and decreased
among people with a college degree since 1998.21
Income inequality is also damaging to the democratic system, lead-
ing to higher political and cultural polarization, higher levels of
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 239

non-participation in the political process, and greater influence on

political outcomes by often unnoticed actors in the process, such as
­
high-wealth individuals and corporations and, potentially, overseas
­
actors who donate to political campaigns, and run their own “messag-
ing” operations, buying access, and influence.22 Under such condi-
tions, it is fairly easy to see how a great deal of redistribution can take
place from lower-income to higher-income families in the form of tax
expenditures (or loopholes) and regulatory changes, effectively subsi­
dizing the economic investments of the more affluent in housing and
retirement, for example, and subsidizing the ordinary business activities
of many corporations.23 The winner-take-all society becomes the win-
ner-take-all political system as the excess incomes of the top few per-
cent of earners allow them to gain disproportionate political influence
through donations and lobbying, further tilting the system to their
advantage.24
Countries with high-income inequality have low intergenerational
earnings mobility, meaning that where high levels of inequality exist—
and among high-income countries the United States has the most ine-
quality—it is very difficult for children to move up from poverty, and in
the same vein, it is less likely that high-income children drop down in
the income distribution.25 The irony of this situation in a country that
has been called the “land of opportunity” is striking, but what role does
public policy play in the transmission of poverty and wealth across family
generations, and what roles do families themselves play? How have poli-
cies since the 1800s led to highly pervasive poverty for some families and
the ability of other families to ensure their children’s and grandchildren’s
high standards of living? This chapter will start by looking at socioeco-
nomic inequality trends, movements to correct inequality in the United
States since the late 1800s, and the leading economic explanations for
increasing inequality since the late twentieth-century. Then it will exam-
ine the ways in which families transmit inequality across the generations,
and how public policy has set them up to do so. Three policy areas in
particular that have made income inequality more extreme—housing
policy, the criminal justice system, and healthcare institutions—are high-
lighted. A discussion of what might be done in the future to level the
playing field for poor families and open opportunities for children closes
the chapter.
240 M. M. WAY

Economic Inequality in US History

This brief look at trends in economic inequality in US history begins
with an acknowledgement that the founding fathers believed they were
creating a political system that promoted both economic mobility and
political representation among citizens in a new way, breaking with the
system of inherited class and political power found in Europe. They did
this while endorsing a system that enslaved African Americans, failed to
recognize women as citizens and stole territory from Native Americans
using terror and genocidal tactics. The “American Dream” was a myth
from the beginning for most of the people living on US soil, includ-
ing poor, landless whites, but as the vision articulated by the founders
inspired later generations it improved over time. Slavery was ended,
women were given the vote, and some rights of Native Americans were
acknowledged. The fundamental economic inequality of these three
groups, however, vis-à-vis white males persisted in law and in outcomes
through the early part of the twenty-first century, with poverty rates
for African Americans and Native Americans consistently more than 10
percentage points higher than for whites, and poverty rates for women
higher than those for men within every age group and across every racial
category. Public policies often reinforced inequality along racial and gen-
der lines rather than combatted it, as has been noted in prior chapters’
discussions of school segregation, discriminatory labor policies, property
rights restrictions on women and forced removal of Native American
families from their land, for example, but periodic movements, such
as the Civil Rights Movement of the 1950s and 1960s, resulted in
changes in federal policies and eventually in state policies. These changes
remained incomplete, and were often accomplished through expensive,
long fought court battles, but the overall trend on a policy level was away
from overt discrimination on the basis of race and sex. This pushed a lot
of the justification for unequal treatment of individuals onto less obvi-
ously discriminatory factors, such as education level, criminality—which
was addressed differently based on race26—and intelligence or aptitude,
which also, unsurprisingly, was alleged to be correlated with race.27

1850s to the New Deal

Socioeconomic inequality is difficult to analyze across time using cur-
rent income measures because data on household incomes were not
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 241

collected by the government until the income tax was established in

the early twentieth century. Crude measures of inequality can be found
in data on wealth, however, which was collected in the 1800s by the
Census Bureau. This data shows significant differences in average wealth
between native born and immigrants who comprised a sizeable portion
of the population, and far greater differences between whites and non-
whites. In a comparison of census data from 1870, whites had an average
wealth in real estate and other assets equal to $2,691, while non-whites
had an average of $74, and only 20% of non-whites had any assets at
all.28 Wealth was concentrated at the very top, with 26% of all wealth
held by the richest 1% of males, and 72% of wealth held by the top 10%
in 1890. According to economic historian Clayne Pope, while inequal-
ity was high in the nineteenth century, there was considerable economic
mobility for the foreign born and native born white males thanks to
occupational mobility, opportunities presented by the frontier, and inter-
generational mobility thanks to an abundance of land and an industrializ-
ing economy relatively unconstrained by a class hierarchy.29
Toward the end of the nineteenth century, however, industrialization
and advancing technology, which had provided opportunities for many
Americans, resulted in ever larger firm sizes with greater power over
labor. It also led to new forms of business organization that attempted
to benefit from economies of scale while avoiding the profit-lowering
effects of price competition. Concentrating business power in trusts (a
collection of firms operating cooperatively rather than competitively) and
other collusive tactics further increased business power relative to labor,
affecting the ability of families to make a living either through their labor
or through smaller manufacturing operations that attempted to compete
with large firms. Policy initiatives that leaned against the concentration
of economic power—and in that sense, against economic inequality—
included the Sherman Antitrust Act of 1890, the Clayton Act of 1914,
and the Federal Trade Commission Act of 1914. While these would not
be considered family policies, their enactment was a response to public
outcry by citizens and businesses against the concentration of wealth and
business power that reduced economic opportunities.30 This issue fig-
ured prominently in presidential politics in 1912, evidence that popular
opinion was strong in opposition to the growing power of corporations
and the wealthy men who controlled them.
Union activity also increased as the economy industrialized and firms’
power over labor became more concentrated. Between 1880 and 1914,
242 M. M. WAY

the percent of the industrial labor force that was unionized went from
3 to 16%.31 While this number is not high, the threat of unionization
probably kept wages higher in non-union shops than it otherwise would
have been. Government support for unions was slow to materialize. It
was not until the Wagner Act of 1935, a component of New Deal legisla-
tion, that the rights of workers to organize were made somewhat secure.
Most labor economists at least partially credit the growth of union activ-
ity after 1935 with the decline in income inequality through the 1940s,
1950s, and 1960s.32
Welfare capitalism was also evolving during this time, with business
forces strongly opposing the intermediation of government and unions
in the relationship between management and labor. Welfare capitalism
was reflected, and sometimes distorted, in the “company town” men-
tality, but it was practiced by many firms that provided “education; rec-
reation; profit sharing; stock ownership plans; medical care; sickness
payments; pensions; social work; grievance procedures; and worker par-
ticipation” among other benefits that served to make the worker feel
acknowledged and cared for by their capitalist employer.33 The employ-
ers’ objectives were to quell worker dissatisfaction, head off union organ-
ization efforts, and show the government that regulatory, welfare, and
social legislation efforts were unnecessary. From a less defensive per-
spective, the objectives were also to improve efficiency by communicat-
ing effectively with workers, increase employee satisfaction and loyalty,
and reduce turnover. Welfare capitalism supposedly peaked in the 1920s,
at which point the Great Depression revealed its inability to truly pro-
tect employees in the ways that government protections, safety nets, and
welfare provisions might. In many ways, however, it continued through
the mid-to-late-twentieth century.34 Large corporations partnered with
insurance companies and later other benefits firms to provide private wel-
fare benefits to employees in an ongoing effort to reduce the influence
of unions and mute the public clamor for the government to provide
social welfare programs, such as healthcare, enjoyed in other developed
economies.35

The New Deal and the War on Poverty

The major US government policy pushbacks against inequality occurred
in the form of social insurance and redistributive policies resulting from
the New Deal in the late 1930s, and the War on Poverty in the 1960s
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 243

and 1970s. Financed by new taxes, including income taxes with m ­ arginal
rates as high as 90% in the 1940s and 1950s, as well as estate tax rates
as high as 77% on relatively small estates (compared with large mini-
mum taxable estate sizes in the early 2000s),36 New Deal programs for
Social Security, Unemployment Insurance (UI), and Aid to Dependent
Children (ADC, later Aid to Families with Dependent Children or
ADFC) provided social insurance for workers as well as income support
to families in poverty. In the 1950s, Social Security Disability Insurance
(DI) was created and in the 1960s and 1970s, War on Poverty pro-
grams including Medicare, Medicaid, Food Stamps (now known as the
Supplemental Nutritional Assistance Program or SNAP), Head Start,
School Breakfast and Lunch Programs, Supplemental Security Income
(SSI, for very low-income children, disabled, and seniors), Women
Infants and Children nutritional program (WIC), and the Earned Income
Tax Credit (EITC) increased social insurance entitlements as well as pro-
vided means-tested access to assistance for poor families and children.
Income inequality decreased between the New Deal era and the
1970s, a time some economists call “The Great Compression.”37 One
simple measure of inequality is the Gini coefficient, which represents ine-
quality on a range from 0 to 1, with 0 indicating that there is no ine-
quality, and that every household has exactly the same income level, and
1 indicating perfect inequality, with the top 1% of households claiming
100% of the income. While the economic indicators used to calculate
the Gini today did not exist before 1947, it is projected that the Gini in
1935, in the throes of the Great Depression, was around 0.6, decreasing
to about 0.4 by 1969.38 The 1950s to 1970s saw significant decreases in
poverty rates across the population, dropping from around 32% of the
population in 1950 to around 11% in 1975.39 The Gini held relatively
stable until the early 1980s. By the 1990s, the Gini had risen to 0.43 and
by 2016 it was at 0.48.40
Part of the decrease in poverty and inequality was due to new social
programs and transfers, but even more than that the post-war economic
boom can be credited for creating jobs in manufacturing, the expanding
public sector, and professional services. Programs such as the G.I. Bill
created demand for education and housing, and supplied the labor mar-
ket with college graduates. The labor market still had use for unskilled
and blue collar labor. Unions, which represented over 30% of all non-
agricultural workers in the private sector from the late 1940s until the
mid-1960s, maintained wages for their workers at between 5 and 20%
244 M. M. WAY

higher than non-unionized labor, and probably had significant spillover

benefits for non-union workers in improved working conditions, hours,
safety, and wages.41
As economic malaise set in during the 1970s, however, resentment for
the growing welfare state increased. This was not a new trend. Lawrence
Friedman commented on the change of heart that many Americans had
regarding New Deal programs:

The success of the middle class, after 1939, had a poisonous effect on
some of these programs, notably AFDC and public housing, which were
inherited by poorer and poorer customers. At one time these were pro-
grams for the submerged middle class. The blacks and the dispossessed
moved in as the fattened middle class moved out. But this meant the loss
of that all-important factor, political popularity. The long shadow of the
old pauper laws began to fall once more on these programs. They became
stingy, harried by onerous conditions, and easy prey for political snipers.
This in turn increased disaffection within the ranks of beneficiaries.42

The Era of Welfare Reform, Entitlement Expansion,

and Increasing Inequality
By the 1980s, support for poor families was suspected of fostering
dependency and undesirable behavior such as non-marital mother-
hood.43 These beliefs were unsupported by the facts, and research into
the effects of AFDC and food stamps on female labor supply and marital
patterns showed extremely small effects, if any. Robert Moffitt, a labor
economist who wrote a comprehensive review of all the literature in this
area, attempted to rebut popular beliefs that the poor would be better
off without welfare by concluding that “most AFDC women would,
apparently, be poor even in the absence of the AFDC program,” an
ironic statement if there ever was one.44 Welfare reform under President
Bill Clinton in 1986 replaced AFDC with Temporary Assistance for
Needy Families (TANF) adopting stringent work requirements, financial
penalties for non-work, and short lifetime limits on access to benefits,
at which point it “reduced the number of poor families served by the
program by 63% within 10 years, effectively removing it as an important
program in the nation’s safety net for the poor.”45
At the same time that transfers to poor families were ratcheted back,
spending on Social Security, Medicare, and Medicaid continued to grow,
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 245

taking over increasing shares of the federal budget from the 1960s
through the early 2010s. Tax expenditures, commonly known as tax
loopholes, were on the rise as well, providing more and more implicit
transfers to the affluent through tax deductions for home mortgage
interest, retirement savings, and untaxed health insurance benefits. The
move to transfer money up the income distribution instead of down was
supported by effective and often unnoticed political lobbying by financial
management firms, home mortgage providers, and health insurers whose
products and services depended on such tax incentives.46 Tax benefits
did not just flow to the more affluent, they provided greater benefits the
more affluent one was. According to political scientist Suzanne Mettler,
69% of benefits from the home mortgage interest deduction and 55% of
benefits from the retirement savings exemption went to households in
the top 15% of the income distribution.47 These tax expenditures would
come to dwarf direct spending on the poor. Spending in 2007 on the
retirement benefits exemption, the home mortgage interest deduction
and the health insurance exemption were almost three times the spend-
ing on SNAP (food stamps), UI, TANF, and housing vouchers.48
In the meantime, inequality in incomes was growing throughout the
1970s, 1980s, and 1990s—coinciding with the change in welfare avail-
ability—and the poor, along with a chunk of the lower-middle class,
were seeing their share of total US income declining. Figure 8.1 shows
the average annual income growth across the income distribution dur-
ing the time periods of 1967–1992 and 1992–2016. In the earlier time
period, even as income inequality was increasing, the poorest fifth of
households saw their incomes grow at a little over half the growth rate
of the richest fifth. Of course, starting from a baseline average income
of $10,056 in 1967 (adjusted to 2016 dollars), a relatively high average
annual growth rate of 0.8% was not much in actual dollars. But after
1992, the average growth rate for the poorest plummeted, and while
the richest 20% did not see huge increases in their growth rate, the
richest 5% did. Those in the 95th percentile of earnings enjoyed average
annual growth rates in their incomes of almost 1.9% between 192 and
2016, including over the time of the Great Recession, with their average
real incomes increasing from $179,677 in 1967 to $375,088 in 2016,
compared to the poorest 20% whose average incomes increased only a
little over $2,000 in that timeframe. Those in the lower-middle, middle,
and upper-middle class gained more the higher they fell on the income
distribution.
246 M. M. WAY

2.00%

1.80%

1.60%

1.40%

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%
Lowest fifth Second fifth Middle fifth Fourth fifth Top fifth Top 5%
$10,056 to $27,862 to $44,480 to $62,236 to $112,002 to $176,677 to
$12,943 $34,504 $59,149 95,178 $213,941 $375,088

1967-1992 1992-2016

Fig. 8.1 Average annual income growth across quintiles: 1967 to 1992, 1992 to
2016. Note Amounts below each income category are average annual earnings in
1967 and 2016, both expressed in 2016 dollars (Data source US Census Bureau,
Historical Income Tables: Income Inequality. Table A-2 Selected Measures of
Household Income Dispersion: 1967–2016 https://www.census.gov/data/
tables/time-series/demo/income-poverty/historical-income-inequality.html)

These gains were reflected in the income ratios shown in Fig. 8.2.
The highest 10% of households took in around 9 times what the low-
est 10% earned in 1967, but by 2016 that ratio had increased to 12.5
times, shown in the 90/10 income ratio. The ratio between the median
households, at the 50th percentile, and those at the lowest end of
the middle-class earnings range, at the 20th percentile, stayed almost
constant across that time frame with the median at a little over twice the
income of the lowest fifth. The upper-middle-class income limit at the
80th percentile edged away from the middle class and the lower-middle
class, as shown by the changes in the 80/20 and 80/50 ratios. What is
most notable is that none of these ratios is decreasing, meaning that no
group was closing the gap between it and other groups over the 50-year
timeframe.
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 247

90/10

80/20

95/50

50/20

80/50

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0

2016 (50th=$59,039) 1990 (50th=$53,350) 1967 (50th=$44,895)

Fig. 8.2 Income ratios: 1967, 1990, 2016 (Source Author’s calculation from
US Census Bureau, Historical Income Tables: Income Inequality. Table A-2
Selected Measures of Household Income Dispersion: 1967–2016 https://
www.census.gov/data/tables/time-series/demo/income-poverty/historical-in-
come-inequality.html)

This is not to say that everyone who was on the lowest rung of the
economic ladder in 1967 stayed there. People moved in and out of
income quintiles with job changes, career development, layoffs, changes
in hours worked, reductions in household income due to one member
leaving the labor force for child or elder care work, illness, disability, and
retirement. Income instability increased during this time period across
all income levels, meaning that there was greater transitory or temporary
variance in people’s earnings, especially during the 1970s and 1980s,
although instability increased in the 2000s as well even before the Great
Recession. This impacted households at lower-income levels dispropor-
tionately, adding uncertainty to already precarious economic situations.49
The reasons behind increasing inequality were many, with economists
tending to focus on changes in the labor market. Skill-biased technolog-
ical change was one cause, meaning that new technologies made high-
er-skilled workers relatively more productive than lower-skilled workers,
resulting in higher earnings. Technological displacement of workers
and offshoring of manufacturing in a globalized economy was another,
reducing the employed manufacturing workforce by about 7 million
workers between 1979 and 2015, even while manufacturing output
248 M. M. WAY

increased due to productivity improvements.50 Offshoring was closely

related to trade, and imports from countries with lower labor costs also
displaced products made in the United States. The rapid rise of China
and other emerging economies in Asia brought a combination of “trade
and technology shocks” to US local labor markets.51
Immigration, legal and illegal, brought low-skilled workers to the
United States disproportionately in comparison with high-skilled workers
starting in the 1970s, resulting in a growing population of low-earners
in service occupations in particular.52 Union membership declined from
its peak of 35% of the private, non-agricultural labor force in the 1960s
to 6.4% of private sector workers in 2016, although the public sector
remained highly unionized at around 35%.53 The decline in the value
of the minimum wage relative to the median wage, dropping from 45%
of the median wage in the 1970s to around 35% of the median wage
in 2016, was yet another reason that wages for the poorest were stuck,
while growth occurred at higher income levels.54
The labor market explanations for growing inequality cannot be sep-
arated from policy explanations for persistent inequality among families.
Minimum wage levels were a policy decision that affected the poorest
families. Immigration policies affected low-income, middle-class and
high-income families differently as immigrants competed for work with
some Americans, lowering their wages, and complemented the work
of others, making their work more productive, their wages higher, and
making labor force participation less costly for middle- and high-income
families by providing cheaper home production services such as child-
care and elder care. For entrepreneurial families, immigrants provided
less expensive sources of labor for their businesses. Public policy deter-
mined unions’ status as well. The state-by-state move to weaken unions
with “right-to-work” laws that made it more difficult for unions to col-
lect dues reduced unions’ ability to represent workers with serious con-
sequences for many families. Trade policy resulted in structural changes
to the labor force that benefited some and hurt others, while simultane-
ously affecting the prices US consumers paid for products and services
they consumed and the prices firms received for goods and services.
The policies of redistribution and social insurance also affected fam-
ily income inequality and decision-making, some reducing inequality
and some increasing it. Some policies that reduce inequality are clear
and obvious, such as transfers to poor families through TANF or to
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 249

low-income families and individuals through SNAP. Programs for the

elderly such as Social Security and Medicare have less obvious effects,
depending on how regressive or progressive their funding mechanisms,
and the extent to which they are self-funding or pay-as-you-go. Others
are even less clear, such as tax expenditures and other policies that make
up what Suzanne Mettler and others refer to as the submerged state, or
the less visible policy regime that provides benefits for more affluent fam-
ilies.55 [This term is easily confused with a recently popular term, the
deep state, which can be defined as “a body of people, typically influential
members of government agencies or the military, believed to be involved
in the secret manipulation or control of government policy.”56]
Public policies discussed throughout the course of this book provide
rich examples of the interaction of families with the government and how
that interaction can indirectly result in increasing inequality, such as the
case with local funding for education. Below we will look at examples of
policies that directly result in inequality and severely impact the ability of
families to improve their economic situations. But first, it is important to
understand how families transmit their socioeconomic status, and there-
fore transmit inequality, from one generation to another.

Intergenerational Transmission
of Socioeconomic Status

In countries like the United States, with low intergenerational socioeco-

nomic mobility relative to other high-income countries, the family into
which a child is born is highly determinative of their future economic
status. Families transmit status across the generations, more so today
than in the 1940s and 1950s, and this is due in large part to family eco-
nomic decision-making operating under the constraints of public policy.
Take the most direct way for families to transmit their socioeconomic
status: passing on their wealth. The distribution of wealth is much more
highly unequal than income. The top 20% of households held 84% of
wealth including homes and held 93% of all financial wealth in 1995.57
Between 1995 and 2013, the total wealth held by the top 20% increased
to 89%, and the amount held by the top 1% constituted 37% of all
wealth owned by US families. One rough estimate is that 40% of the
wealth accumulation across the population in the current day is due to
250 M. M. WAY

inheritance, while 60% is due to the cohort’s asset accumulation through

their own investments and savings.58 It is a good guess that most of the
inherited wealth is concentrated at the top, with inheritance counting for
much more than 40% of wealth accumulation, particularly as the taxation
of estates declined dramatically between the 1940s and the early 2010s.
It is not a stretch to think that inherited wealth will be increasingly con-
centrated at the top as the federal government in the 2010s leaves more
estates to be passed entirely untaxed to the next generation and limits
the taxation of the very largest estates.
Less direct, but for many families, an even more important transmis-
sion of socioeconomic status occurs through human capital formation,
such as that embodied in health and education. Families transmit health
both through their genes and through the inputs which they provide
to their children’s health—vaccines, good nutrition, healthy exercise
and sleep habits, and low-stress environments. Low income can result
in fewer health inputs to children, unless the government intervenes. A
parent’s illness can result in children with lower levels of human capital
due to the income or stress effects of illness. According to one study of
childhood health effects later in life, “Overall, our findings suggest more
attention be paid to health as a potential mechanism through which
intergenerational transmission of economic status takes place: cohort
members born into poorer families experienced poorer childhood health,
lower investments in human capital and poorer health in early adult-
hood, all of which are associated with lower earnings in middle age—the
years in which they themselves become parents.”59 As household income
inequality grows, the socioeconomic inequality of children is increas-
ing, leading to predictions of even more divergence in health outcomes
in later life among the children of families across the widening income
spectrum.60
Even more significant than health, the ability of parents to transmit
human capital through education to their children is a strong determi-
nant of socioeconomic status as adults. Higher income parents can live
in better school districts or send their children to private schools, as dis-
cussed in Chapter 4. They pay for tutors, athletics, arts activities, and
summer camps, meaning far more money gets spent on enrichment
activities for children of the rich than children of the poor.61 They can
better afford a wide choice of colleges. Their connections can get their
children into better colleges, which are highly segregated by income, and
their networks can help their children land better jobs after college.62
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 251

The importance of education is increasing, as noted in a book entitled

From Parents to Children: the Intergenerational Transmission of Advantage,
which addresses education on the first page of its introduction.

As financial resources have become more unequal in a number of coun-

tries over the last three decades, the differences in the capacities of rich
and poor families to invest in their children also have become more une-
qual. This change is occurring in a period when relatively more educational
investment is needed to meet ongoing labor market changes… It follows
that unless these inequities are offset by public policies designed to moder-
ate their effects, the children of the rich will have a relatively better chance
of staying rich and the children of the poor will have less chance of escap-
ing poverty or low socioeconomic status.63

The differences in college enrollment between income levels,

shown in Fig. 8.3, reflect this inequality. While all income levels have
seen increases in college enrollment after high school graduation, the
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Low income Middle income High income

Fig. 8.3 Percentage of recent high school graduates enrolled in 2- or 4-year

college programs, by income level: 1975–2015. Note 3-year moving average
of enrollment by October of students ages 15–24 graduating from high school
or receiving GED earlier in calendar year. Low income refers to bottom 20% of
household income, high income refers to top 20% of household income and mid-
dle income refers to 60% in-between (Data source Digest of Education Statistics
2016, Table 302.30 from National Center for Education Statistics. Accessed from
https://nces.ed.gov/programs/digest/d16/tables/dt16_302.30.asp)
252 M. M. WAY

differences in enrollment between income levels barely changed over the

last 40 years.
Families across the income spectrum recognize the importance of a
college education, which in the United States results in an average wage
premium of around 70%.64 Increasingly, students and their families have
paid for college with loans that are especially burdensome to middle and
lower-middle-class families. Figure 8.4 shows that between 1990 and
2012, the percentage of students taking out college loans increased from
50% to 70%, and the average amount owed in the fourth year of col-
lege increased from around $15,000 to over $26,000 in 2016 dollars.
For parents, the percentage of them using government-backed PLUS
Average Cumulative Loan Amount for Students and

$35,000 80

Percent with Loan(s) in 4th Year of College

$30,000 70

60
$25,000
Parents With Loans

50
$20,000
40
$15,000
30

$10,000
20

$5,000 10

$0 0
1990 2000 2012

Loan Amt Students Loan Amt Parents Percent Students Percent Parents

Fig. 8.4 Percent of college students with loans, parents with Federal PLUS
Loans, and cumulative average loan amount in fourth year of college: 1990,
2000, 2012 (Data source Digest of Education Statistics: 2016, Table 331.95.
Percentage of undergraduate students ages 18–24 in their fourth (senior) year
or above who ever received federal loans, nonfederal loans, or Parent Loans for
Undergraduate Students (PLUS), and average cumulative amount borrowed in
2015–16 dollars, by selected student characteristics and control and level of insti-
tution: 1989–1990, 1999–2000, and 2011–2012)
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 253

loans were lower, but the average amounts more than tripled from
$8,000 to around $28,000. In the case of loans, the wealthier the stu-
dent, the lower the loan burden, meaning that students at the low end
of the income distribution have loans significantly higher than $26,000
after their four-year degrees. The payoff to a college education is higher
for high-income students, however, because they have access to the social
and professional networks that bump up the college wage premium.65
Family structure, which is highly correlated with income levels, is
another way that socioeconomic status is transmitted. Children of sin-
gle mothers in particular experience high rates of poverty, high rates of
turnover of other adults in the household, and are more likely to live in
low-income areas, as noted in Chapter 6. Their educational attainment
is lower than children of married parents, and they are more likely to
have issues with substance abuse and encounters with the law. They are
more likely to have children out of marriage themselves, including in
their teen years, and to raise their own children in single-parent, low-in-
come households.66 While most of these outcomes could be mitigated by
redistributive government-provided income supports, without those sup-
ports family structure perpetuates itself. For children of single mothers,
raising their own children in a two-parent family becomes less likely.
Assortative mating is another way that families transmit advantage or
disadvantage. With the increase in women’s college graduation and labor
force participation rates, many women in the late 1990s and early 2000s
brought to marriage markets much more earnings potential than their
counterparts in the 1950s and 1960s. June Carbone and Naomi Cahn
explain the resulting phenomenon in the following way:

Rising inequality has affected men more than women, increasing both the
number of men at the top who are eager to pair with high-status women
and the number of men at the bottom who no longer play productive
roles. These changes fundamentally alter the “gender bargain,” that is, the
terms on which men and women find it worthwhile to forge lasting rela-
tionships, and they do so in ways that push the top and the bottom of the
socioeconomic system in different directions.67

The trend, which is also referenced in Chapter 6, is for more highly edu-
cated, higher-earning men and women to delay both marriage and child-
bearing until they are older, and then to form a high-earning, high-status
254 M. M. WAY

household in which they raise one or two children. The combination of

matching and delayed childrearing until careers are well-established pro-
vides children with parents who can pour resources into them. At the
bottom end of the income distribution, women are generally doing
better than men, who are less likely to have even a high school educa-
tion than poor women and are more likely to have problems that fur-
ther lower their labor market prospects, such as a prior incarceration.
Lower-income women’s potential mates do not bring much to the table
and so these women are likely to forgo marriage, but not childrearing,
and they put their limited resources into themselves and their children.
In the middle of the income and educational spectrum, women with a
high school degree or some college are unlikely to marry up, to a col-
lege graduate, and, due to changes in the labor market, they find a
decreasing pool of male high school graduates who are making a decent
living. These middle-income women are more likely to engage in what
Andrew Cherlin terms the marriage-go-round, cycling through cohabita-
tion, divorce, and remarriage. Assortative mating results in children with
widely varying access to resources, and widely varying household stress
and instability. While assortative mating is a “family” economic trend, it
also reflects policies that have solidified the intergenerational transmis-
sion of inequality, along socioeconomic and along racial lines. Three
particularly damaging policy areas, as far as inequality is concerned, are
highlighted below.

The Government’s Role in Worsening

Family Inequality

Housing Policy
Public policy in housing until 1968 was explicitly discriminatory against
African American and other minority families, affecting their labor mar-
ket prospects, their net wages, their educational investments in children,
their health, and their ability to accumulate wealth. For example, the fed-
eral government promoted homeownership starting in the 1920s, in part
as a way to “inoculate” Americans against communism by facilitating
their own investments in private property. There was even a campaign
to “own-your-own-home” which pitched homeownership as a patriotic
duty over renting.68 Middle-class families struggled to afford homes,
and during the New Deal, the Federal Housing Administration (FHA)
was created, reducing the risk of lending to families. One way the FHA
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 255

subsidized homeownership was through the insuring of mortgages, but

because its guidelines “included a whites-only requirement, racial segre-
gation became an official requirement of the federal mortgage insurance
program,” even imperiling the ability of homes in white neighborhoods
located near black neighborhoods to gain FHA mortgage insurance.
Without insurance most banks would not issue mortgages, even to
highly qualified applicants.69 FHA policies required low down payments
and long payback terms changing the typical 10-year mortgages into
20-year and 30-year fixed-rate mortgages which lowered monthly pay-
ments, and in the 1960s and 1970s had the added benefit of protect-
ing homeowners from inflation. Without FHA insurance, such favorable
terms were unavailable. Costlier and often exploitative financial vehicles
were sold to African American families desiring their own home. In the
early 1960s in Chicago, for example, approximately 85% of all home
sales to African Americans were on contract.70 Contract sales, a type of
installment-plan home purchase agreement, did not allow any build-up
of equity in homes and missing even one month of payment could result
in eviction and a loss of all the equity the buyer had already transferred
to the seller.
Discriminatory FHA underwriting standards were adopted by the
Veteran’s Administration (VA) after World War II. The VA insured zero
down payment mortgages for veterans. Adoption of FHA standards
at the VA effectively prevented black veterans from accessing a signifi-
cant benefit of the G.I. Bill. In debunking the myth of American mid-
dle-class self-reliance, Stephanie Coontz pointed out, “It was not family
savings or individual enterprise, but federal housing loans and education
payments (along with an unprecedented expansion of debt), that ena-
bled so many 1950s American families to achieve the independence of
homeownership.” 1950s white American families, specifically. The fed-
eral government’s explicitly racist policy of home mortgage subsidies to
white families and denial of subsidies to black families would not start to
be reversed until 1968, with the passage of the Fair Housing Act. But
the desegregation of neighborhoods and reversing of federally enforced
discrimination takes a very, very long time.
Besides home mortgages, there is long list of federal, state, and
local policies that segregated African Americans, other minorities,
and immigrants into overpriced ghettos, placed obstacles in the way
of their home ownership and left them vulnerable to exploitation in
their attempts to rent and own property.71 There was also government
enforcement at the local, state and federal level of private discrimination,
256 M. M. WAY

such as the use of restrictive covenants, contractual agreements upon the

purchase of a home or a building that prevented the purchaser from later
selling or renting to a racial minority. Detailing these is beyond the scope
of this book, but a comprehensive look at government enforced segrega-
tion is provided by Richard Rothstein in The Color of Law: A Forgotten
History of How Our Government Segregated America. The legacy of
housing segregation on family economics and on inequality is enduring
and pernicious, affecting everything from education to retirement.
The effects of segregated education have already been discussed, but
other human capital effects of segregation are channeled through health.
Poor urban neighborhoods can be more dangerous and violent than
higher-income suburbs, and run-down housing or neglected cities pro-
vide plenty of opportunities for children to be poisoned by lead paint,
for example, or even by water as happened in 2015 in Flint, Michigan.72
There are fewer opportunities for outdoor activities, and in some areas,
there is less access to larger grocery stores where healthy food is less
expensive. Many urban populations are medically underserved, even in
areas where high-status hospitals reside. Infant and adult mortality rates
are higher, even controlling for socioeconomic variables such as income
and education, in highly racially segregated communities.73
Segregation physically blocks off families from labor market opportuni-
ties, often keeping them out of geographic reach of many firms that since
the 1960s have located outside of urban areas.74 When they can commute,
the commutes are often long, expensive, and uncomfortable, lowering net
earnings and decreasing time available for labor market or domestic activi-
ties, such as taking care of children. Long commutes make combining child
care and work particularly difficult, and so increase the likelihood that a
parent will choose lower-paying work closer to home, or no work at all.
Segregation has decreased African American families’ ability to accu-
mulate housing wealth—a well-documented phenomenon even at times
when the role of the federal government in preventing homeownership
by minorities was not so well understood.75 Segregation’s impact on
earnings means that segregation imposes significant constraints on cur-
rent consumption as well as savings for black families. Income and wealth
constraints affect almost every economic decision a family makes, includ-
ing saving for retirement. African Americans’ lower levels of wealth accu-
mulation lead to the high poverty rate among elderly African Americans
when compared to whites, of 18 and 8% respectively in 2016, and is one
of the legacies of housing segregation.76
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 257

Racial and ethnic minority families’ interaction with their government

has historically been tainted by legislated discrimination in a variety of
areas including housing, leading to minority families having to work
harder to make economic progress. As the de jure housing segregation
system has evolved to be “simply” de facto, the public policies needed
to eventually desegregate are unclear, but much greater public attention
and explicit government policy support for families living in racially seg-
regated areas would seem to be a requirement. Segregation is not likely
to simply melt away. Hispanics, for example, are increasingly experienc-
ing segregation and discrimination in home purchasing and “linguistic
profiling” in rental housing markets.77 One type of public attention to
segregated neighborhoods that has not been lacking, however, is atten-
tion from the criminal justice system.

Criminal Justice and Incarceration Policies

The rate of incarceration of Americans radically increased over the
course of the 1980s, 1990s, and 2000s, from 0.2% of the entire popu-
lation in 1983, to 0.7% of the population in 2008, or 1 in 100 adults.78
According to the United Nations, in 2013, the United States had the
highest incarceration rates of any country in the world, with 716 inmates
per 100,000 of the population.79 This rate was much higher than the
incarceration rate of any other country the United States considers a
peer, such as the United Kingdom (148 per 100,000), Canada (118),
France (98), and Germany (79). It is even much higher than countries
that have been criticized for poor human rights records such as the
Russian Federation (475), Iran (284), Turkey (179), and China (121).
Families of any race suffer when a father or mother or spouse or child
are arrested, tried or plead guilty, and go to prison or are put on proba-
tion. Family relationships are weakened not just by imprisonment, but
by imprisonment at long distances from where a family resides. Family
economies are damaged not just by losing the labor of the person while
in prison, but by the restrictions and regulations that follow them after
their release, and by the stigma and risk-aversion of employers to hire
people with criminal records.80 Family structures not only break apart,
they might never be created in the first place when women whose mar-
riage markets comprise large numbers of formerly incarcerated men can-
not emotionally or economically cope with the effects of incarceration on
a potential spouse.81
258 M. M. WAY

The rates of incarceration and criminal justice supervision of black

men far outpace those of white men, or of women, and there is plenty
of evidence that the “war on crime” has been racially motivated.82
This despite the fact that race does not causally impact criminal activ-
ity, and while poverty might lead to more crime, it might also simply
lead to more control of those feared of potentially committing crimes.83
Seventeen percent of black men aged 20–40 who had not completed col-
lege were incarcerated in 2000, versus 3% of white non-college gradu-
ates. This means that far larger percentages of high school educated black
men in their prime earning and parenting ages had a criminal record
looming over them. For the 75% of young black women who do not
hold a college degree, a combination of de facto segregation in daily life
together with continuing racial discrimination means that this is their pri-
mary marriage market. For black children, formerly or currently incar-
cerated men represent a large percentage of their fathers. Children suffer
the economic effects of parental incarceration on family income, loss of
familial cohesion, increased risk of being removed from their families by
child protective services, and increased likelihood of witnessing domestic
violence by formerly incarcerated fathers, among other effects.84
Michelle Alexander’s book, The New Jim Crow, puts the increase in
incarceration since the 1970s in the context of a new racial caste system,
following on slavery and the Jim Crow era that began as soon as south-
ern states could escape federal restrictions imposed during post-Civil War
Reconstruction. The “law and order” cry of southern politicians directed
against civil rights activists in the 1950s and 1960s was converted into
a broader theme on the national political stage in the 1970s and 1980s,
while still directed at southern and predominantly white voters. The
“war on crime” and the “war on drugs” made non-violent drug offend-
ers prime targets. As one researcher put it, “In a very real way, crimi-
nal possession of a controlled substance came to replace ‘vagrancy’ as the
statutory mechanism used most commonly by state authorities to regu-
late and control the behavior of poor African Americans.”85 Funding was
directed toward law enforcement, just as it was being directed away from
welfare and housing programs.86 The resulting impact on the African—
American community in particular, and on many other communities as
well, has been catastrophic, and even if future criminal justice reform
takes place, the economic effects on families will spill over into future
generations. The wholesale incarceration and criminalization of vast
numbers of the US population creates enormous, government-imposed
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 259

family inequality, and to the extent that it targets, intentionally or not,

large minority populations disproportionately to whites, makes it an eco-
nomic injustice that should be corrected.

Healthcare
America has two classes of healthcare. One is single-payer and somewhat
universal, continuously being enlarged and little-by-little becoming more
comprehensive. That system comprises Medicare for the elderly and dis-
abled, which in 2018 covered 14% of the US population, and Medicaid
for the poor, as defined by the states and the federal government, which
in 2018 covered 14% of the population.87 “Universal-type” healthcare
also includes healthcare for veterans and their families provided through
the Veterans Administration, which in 2018 served 2% of the population.
The other class of healthcare is characterized by uncertainty, by variation
in access and in coverage, can be unaffordable, and is often at threat of
being taken away. This includes coverage through employer-provided
plans, used by 49% of the US population in 2018, and health insurance
purchased individually by 7% of the population. About 9% of the popula-
tion in 2018 were uninsured, or over 28 million people.88
Insurance coverage was worse in 2005, however, when almost 46 mil-
lion Americans were uninsured.89 The Affordable Care Act (ACA) of
2010 expanded Medicaid in many states and created private insurance
exchanges, as well as penalizing people for going uninsured, lowering
the number of uninsured to a low of 27.6 million in 2016. This still
represented 10% of the non-elderly population, with almost half of the
uninsured citing the price of insurance as the reason they did not have
coverage.90 The others cited a lost job, a family status change such as
divorce or death, or losing Medicaid due to becoming ineligible under
means-testing.
The ACA not only helped boost coverage, but it provided new pro-
tections for health insurance consumers. Prior to passage of the ACA,
families could be dropped by their insurers for a variety of reasons, and it
was legal for insurance companies to deny coverage based on pre-existing
conditions, leaving millions with no coverage, or unable to change jobs,
start their own businesses or stay home with their children for fear of
losing coverage.91 But the ACA faces an precarious future with Congress
repealing key measures in 2017, including the requirement to purchase
insurance. This creates uncertainty and cruel economic choices for many
260 M. M. WAY

American families—choices and outcomes that are not faced by families

in any other high-income and developed economy.
For the uninsured, the impact on health and well-being is enormous.
Families may trade off prescriptions to buy food, or doctor’s visits to buy
heating oil.92 Reliance on emergency medical services is inefficient and
costly to the public sector. And given that health is a primary channel
for the transmission of socioeconomic status, even with stopgap feder-
ally-funded insurance for poor children (State Children’s Insurance
Program or SCHIP), the children of uninsured parents face risks to their
economic futures when their parents fail to seek medical care for chronic
or acute conditions.
Having insurance does not mean that one is secure in their health-
care, even with the reforms of the ACA. A survey by the Kaiser Family
Foundation in 2016 found that 26% of people with insurance worried
about paying normal medical expenses, and 44% worried about paying
living expenses in the case of illness.93 The high cost of insurance pre-
miums, deductibles, and copayments leeches available income away from
other consumption and savings. While many people at the middle and
higher end of the income scale have insurance coverage through their
employment under group plans that are tax favored, health plans are still
extremely expensive. The US policy decision to have healthcare for most
citizens be a private, employment-based benefit, rather than a public,
universal system, has meant that all of the inequalities that characterize
the job market and wages get rolled right into healthcare provisioning.
People with less education will have less coverage and more expensive
healthcare. Women who stay home with their kids and then become
divorced or widowed can lose their coverage. Even under the ACA, peo-
ple in low-wage, low-paying jobs see their hours get cut so that their
company does not have to offer healthcare under their programs. And
when discrimination makes it hard to find a job, it is even harder to have
healthcare.
The US healthcare system exacerbates inequality by having health-
care, a vital input to human capital and family earnings capacity, be one
more thing that is broadly affected by socioeconomic status. By allow-
ing insurance companies and some medical providers to maintain a prof-
it-driven healthcare system, the United States has allowed the economic
well-being of families to be even more highly stratified, imposing on the
American people types of inequality and uncertainty in health that citi-
zens of most high-income countries do not have to abide.
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 261

The Economic Effects of Rising Inequality

Within the United States, there is very recent evidence that regions that
have higher socioeconomic mobility between the generations, which is
correlated with less inequality, also have higher economic growth rates.94
More equal income and wealth distribution is correlated with higher
rates of economic growth in developing economies for a variety of rea-
sons, including the boost to aggregate demand, more pro-growth ratios
between consumption and savings, and investments in human capi-
tal.95 While the United States is officially “developed,” the relationship
between inequality and growth, particularly investments in human capital
and growth, is not limited only to low-income economies.96
Not only is economic opportunity across the income spectrum crucial
for fostering entrepreneurial and innovative people, but it likely is crucial
to the United States’ cohesion as a nation. Rewarding true merit—not
inherited merit—is part of the ethos of the United States. Fostering a
strong middle class, with the opportunities it engenders, has been part
of the story of this country since its beginning, which brings us back to
one of the premises of this book—that the interplay between families and
the government has been crucial to the economic success of the United
States. We have seen plenty of examples of how this relationship has
worked, to the benefit of some families and the detriment of others. The
question is, how will it continue to work, if population growth slows,
inequality rises, and the US political system seems unable or unwilling to
address even the most obvious of problems, such as fixing the funding of
Social Security or providing healthcare security for all Americans.
Persistent poverty and the growing instability and uncertainty facing
many struggling middle class families could eventually create a drag on
US economic growth, if they are not already. Underinvestment in educa-
tion and healthcare, for example, result in lower levels of human capital,
and lower levels of human capital imply that people are less productive
than they could be in whatever type of work, market-based or home-
based, they are dedicated to. The increasing economic polarization of the
US population is also leading to increasing political polarization, which
cannot continue indefinitely before serious damage to the democratic
system occurs. Confidence in institutions becomes eroded, and the polit-
ical standoffs that highly polarized electorates encourage result in paraly-
sis and a dearth of effective policy-making.97 These conditions may have
spillover effects on the economy.
262 M. M. WAY

Policies to Address Inequality

and Create Opportunity

The policies that would address inequality have, for the most part, been
suggested previously in this book. Universal childcare and preschool
would enable more children to start their human capital accumulation
at an early age, and enable more parents to earn the necessary income
to provide other human capital inputs including healthy food and
healthcare. Renewed investment in public schools, and a reform of the
system of local funding and control that has resulted in unequal edu-
cation for many lower-income and minority children, is another crucial
policy change. Increased public investment in higher education, making
it affordable for people of all income levels, without saddling poor and
middle class children with levels of debt that delay their ability to strike
out on their own, get married, purchase homes, or pursue entrepreneur-
ial ventures is also extremely important.
Changes to the US healthcare system, making it more universal and
affordable so that more Americans could enjoy healthcare security and
live without fear of an illness seriously impacting their financial future
would free many people to explore new work and entrepreneurial oppor-
tunities. And the current system of tying healthcare for the poor to main-
taining a low level of earnings, which occurs when Medicaid benefits
phase out as people’s income increases, means that work and labor earn-
ings can actually decrease a person’s economic security due to the loss
of Medicaid benefits. Medicaid income limits create a perverse incentive
which traps poor people with health issues in a catch-22 situation. Truly
universal healthcare for people regardless of income would remove this
constraint for Medicaid recipients.
A welfare system not tied to means tests, or the male-breadwinner
model, such as a Universal Basic Income (UBI), that would provide every
citizen an above-poverty income level and would eliminate the need for
most other income support programs, is another idea that seems unfea-
sible until one considers how far a similar suggestion—the Negative
Income Tax—got in the early 1970s. (See Chapter 6 for more on UBI.)
Simply ensuring that all people and all families have enough money to
eat, pay rent and utilities, clothe themselves, and get medical care of a
standard commensurate with national wealth would go a long way
toward leveling the playing field, particularly for families that have been
victims of segregation and historical mistreatment, who continue to be
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 263

stigmatized through US welfare systems today. With a rapidly changing

job market, and increased automation promising to push many workers
out of jobs, there are more economists bringing up UBI as a way for fam-
ilies to be sustained as they attempt to adjust to the knowledge economy.
Fair education funding, healthcare reform, and UBI would help to over-
come the damage of discriminatory housing policies that have affected
many minority families. Criminal justice reform is also necessary to help
to reverse some of the trends that lead to poverty, such as low labor force
participation rates of previously incarcerated men, which damages the eco-
nomic well-being of these men and their families. The incarceration rates in
the United States point to a serious misallocation of taxpayer resources and
a waste of human capital, from an economic perspective.
While criminal justice reform would most likely lead to reduced pub-
lic sector spending, implementing some of the new programs discussed
here brings us to the subject of taxation. Paying for programs that level
the playing field through investing in human capital (education, health-
care) and providing an income floor to families (UBI) requires fund-
ing, although many of these investments reap large returns. As shown
in Chapter 4, educational investments usually provide net revenues to
the government over time. Creating a better functioning healthcare sys-
tem may do the same. The United States used to be more committed
to principles of progressive taxation than it is today, and when marginal
tax rates on high-income levels were the highest—in the 1940s, 1950s,
and 1960s—inequality was decreasing and the economy was booming.
Redistribution of income, not just from the richest to the poorest, but
from all relatively high earners to support all the people, the institu-
tions and the public goods, such as infrastructure, that make an econ-
omy function, works in many high-income, developed economies, and
it has worked in the United States in the past. Federal tax receipts as
a percentage of GDP have been declining since the 1960s, while state
taxes have remained stable and Social Security taxes as a percentage of
GDP have steadily climbed. Because Social Security taxes are regressive
and higher income earners pay a lower percentage of their income to this
tax, this means that the tax burden has been shifting from high-income
Americans to middle class and low-income families, which is another
concern for a country facing increasing inequality. It will probably be
necessary for some families to face higher taxes in order for other families
to be able to enjoy the economic opportunities that the United States
should provide all its citizens.
264 M. M. WAY

Conclusion
The American system, if it ever was one that helped to overcome soci-
oeconomic stratification, is one that reinforces it today. Our redistribu-
tion is more likely to go up the income scale than down. Our systems
are more “winner-take-all” than ever. Inherited wealth has never been so
lightly taxed. Education is crucial for economic success, and yet college
is more expensive and less subsidized than it was 50 years ago. Historical
legacies of slavery, including segregation and, arguably, mass incarcera-
tion, hold back the economic advancement of many, while essential ser-
vices enjoyed in other countries, such as healthcare, are unaffordable for
many US citizens.
Reversing the trend to greater economic inequality by tackling these
and other problems is a question of social justice and fairness, but those
arguments can fall on deaf ears. Reversing the trend to greater economic
inequality is also likely to be a prerequisite for continued US economic
vitality and growth, influence in the world order, leadership, and pros-
perity. Where social justice arguments fail, solid economic arguments can
sometimes prevail. Public policy that increases economic opportunities
is extremely important to the well-being of American families and the
American economy. The care of our shrinking population of young peo-
ple, their infusion with human capital and development into long-lived,
productive citizens with healthy families of their own, regardless of their
socioeconomic status, gender or race, is vital for the United States to
maintain its position as a world leader through the twenty-first century.

Notes
1. Carlos Garriga, Lowell R. Ricketts, and Don E. Schlagenhauf, “The
Homeownership Experience of Minorities During the Great Recession,”
Review—Federal Reserve Bank of St. Louis 99, no. 1 (2017).
2. Current Population Survey, “Household Data Table A-4. Employment
Status of the Civilian Population 25 Years and Older by Education
Level,” (Bureau of Labor Statistics Online 2017).
3. Signe-Mary McKernan et al., “Disparities in Wealth Accumulation and
Loss from the Great Recession and Beyond,” The American Economic
Review 104, no. 5 (2014).
4. Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes
in the United States (Updated with 2015 Preliminary Estimates),”
Department of Economics (Berkeley: University of California, 2016).
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 265

5. Andrea Louise Campbell, “The Public’s Role in Winner-Take-All

Politics,” Politics & Society 38, no. 2 (2010).
6. J. Bradford DeLong, “A History of Bequests in the United States,” in
Death and Dollars: The Role of Gifts and Bequests in America, ed. Alicia
H. Munnell and Annika Sundén (Washington, DC: Brookings Institution
Press, 2003).
7. Lars Osberg and Timothy Smeeding, “‘Fair’ Inequality? Attitudes Toward
Pay Differentials: The United States in Comparative Perspective,”
American Sociological Review 71, no. 3 (2006).
8. Miles Corak, “Do Poor Children Become Poor Adults? Lessons from
a Cross Country Comparison of Generational Earnings Mobility,”
in Discussion Papers (Bonn, Germany: IZA, 2006); and Osberg and
Smeeding, “‘Fair’ Inequality? Attitudes Toward Pay Differentials: The
United States in Comparative Perspective,” American Sociological Review
71, no. 3 (2006).
9. Corak, “Do Poor Children Become Poor Adults? Lessons from a Cross
Country Comparison of Generational Earnings Mobility.”
10. John Roemer, “What Is the Justification of Studying Intergenerational
Mobility of Socioeconomic Status?,” in From Parents to Children:
The Intergenerational Transmission of Advantage, ed. Ermisch John,
Jäntti Markus, and Smeeding Timothy (Washington, DC: Russell Sage
Foundation, 2012), 482–88.
11. Miles Corak, “Income Inequality, Equality of Opportunity, and
Intergenerational Mobility,” The Journal of Economic Perspectives 27, no.
3 (2013).
12. Annual Social and Economic Supplements Current Population Survey,
“Historical Poverty Tables: People and Families—1959 to 2016,” ed.
U.S. Census Bureau (Washington, DC, 2017). Tables 2 and 3.
13. Jessica L. Semega, Kayla R. Fontenot, and Melissa A. Kollar, “Income
and Poverty in the United States: 2016,” in Current Population Reports
(Washington, DC: U.S. Census Bureau, 2017). Table A-2. Selected
Measures of Household Income Dispersion: 1967 to 2016.
14. Corak, “Do Poor Children Become Poor Adults? Lessons from a Cross
Country Comparison of Generational Earnings Mobility”; and “Income
Inequality, Equality of Opportunity, and Intergenerational Mobility,” The
Journal of Economic Perspectives 27, no. 3 (2013).
15. Current Population Survey, “Historical Poverty Tables: People and
Families—1959 to 2016.” Table 13. Number of Families Below the
Poverty Level and Poverty Rate: 1959–2016, and Table 15. Age
Distribution of the Poor: 1966–2016. Accessed 2018 at https://www.
census.gov/data/tables/time-series/demo/income-poverty/histori-
cal-poverty-people.html.
266 M. M. WAY

16. John Robert Warren, “Does Growing Childhood Socioeconomic

Inequality Mean Future Inequality in Adult Health?,” The Annals of the
American Academy of Political and Social Science 663, no. 1 (2015).
17. Sean F. Reardon, “The Widening Academic Achievement Gap Between
the Rich and the Poor: New Evidence and Possible Explanations,” in
Whither Opportunity?: Rising Inequality, Schools, and Children’s Life
Chances, ed. Greg J. Duncan and Richard J. Murnane (New York: Russell
Sage Foundation, 2011).
18. Tara Watson and Sara McLanahan, “Marriage Meets the Joneses,” Journal
of Human Resources 46, no. 3 (2011).
19. Melissa S. Kearney and Phillip B. Levine, “Income Inequality and Early
Nonmarital Childbearing,” Journal of Human Resources 49, no. 1
(2014).
20. Erzo F. P. Luttmer, “Neighbors as Negatives: Relative Earnings and Well-
Being,” The Quarterly Journal of Economics 120, no. 3 (2005).
21. Anne Case and Angus Deaton, “Mortality and Morbidity in the 21st
Century,” Brookings Papers on Economic Activity (2017).
22. Nolan M. McCarty, Keith T. Poole, and Howard Rosenthal, Polarized
America: The Dance of Ideology and Unequal Riches (Cambridge, MA:
MIT Press, 2014); and Howard Rosenthal, “Politics, Public Policy and
Inequality: A Look Back at the Twentieth Century,” in Social Inequality,
ed. Kathryn M. Neckerman (New York: Russell Sage Foundation, 2004).
“U.S. Slaps Sanctions on Putin Cronies for Russia’s ‘Malign Activity’,”
New York Times, April 6, 2018.
23. Suzanne Mettler, The Submerged State: How Invisible Government Policies
Undermine American Democracy, Chicago Studies in American Politics
(Chicago: University of Chicago Press, 2011).
24. Winner-take-all society is a term coined by Philip Cook and Robert Frank,
and the title of their book: Robert H. Frank and Philip J. Cook, The
Winner-Take-All Society: How More and More Americans Compete for Ever
Fewer and Bigger Prizes, Encouraging Economic Waste, Income Inequality,
and an Impoverished Cultural Life (New York: Free Press, 1995). A
description of the winner-take-all political system is found in Jacob S.
Hacker and Paul Pierson, “Winner-Take-All Politics: Public Policy,
Political Organization, and the Precipitous Rise of Top Incomes in the
United States,” Politics & Society 38, no. 2 (2010).
25. Corak, “Income Inequality, Equality of Opportunity, and
Intergenerational Mobility,” The Journal of Economic Perspectives 27, no.
3 (2013).
26. Michelle Alexander, The New Jim Crow: Mass Incarceration in the Age
of Colorblindness, Revised edition (New York: The New Press, 2012),
205–08.
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 267

27. Richard J. Herrnstein and Charles A. Murray, The Bell Curve: Intelligence

and Class Structure in American Life, 1st Free Press pbk. ed. (New York:
Simon & Schuster, 1996); and William T. Dickens, Thomas J. Kane, and
Charles L. Schultze, “Does the Bell Curve Ring True?,” The Brookings
Review 13, no. 3 (1995).
28. Clayne Pope, “Inequality in the Nineteenth Century,” in The Cambridge
Economic History of the United States, ed. Stanley L. Engerman and
Robert E. Gallman (Cambridge, UK: University of Cambridge, 2000),
116–17.
29. Ibid., 136–39.
30. Richard Sylla, “Experimental Federalism: The Economics of American
Government, 1789–1914,” in The Cambridge Economic History of
the United States, Volume II: The Long Nineteenth Century, ed. Stanley
L. Engerman and Robert E. Gallman (Cambridge, UK: Cambridge
University Press, 2000), 539.
31. Robert A. Margo, “The Labor Force in the Nineteenth Century,” in
The Cambridge Economic History of the United States, ed. Stanley L.
Engerman and Robert E. Gallman (Cambridge, UK: University of
Cambridge, 2000), 238.
32. Robert D. Plotnick et al., “The Twentieth-Century Record of Inequality
and Poverty in the United States,” in The Cambridge Economic History
of the United States, ed. Stanley L. Engerman and Robert E. Gallman
(Cambridge, UK: University of Cambridge, 2000).
33. Erik de Gier, Capitalist Workingman’s Paradises Revisited (Amsterdam
University Press, 2016), 79.
34. An excellent description of American welfare capitalism, as contrasted with
attempts at welfare capitalism in other countries is found in Chapter 4 of
ibid.
35. Jennifer Klein, “The Politics of Economic Security: Employee Benefits
and the Privatization of New Deal Liberalism,” Journal of Policy History
16, no. 1 (2004).
36. Rosenthal, “Politics, Public Policy and Inequality: A Look Back at the
Twentieth Century.”
37. Claudia Goldin and Robert A. Margo, “The Great Compression: The
Wage Structure in the United States at Mid-Century,” The Quarterly
Journal of Economics 107, no. 1 (1992).
38. Table 4.4 in Plotnick et al., “The Twentieth-Century Record of Inequality
and Poverty in the United States.”
39. Table A-2 in Semega, Fontenot, and Kollar, “Income and Poverty in the
United States: 2016.”
40. Plotnick et al., “The Twentieth-Century Record of Inequality and Poverty
in the United States.”
268 M. M. WAY

41. Claudia Goldin, “Labor Markets in the Twentieth Century,” in The

Cambridge Economic History of the United States, ed. Stanley L.
Engerman and Robert E. Gallman (Cambridge, UK: University of
Cambridge, 2000).
42. Lawrence M. Friedman, A History of American Law, 2nd ed. (New York:
Simon & Schuster, 1985), 687.
43. Stephanie Coontz, The Way We Never Were: American Families and the
Nostalgia Trap (New York, NY: BasicBooks, 1992), 79–86.
44. Robert Moffitt, “Incentive Effects of the U.S. Welfare System: A Review,”
Journal of Economic Literature 30, no. 1 (1992).
45. Robert A. Moffitt, “The Deserving Poor, the Family, and the U.S.
Welfare System,” Demography 52, no. 3 (2015).
46. Mettler, The Submerged State: How Invisible Government Policies
Undermine American Democracy, 8–30.
47. Ibid.
48. Ibid., 22–23.
49. Peter Gottschalk and Robert Moffitt, “The Rising Instability of U.S.
Earnings,” The Journal of Economic Perspectives 23, no. 4 (2009).
50. Drew Desilver, “Most Americans Unaware That as U.S. Manufacturing
Jobs Have Disappeared, Output Has Grown,” in Fact Tank: News in the
Numbers (Washington, DC: Pew Research Center, 2017).
51. David H. Autor, David Dorn, and Gordon H. Hanson. “The Geography
of Trade and Technology Shocks in the United States,” The American
Economic Review 103, no. 3 (2013).
52. Most of the trends here are well explained by papers coauthored by
David Autor, with a more technical view expressed in David H. Autor,
Lawrence F. Katz, and Melissa S. Kearney, “Trends in U.S. Wage
Inequality: Revising the Revisionists,” The Review of Economics and
Statistics 90, no. 2 (2008). A less technical explanation is found in
David Autor, “The Polarization of Job Opportunities in the U.S. Labor
Market,” in The Hamilton Project (Washington, DC: The Brookings
Institute, 2010). The theory and empirics behind why more of a local
impact on labor markets from immigration shocks is not observed can
be found in George J. Borjas, “Native Internal Migration and the Labor
Market Impact of Immigration,” The Journal of Human Resources 41, no.
2 (2006).
53. Bureau of Labor Statistics, “Union Members—2016,” News Release,
2017, https://www.bls.gov/news.release/archives/union2_01262017.
pdf.
54. OECD, “Minimum Wages Relative to Median Wages,” http://dx.doi.
org/10.1787/data-00313-en.
55. Mettler, The Submerged State: How Invisible Government Policies
Undermine American Democracy, 8–30.
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 269

56. Definition of “deep state” from the Oxford Living Dictionary, https://

en.oxforddictionaries.com/, Oxford University Press, 2018.
57. Edward N. Wolff, “Recent Trends in the Size Distribution of Household
Wealth,” The Journal of Economic Perspectives 12, no. 3 (1998); and
“Deconstructing Household Wealth Trends in the United States, 1983–
2013,” National Bureau of Economic Research Working Paper Series No.
22, 704 (2016).
58. DeLong, “A History of Bequests in the United States,” 40.
59. Anne Case, Angela Fertig, and Christina Paxson, “The Lasting Impact of
Childhood Health and Circumstance,” Journal of Health Economics 24,
no. 2 (2005).
60. Warren, “Does Growing Childhood Socioeconomic Inequality Mean
Future Inequality in Adult Health?.”
61. June Carbone and Naomi R. Cahn, Marriage Markets: How Inequality Is
Remaking the American Family (Oxford: Oxford University Press, 2014), 86.
62. Raj Chetty et al., “Mobility Report Cards: The Role of Colleges in
Intergenerational Mobility,” National Bureau of Economic Research
Working Paper Series No. 23, 618 (2017).
63. John Ermisch, Markus Jantti, Timothy Smeeding, and James A. Wilson.
“Advantage in Comparative Perspecitve,” in From Parents to Children:
The Intergenerational Transmission of Advantage, ed. John Ermisch,
Markus Jantti and Timothy Smeeding (New York: Russell Sage
Foundation, 2012,) 3.
64. Corak, “Income Inequality, Equality of Opportunity, and Intergenerational
Mobility,” The Journal of Economic Perspectives 27, no. 3 (2013).
65. Paul Bingley, Miles Corak, and Niels Westergard-Nielsen, “Equality of
Opportunity and Intergenerational Transmission of Employers,” in From
Parents to Children: The Intergenerational Transmission of Advantage,
ed. John Ermisch, Markus Jäntti, and Timothy M. Smeeding (New
York: Russell Sage Foundation, 2012); and Linda Datcher Loury, “Some
Contacts Are More Equal Than Others: Informal Networks, Job Tenure,
and Wages,” Journal of Labor Economics 24, no. 2 (2006).
66. Wendy Sigle-Rushton and Sara Mclanahan, “Father Absence and Child
Well-Being: A Critical Review,” in The Future of the Family, ed. Daniel
P. Moynihan, Timothy M. Smeeding, and Lee Rainwater (New York:
Russell Sage Foundation, 2004).
67. Carbone and Cahn, Marriage Markets: How Inequality Is Remaking the
American Family.
68. Richard Rothstein, The Color of Law: A Forgotten History of How Our
Government Segregated America, 1st ed. (New York and London:
Liveright Publishing Corporation, 2017), 60–71.
69. Ibid.
70. Ibid., 93–9.
270 M. M. WAY

71. Isabel Wilkerson, The Warmth of Other Suns: The Epic Story of America’s
Great Migration, 1st ed. (New York: Random House, 2010), 268–73.
72. David E. Jacobs et al., “The Prevalence of Lead-Based Paint Hazards in
U.S. Housing,” Environmental Health Perspectives 110, no. 10 (2002);
Heather A. Moody, Joe T. Darden, and Bruce Wm Pigozzi, “The
Relationship of Neighborhood Socioeconomic Differences and Racial
Residential Segregation to Childhood Blood Lead Levels in Metropolitan
Detroit,” Journal of Urban Health 93, no. 5 (2016); and Mona Hanna-
Attisha et al., “Elevated Blood Lead Levels in Children Associated with
the Flint Drinking Water Crisis: A Spatial Analysis of Risk and Public
Health Response,” American Journal of Public Health 106, no. 2 (2016).
73. John Mullahy, Stephanie Robert, and Barbara Wolfe, “Health, Income,
and Inequality,” in Social Inequality, ed. Kathryn M. Neckerman (New
York: Russell Sage Foundation, 2004).
74. William Julius Wilson, “When Work Disappears,” Political Science
Quarterly 111, no. 4 (1996).
75. James E. Long and Steven B. Caudill, “Racial Differences in
Homeownership and Housing Wealth, 1970–1986,” Economic Inquiry 30,
no. 1 (1992); Douglas S. Massey, Categorically Unequal: The American
Stratification System, A Russell Sage Foundation Centennial Volume (New
York: Russell Sage Foundation, 2007), 60; and Francine D. Blau and John
W. Graham, “Black-White Differences in Wealth and Asset Composition,”
The Quarterly Journal of Economics 105, no. 2 (1990).
76. Current Population Survey, “Historical Poverty Tables: People and
Families—1959 to 2016.” Table 3: Poverty Status of People by Age,
Race, and Hispanic Origin: 1959–2016.
77. Massey, Categorically Unequal: The American Stratification System,
153–54.
78. Ibid., 99. Adam Gelb and Philip Stevenson, “Share of Population Behind
Bars Falls Back to 1998 Level,” in Public Safety Performance Project (Pew
Charitable Trusts, 2017).
79. United Nations Development Programme, “Prison Population,” in
Human Development Reports (New York: United Nations, 2013).
80. Massey, Categorically Unequal: The American Stratification System,
100–01.
81. Bruce Western, Punishment and Inequality in America (Russell Sage
Foundation, 2006), 139–42.
82. Massey, Categorically Unequal: The American Stratification System, 104;
and Alexander, The New Jim Crow: Mass Incarceration in the Age of
Colorblindness, 46–58.
83. Bruce Western, Meredith Kleykamp, and Jake Rosenfeld, “Crime,
Punishment and American Inequality,” in Social Inequality, ed. Kathryn
M. Neckerman (New York: Russell Sage Foundation, 2004).
 8 FAMILY ECONOMICS, PUBLIC POLICY, AND INEQUALITY ... 271

84. Massey, Categorically Unequal: The American Stratification System, 104–

06; and Western, Punishment and Inequality in America, 161.
85. Massey, Categorically Unequal: The American Stratification System,
97–98.
86. Alexander, The New Jim Crow: Mass Incarceration in the Age of
Colorblindness, 50–58.
87. Data on insurance coverage downloaded from the Kaiser Family
Foundation, State Health Facts. Accessed 2018 at https://www.kff.org/
statedata/custom-state-report/.
88. Ibid.
89. Lawrence Jacobs, “The Implementation and Evolution of Medicare:
The Distributional Effects of ‘Positive’ Policy Feedbacks,” in Remaking
America: Democracy and Public Policy in an Age of Inequality, ed. Joe
Soss, Jacob S. Hacker, and Suzanne Mettler (New York: Russell Sage
Foundation, 2007).
90. Kaiser Family Foundation, “Key Facts About the Uninsured Population,”
in Fact Sheet (Menlo Park, CA: Kaiser Family Foundation, 2017).
91. Jill Quadagno, One Nation, Uninsured: Why the U.S. Has No National
Health Insurance (New York, USA: Oxford University Press, 2005), 142.
92. Liz Hamel et al., “The Burden of Medical Debt: Results from the Kaiser
Family Foundation/New York Times Medical Bills Survey,” (Menlo Park,
CA: Kaiser Family Foundation, 2016).
93. Ibid.
94. Katharine Bradbury and Robert K. Triest, “Inequality of Opportunity and
Aggregate Economic Performance,” RSF: The Russell Sage Foundation
Journal of the Social Sciences 2, no. 2 (2016).
95. Oded Galor and Joseph Zeira, “Income Distribution and
Macroeconomics,” The Review of Economic Studies 60, no. 1 (1993).
96. Ibid.; and Roberto Perotti, “Political Equilibrium, Income Distribution,
and Growth,” The Review of Economic Studies 60, no. 4 (1993).
97. McCarty, Poole, and Rosenthal, Polarized America: The Dance of Ideology
and Unequal Riches, 165–89.
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 Index

A married women, 138

abandonment, 185
abortion, 46, 62, 64, 65
abstinence, 64, 195
added worker effect, 32
addiction, 179
adoption/adoptive, 27, 28, 185, 197
adult children, 49, 63, 211, 215, 216,
219, 220
adultery, 172, 185
adverse selection, 212, 228
AFDC. See Aid to Families with
Dependent Children
Affordable Care Act (ACA) of 2010,
259
Affordable Care Act of 2010, 63
Africa, 75, 80
African American
college graduates, 109
education, 104, 115
families under slavery, 182, 188
family “disorganization”, 188
family formation, 182
housing, 255, 256, 258
population; growth rate, 53
segregation, 255, 256, 258, 264
afterschool programs, 80, 99
age of consent, 176
aging, 45, 46, 72, 74, 75, 227, 228,
231–234
agricultural and technical education,
108
agricultural labor, 6, 8
Aid to Dependent Children (ADC),
151, 184, 211, 243
Aid to Families with Dependent
Children (AFDC), 151, 159, 191,
244
Alabama, 15, 160
Alexander, Michelle, 258
alimony, 26, 37, 176, 180
altruism, 32–36, 38–42, 84, 96–100,
115, 116, 118, 122, 215, 216
American Association of Retired
Persons (AARP), 74, 208
American Dream, 240
American Farm Bureau Federation, 9

© The Editor(s) (if applicable) and The Author(s) 2018 299

M. M. Way, Family Economics and Public Policy,
1800s–Present, Palgrave Studies in American Economic History,
https://doi.org/10.1057/978-1-137-43963-5
300 Index
American Recovery and Reinvestment
Act of 2009, 107
aptitude, 240
Arkansas, 114
artificial insemination, 173
assimilation, 69, 92, 102
associate’s degrees, 108, 123–125
assortative mating, 189, 253, 254
automation and artificial intelligence,
158
automated processes, 118
Autor, David, 87, 130, 168, 268
B Brownlee, Mary M., 18, 83, 199
baby boomers, 45, 53, 54, 66, 67,
70, 74, 142, 157, 183, 206, 208,
216, 219–221, 223, 227, 229
bachelor’s degrees, 108
Bailey, Martha J., 66, 85, 86
bargaining, 26, 32, 35–44, 180, 192,
202
non-cooperative, 37
power, 193
threat point, 36, 37, 180
bargaining models, 33, 36–39
bargainin power, 137
Barro, Robert J., 94, 95, 127
Basch, Norma, 15, 20
Becker, Gary S., 34, 35, 43, 56, 58,
83, 84, 178, 179, 199
behavioral economics, 61
Belfield, Clive R., 131
benefit formula, 224, 225
Beneria, Lourdes, 166
bequests, 39, 215, 265, 269
Berneria, Nancy, 144
Bianchi, Suzanne M., 43, 169
bigamy, 173
birth control, 64, 66, 67, 86, 195, 196
birth rate, 46, 47, 51, 61, 65, 69, 76,
80, 183, 186, 187, 195, 196
black. See African American
Blackstone’s Commentaries on the Laws
of England, 12
Blau, Francine D., 199, 270
block grant, 160
blue-collar, 141
Board of Refugees, Freedmen, and
Abandoned Lands (Freedmen’s
Bureau), 114. See also Freedmen’s
Bureau
Boston Public Schools, 133
Brazil, 38
bread lines, 211
Brookings Institute, 87, 158, 268
Brownlee, W. Elliot, 18, 83, 199, 230
Brown, Murray, 36
Brown v. Board of Education, 105
Budig, Michelle J., 84, 87, 168
Bush, President George H.W., 107
Bush, President George W., 107
business interests, 208, 210, 214, 236
business power, 241
C
Cahn, Naomi R., 201, 202, 253, 269
California, child care system post
World War II, 159
Canada, 59, 100, 186, 197, 237, 257
carbon
CO2emissions, 72
Carbone, June, 201, 202, 253, 269
caregiving, 26, 141, 206, 209,
215–217, 220, 227, 229, 233
Caribbean, 50, 70
Carnegie, Andrew, 94
Case, Anne, 238, 266, 269
caseworker, 160
caste system, 258
Census
1860, 27

1870, 181
1900, 182
2010, 27, 48, 174, 187
certification, 104, 158
charter schools, 120
chattel servant, 181
cheap field labor, 114
Cherlin, Andrew J., 177, 186,
198–200, 254
Cherokee, 182
child bonus, 45, 59, 60
childcare, 7, 17, 30, 43, 56, 57,
77–81, 119, 125, 138, 140,
142, 144, 146, 151, 154, 155,
158–160, 163, 169, 179, 206,
214, 248, 262
copayment, 160
Child Care and Development Fund
(CCDF), 160
child custody, 176, 192
childhood, 8, 46, 56, 62, 63, 69, 105,
107, 136, 185, 192, 238, 250,
266, 269, 270
extended, 28, 35, 46, 62
child labor, 3–9, 18, 19, 25, 51, 62,
141
child labor laws, 5, 6, 8, 9, 19, 25
agricultural exemption, 8
child poverty, 187
child protective services, 258
children
born out of wedlock, 172
cost of, 3, 51, 52, 56, 58, 59, 62,
63, 77–80, 85, 109, 169
department of Agriculture cost
estimates for raising, 56
economic benefit, 8, 103, 178, 193
economic liability, 25
education, 5–9, 11, 25, 29, 38,
52, 56, 62, 63, 80, 81, 89,
102–104, 106, 107, 109, 112,
Index 301
115, 119, 120, 122, 125, 126,
130, 147, 171, 250, 253, 254,
262
investments in, 7, 13, 81, 82, 89,
97, 98, 114, 136, 197, 250,
254
luxury good, 197
opportunity cost of, 3, 51, 52, 56,
63, 69, 98, 216
poverty, 6, 9, 107, 125, 128, 151,
174, 186–188, 195, 197, 198,
237–239
utility of, 58
working in agriculture, 114
Children’s Health Insurance Program,
74
child support, 37, 176, 180, 190–193,
195, 202
Child Support Enforcement Program
(1975), 191
China, 32, 69, 75, 248, 257
Chinese Exclusion Act of 1882, 69
citizenship rights, 134, 177, 181
citizen’s income, 196. See also
Universal basic income
Civilian Conservation Corps (CCC),
184
civil rights, 105, 110, 129, 142, 258
Civil Rights Act of 1964, 105
Civil Rights Movement, 240
Civil War, 5, 47, 52, 53, 64, 65, 68,
93, 104, 139, 165, 173, 180,
181, 209, 210, 258
Clayton Antirust Act, 241
climate change, 3, 17, 71, 72, 81, 86,
126
Clinton, President Bill, 107, 244
CO2 emissions, 72
cohabitation, cohabiting, 28, 87, 173,
174, 178, 182, 185–187, 189,
194, 195, 197, 198, 254
302 Index
college. See also education;higher
debt, 32, 79
preparatory, 103, 105
subsidies, 2, 79, 81, 264
common school movement, 101, 106
community college, 79, 109, 118,
123–125, 131, 158
“free”, 79, 123–124
community institution, 99
Community Services Act of 1941. See
Lanham Act of 1941
complementarities in production, 178
complete information, 60, 61
compulsory schooling, 3, 5, 7, 63,
103, 110, 114
Comstock Law of 1873, 65, 86
concentration of wealth, 241
Congress, 65, 66, 74, 96, 115, 117,
129, 176, 177, 191, 195, 197,
199, 208, 210, 211, 217, 223,
224, 234, 259
Congressional Budget Office (CBO),
223, 224, 226, 234
Connecticut, 64, 65
University of, 108
consumer-driven economy, 134
consumer spending, 24, 225
consumption and savings decisions,
32, 174
consumption goods, 32, 49, 52, 142,
146, 147
contraception, 46, 61, 62, 64–68, 86,
195
contraceptive technology, 62, 66, 86
controlled substance, 258
Coontz, Stephanie, 43, 87, 166, 172,
173, 198, 201, 255, 268
copayment, 160
Corak, Miles, 237, 265, 266, 269
coresidence, 219, 220
Cornell University, 20, 169
Corrigan, Helen, 133, 164
Cost of living adjustment (COLA),
212, 224, 225
Cott, Nancy F., 42, 165, 167, 198,
199
covenant marriage, 188
coverture, 13–16
coverture laws, 12, 15, 39, 172
Cowan, Ruth Schwartz, 142, 165
Cox, Donald, 38, 44, 231
criminal justice policies, 239, 263
criminal justice
policies, 257
reform, 196, 258, 263
system, 90, 196, 197, 239, 257
criminal record, 157, 195, 257, 258
crowding-out effect, 217
cult of domesticity, 54, 134, 142
curriculum, 103, 107, 110, 119
education, 102, 110, 195
custodial parents, 191, 192
D
daddy bonus, 84, 87, 156, 168
day care, 51, 61, 77–80, 164
subsidized, 45
universal, 25, 80, 81
deaths of despair, 238
Deaton, Angus, 238, 266
deep state, 249, 269
Defense of Marriage Act of 1996
(DOMA), 177, 187
defined benefit, 222
de jure segregation, 113
demand for children, 25, 46, 55–57,
60, 64, 70, 76, 189
demand-for-children model, 46, 60,
69, 77, 80
democratic ideals, 93, 112
demographics, 17, 198, 227
demographic transition, 51, 53, 76,
80, 82, 189

Department of the Interior, 27, 42,
104, 127
dependency, 63, 244
dependency ratio, 74, 157
desertion, 172, 173
Deserving Poor, 229, 268
disability, 150, 176, 184, 209, 213,
226, 247
disability insurance (DI), 28, 78, 150,
212, 223, 234, 243
discount rate, 97
discrimination, 56, 77, 80, 134, 141,
143, 151, 152, 155, 156, 158,
162, 184, 240, 255, 257, 258,
260
District of Columbia, 104, 154
divorce, 16, 26, 36, 37, 39–41,
44, 149, 172, 176, 179–181,
183–185, 188, 189, 191–194,
198–200, 202, 215, 216, 221,
229, 233, 254, 259
migratory, 185
no-fault, 185, 192
on demand, 193
unilateral, 41, 185, 190, 192–194,
202
Unilateral, 202
divorced fathers, 221
divorced mothers, 221
DNA, 173
domestic labor, 211
domestic violence, 41, 176, 194, 258
dower laws, 13
Dunbar-Ortiz, Roxanne, 83, 126, 198
E segregation, 158
Earned Income Tax Credit (EITC),
85, 243
East Asia, 69, 70, 75
Easterlin, Richard A., 58, 84, 86
Eastern Europe, 68, 69
Index 303
economic competitiveness, 118
economic functions, 174
economic growth, 46, 70, 77, 80, 94,
158, 187, 218, 236, 261
economic mobility, 238, 240, 249
economic opportunity, 11, 49, 51, 66,
113, 141, 196, 229, 238, 241,
261, 263, 264
economic polarization, 261
economic value of household labor,
2, 4, 11, 16, 19, 29, 42, 44, 51,
137, 138, 140, 143–145, 148,
150, 162, 165, 166, 189, 214,
247, 269
economies of scale, 31, 47, 104, 179,
241
Edmonds Act of 1882, 177
education, 2, 5–9, 11, 15, 18, 19, 26,
28, 32, 36, 47, 50, 56, 58, 59,
62, 63, 65, 66, 69, 76, 79, 81,
85, 92–119, 121–128, 130, 131,
134, 135, 141, 145, 147, 151–
153, 156–158, 164, 178, 188,
195, 203, 220, 235, 237, 240,
242, 243, 249–256, 260–264
African American, 93, 108, 113, 115
funding (or financing), 263
Girl’s education, 52
higher, 76, 92, 94, 100, 107, 108,
115, 126
human capital creation, 92
local funding, 109, 110, 249, 262
parochial, 104
primary, 93, 100, 118, 120
returns to, 15, 18
secondary, 95, 100, 108, 112, 120
educational effectiveness, 118, 119
educational investments, 1, 93, 97,
109–111, 122, 254, 263
educational outcomes, 80, 111, 122,
129
304 Index
education of women, 116
education-related migration, 113
elder care, 145, 158, 216, 247, 248
subsidies and tax credits for, 216, 227
elderly, 1, 17, 24, 28, 30, 39, 40, 57,
62, 74, 141, 174, 187, 198, 205,
206, 208–212, 215–219, 221,
225, 227, 229, 232–234, 237,
249, 259
poverty, 198
elderly African Americans, 57, 256
Emancipation, 181
emergency medical services, 260
employer pension, 222
energy, 47, 72, 98, 125, 181
England, Paula, 84, 168
English (speaking), 69
entrepreneurship, 33, 94, 209
environment, 1, 5, 26, 46, 50, 67, 72,
73, 81, 94, 105, 140, 163, 250
epidemic, 90, 179
Equal Rights Amendement (ERA),
154
ethnicity, 9, 70, 135, 164
exchange, 30, 34, 38–42, 44, 97, 127,
178, 189, 215, 216, 231, 232
exit option, 180
extended family, 24, 26, 29, 41, 208,
215, 218
externalities, 19, 91
F Federal Direct Student Loan Program,
Fair Housing Act, 255
Fair Labor Standards Act of 1938
(FLSA), 5
fairness, 120, 264
families, 171, 172, 174, 176, 181,
186–189, 194, 195, 197, 198,
201, 202
family(ies), 1–4, 6–18, 23–36, 39–43,
45, 46, 49–53, 55, 57, 60, 62,
63, 65–69, 72, 74, 76, 81, 84,
87, 90–93, 96, 98–105, 109,
111–115, 117–126, 128–130,
134, 136, 138–140, 142, 145,
147, 149, 151–154, 159–161,
164–166, 169, 171, 172, 174,
176, 181, 186–189, 194, 195,
197, 198, 201, 202, 206,
208–210, 213–217, 219–221,
223–225, 228–230, 232,
234–241, 243, 244, 248–265,
268, 270
composition, 187, 220
economic decision-making, 2, 26,
41, 149, 249
economic functions, 17, 24, 26, 28,
33, 41
economics, 17, 27, 28, 38, 109,
123, 192, 256
formation, 164, 179, 182
formation trends, 164, 174
media portrayals, 35
planning, 50, 61, 66–68, 85
resource allocation, 24, 40, 42, 92,
214, 215
reunification, 70
stability, 194, 196, 197
under slavery, 188
Family and Support Act of 1988, 191
fathers, 13, 14, 32, 38, 56, 77–80,
155, 156, 162, 191, 221, 258
federal control, 113, 176
96
Federal Housing Administration
(FHA), 254, 255
Federal Order 213, 152
Federal Trade Commission Act, 241
female-caregiver model, 164
female-led-family-household, 174, 181
feme sole trader, 15
feminist, 6, 15, 143

Ferber, Marianne A., 199
fertility, 5, 25, 45, 46, 48–53, 55,
58–74, 76–87, 103, 136, 139,
157, 181, 192, 195, 202, 206,
215, 216
multipartner, 195
fertility rates, 45, 53, 55, 58, 59, 68,
69, 80, 81, 183, 215, 216
general, 49, 50, 54, 70, 71
total, 51, 82, 85, 183
fiction of marital unity, 12
financial crisis, 235
financial independence of the elderly,
206
flexibility, 138, 146, 151, 156, 159,
162, 163
flexible work, 146, 163
flexible work schedules, 163
Flint, Michigan, 256, 270
Florida, 119
Florida A&M, 108
Folbre, Nancy, 145, 166, 201, 203
food stamps, 58, 243–245. See
also Supplemental Nutritional
Assistance Program
foreign-born population, 52, 68, 86
foreign labor, 118
foreign language (studies), 29, 109
founding fathers, 93, 240
401 k, 222
Fousekis, Natalie Marie, 159, 169
frailty, 219
France, 51, 59, 76, 93, 100, 136, 186,
194, 257
free community college, 79, 93, 123, 124
freedman schools, 114
Freedmen’s Bureau, 114, 182
free meal, 98
free-rider problem, 31
Friedman, Lawrence M., 18, 167,
244, 268
frontier, 10, 11, 30, 47, 49–51, 62,
67, 172, 236, 241
Index 305
Full Retirement Age (FRA), 224–226
funding crisis, 208
Furstenberg, Frank F., 201, 202, 233
G
gay marriage legalization, 187
gay marriage. See same-sex marriage
gender equity, 80
gender wage convergence, 155
gender wage gap, 162
genocidal policies, 61
Georgia, 15
Germany, 100, 136, 257
Ghilarducci, Teresa, 208, 222, 230, 233
G.I. Bill, 92, 108, 109, 115–117, 129,
130, 243, 255
Gilman, Charlotte Perkins, 6, 19
gini coefficient, 243
Goldin, Claudia, 18, 91, 94, 110, 126, 128,
141, 163, 165, 169, 230, 267, 268
government advocacy of marriage, 177
graduate education, 109
graduation, 103, 106, 107, 118, 119,
158, 251, 253
grandchildren, 28, 55, 220, 239
grandparents, 28, 206, 220
Great Compression, 243, 267
Great Depression, 53, 182, 184, 190,
205, 210, 214, 242, 243
Great Migration, 48, 113, 181
Great Recession of 2008-09, 45, 235
Griswold v. Connecticut (1965), 65, 66
Gross Domestic Product (GDP), 30,
47, 48, 73, 82, 101, 144, 218,
231, 263
growth
economic, 5, 16, 47, 70, 77, 82, 96,
115, 158, 261
GDP, 48, 82, 218
Gruber, Jonathan, 193, 202
Guest, Avery M., 63, 85
Guinnane, Timothy W., 62, 83
306 Index
H household allocation of labor, 137,
Hanushek, Eric A., 127, 130
happiness, 35, 36, 58, 178, 193, 238
having to work, 154, 257
Head Start, 107, 118, 243
health, 6, 18, 29, 38, 46, 53, 67, 81,
90, 105, 145, 153, 162, 178,
195, 206, 209, 212, 218, 229,
238, 245, 250, 254, 256, 260,
262
healthcare
Affordable Care Act of 2010, 63
universal, 63, 77, 205, 262
health insurance, 26, 61, 63, 74, 212,
213, 245, 259, 271
copayment, 61, 260
health outcomes, 238, 250
Heer, David M., 23, 42, 43
high school, 9, 79, 90, 94, 96, 98,
99, 103, 105–107, 112–115,
117–119, 123, 124, 135, 157,
179, 195, 235, 251, 254, 258.
See also education; secondary
dropout, 98, 111, 156
movement, 102
Hispanic, 8, 9, 70, 114, 139, 151,
156, 187, 188, 257
Hispanic college graduates, 235
historically black land-grant universi-
ties, 108
home-health aides, 117
home mortgage
interest deduction, 245
subsidies, 255
homeownership, 54, 218, 254–256,
264, 270
home production, 43, 139, 140, 142,
180, 248
homeschool, 107
homeschooling movement, 29
Homestead Act of 1862, 10
homogamy, 178
Horney, Mary Jean, 36
138, 147, 148, 155
household composition, 187
household division of labor, 162
household production, 29–31, 49, 51,
134, 136, 137, 139, 143–145,
147, 154, 165–169, 178, 179,
214
household public goods, 37, 179
House Ways and Means Committee,
211
housework, 3, 7, 16, 17, 79, 80, 155,
206
housing market, 32, 235, 257
housing policy, 239, 254
housing vouchers, 245
housing wealth, 256, 270
human capital, 8, 9, 14, 15, 21, 28,
29, 32, 33, 81, 89–94, 97, 100,
107, 109, 114–116, 118, 122,
125–127, 133, 136, 137, 139,
141, 142, 158, 160, 161, 174,
178, 179, 185, 226, 227, 250,
256, 260–264
externalities, 91
misallocation of, 133, 227
human capital investment, 15, 91, 97
discount rate, 97
I
illiteracy, 104, 115
Immigrant arrivals, 55
immigration, 18, 19, 46, 47, 49, 52,
53, 62, 68–72, 80, 81, 83, 157,
176, 179, 248, 268
illegal, 48, 70
policy, 47, 68–70, 80
Immigration Act of 1907, 177
Immigration Act of 1917, 69
Immigration and Nationality Act of
1965, 70
implicit contract, 38, 206, 223

implicit cost of children, 54
implicit social contract, 206
incarceration, 26, 105, 157, 158, 196,
203, 254, 257, 258, 263, 264,
266, 270, 271
incarceration rate, 97, 179, 257, 258,
263
income effect
of a wage increase, 146
income inequality, 196, 236, 238,
239, 242, 243, 245–248, 250,
265, 266, 269
income quintiles, 247
income transfer, 205
increasing life expectancy, 206
industrial economy, 2, 14, 180
industrialization, 3, 5, 26, 30, 41, 47,
51, 93, 102, 134, 139, 140, 153,
241
infant mortality, 50, 53, 62, 153
inferior good, 25, 58, 84
informal caregivers, 208, 216, 220
informal family caregiving, 217
informal insurance, 33
inheritance, 12, 13, 147, 172, 179,
206, 228, 250
inherited class, 240
institutional benefits of marriage, 179
insurance, 14, 33, 39, 41, 62, 63, 78,
115, 146, 150, 152, 161, 179,
184, 205, 211–213, 225, 228,
229, 242, 243, 248, 255, 259,
260
integenerational elasticity of income,
237
intelligence, 138, 158, 240
intergenerational earnings mobility,
239. See also economic mobility
intergenerational flow of wealth, 63
intergenerational transfers, 209, 214,
232, 233
altruism, 38, 84, 215
Index 307
exchange, 39, 215
intergenerational transmission of ine-
quality, 254
intertemporal economic decisions, 206
intertemporal resource allocation, 32
inter-vivos transfers, 215, 231
Irish immigration, 52
J
Jefferson, President Thomas, 93
Jim Crow, 6, 62, 104, 105, 165, 258
job training, 29, 151
Johnson, President Lyndon B., 66,
107, 212
joint property rights, 179
joint resources, 34
Jones, Jacqueline, 165
K
Kaiser Family Foundation, 162, 169,
203, 271
Kansas City, 152
Kearney, Melissa S., 196, 202, 203,
266, 268
Kentucky, 15
Killewald, Alexandra, 84, 87
kindergarten, 118
kinship structures, 180
Klein, Herbert S., 68, 83, 200, 230
knowledge economy, 1, 2, 126, 263
Korean War, 115
Krueger, Alan B., 127
L
labor force, 6, 29, 45, 48, 56, 62, 74,
77, 78, 90, 98, 108, 117, 133,
134, 136–138, 140–143, 155,
161, 163, 206, 216, 220, 227,
247, 248
308 Index
labor force participation, 47, 74,
133–138, 143, 157, 158, 161,
174, 179, 212, 229, 248, 263
labor-leisure model, 145, 167
labor movement, 5
labor productivity, 7, 141, 142
labor regulations, 2, 154
labor-saving devices, 142
laissez-faire, 136
land availability, 49
land-grant, 108, 115
Langston, 108
Lanham Act of 1941, 79
Latin America, 3, 69, 70, 80
learning disabled, 121
learning environment, 125
Lesthaeghe, Ron, 76, 82, 87
Levin, Henry, 130, 131
Levine, Philip B., 196, 202
Lewis, H. Gregg, 58, 84
Lewis, Hylan, 188
life-cycle model of consumption, 214
life-cycle model of labor supply, 214
life expectancy, 53, 74, 206, 218, 228
Lin, I-Fen, 233
Lindo, Jacob, 58
Little Rock Nine, 114
local control, 110, 112
local school funding, 92, 110
long-term care insurance (LTC), 228
lottery, 78, 120
Loving v. Virginia (1967), 176
Lundberg, Shelly, 37, 43, 84, 168
M McKinsey Global Institute, 169
magnet schools, 120
male-breadwinner, 164, 172, 173,
184, 194, 211
male-breadwinner model, 138, 184,
262
male-female relative wages, 148
male-led-family-household, 174, 181
Manser, Marilyn, 36
marginal tax rate, 263
marital contracts, 172
market failure, 212, 228
marriage, 2, 12–14, 16, 17, 20, 23,
26, 27, 33, 35–40, 42, 45, 50,
51, 79, 84–87, 136, 151–153,
163, 164, 167–169, 171–174,
176–190, 192–194, 198–202,
206, 233, 253, 254, 257, 258,
266, 269
and family law, 176
bars, 133, 138, 152
bigamy, 173
early, 63, 115
economics of, 174
market, 43, 63, 173, 178, 180, 189,
253, 257, 258
promotion programs, 188
rate, 182, 185, 188, 202
rights, 177
marriage bars, 152, 153, 163
married woman teachers, 133
married women’s property acts, laws,
12, 14, 16, 40
marrige
market, 269
Massachusetts, 5, 86, 110, 160, 177
mass incarceration, 203, 264, 266,
270, 271
mass-produced, 134
maternity leave, 80, 161
McElroy, Marjorie B., 36
McGarry, Kathleen, 44, 84, 231, 232
McLanahan, Sara, 201, 202, 266, 269
means-testing, 159, 259
media, 142
Medicaid, 145, 212, 213, 216, 223,
227, 228, 230, 243, 244, 259,
262

medically underserved, 256
Medicare, 57, 73, 74, 198, 205, 206,
208, 209, 212, 213, 216, 217,
223, 225, 227–230, 243, 244,
249, 259, 271
men’s labor force participation, 133,
137, 143, 166
men’s poverty rates, 221
merit-based, 93
Mettler, Suzanne, 130, 245, 249, 266,
268, 271
Mexico, Mexican, 46, 69, 70, 80, 199
Midwest, 10, 15, 51
migratory patterns, 180
minimum-wage, 154
minority students, 123
mobile population, 100
mobility, 103, 112, 117, 172,
236–238, 240, 241, 249
mobilization, 142, 159
mommy track, mommy tracking, 56,
78
money in politics, 236
Monroe Louisiana, 113
Morman, 177, 181
Morrill Act of 1862, 108, 115
Morrill Act of 1890, 108
mortality, 8, 50, 51, 53, 62, 210, 256,
266
motherhood wage penalty, 168
mothers, 4, 14, 29, 32, 35, 38, 40,
56, 77–80, 90, 134, 136, 142,
160–162, 184, 187, 191, 221,
257
mother’s pensions, 149
Moynihan, Daniel Patrick, 188,
201–203, 269
Muller v. Oregon (1908), 153, 154
multigenerational, 206
multipartner fertility, 195
Murphy Brown, 173
Index 309
N
National Commission on Excellence in
Education (“A Nation at Risk”),
96
National Defense Education Act of
1958, 107, 109
National Educational Assessment
Program, 107
National Education Association, 133
National Guard, 114
National Institute of Occupational
Safety and Health, 8
National Labor Relations Act of 1935,
141
Native American population, 53, 85
Native Americans
boarding schools, 92
fertility, 46, 49, 53
forced relocation, 53
genocide, 240
Native American women, 140, 165
negative income tax (NIT), 197, 262
Negro schoolhouses, 104
Neidert, Lisa, 76, 82, 87
neoclassical economics, 23, 25, 61
net migration, 55
net wages, 160, 217, 225, 254
Nevada, 185, 193
New Deal, 184, 201, 211, 230, 233,
240, 242–244, 254, 267
New York, 14, 15, 18, 64, 124, 125,
130, 164, 169, 174, 181, 203,
229, 232, 266, 268–271
Nineteenth Amendment (1920), 177,
182
99 percent, 235, 236
Nixon, President Richard, 66, 67, 197
No Child Left Behind, 107
no-fault divorce, 185, 192
non-cooperative bargaining, 37
non-English speaking, 121
310 Index
non-labor income, 145–148, 150,
178, 197, 212–214, 226
non-marital childbearing, 173, 179,
183, 185, 188
non-market work, 145, 149
Nordic countries, 194
normal good, 146
North, 47, 48, 53, 94, 103–105, 164,
181
Northeast, 4, 15, 51
Norton, Edward C., 216, 231
Norway, 237
nudges, 2, 60, 222
nursing home, 212, 227, 228
nutrition, 50, 52, 53, 84, 89, 91, 250
O Civil War, 209
Obama, President Barack, 107
Obergefell v. Hodges (2015), 171, 173,
177, 198
obscenity, 62, 65
occupational distribution, 139
occupational segregation, 114, 134
offshoring, 247, 248
Ohio State, 108
oil, 31, 47
Old Age and Surivors’ Insurance
(OASI). See Social Security
Oneida Community, 181
opportunity cost, 51, 52, 56–58, 62, 63,
69, 77, 85, 98, 109, 116, 216, 227
opportunity cost method, 144
organized labor, 68
over-population, 48
overseas actors, 239
P 188, 194, 197, 198, 201, 205,
paid parental leave, 45, 77, 78, 80, 81,
87, 161
parental leave, 56, 58, 77, 85, 161, 162
parental transfers, 220, 231
Parent Loans for Undergraduate
Students (PLUS), 252
Parent Teacher Association, 30
parole, 196
patent, 64
patent applications, 16
paternity leave, 77, 138, 159, 161
patience, 97
pauper laws, 244
pay-as-you-go (PAYGO), 197, 223,
249
payroll tax, 74, 78, 212, 217, 223,
225
Pell Grant, 96
pensions, 150, 153, 163, 176, 179,
209–211, 213, 214, 222, 230,
231, 233, 242
widows, 209
Perkins, Frances, 205
Personal Responsibility and Work
Opportunity Reconciliation Act of
1996 (PRWORA), 177, 199
Philadelphia, 165, 201
philanthropic, 104
physically disabled, 121
pioneer, 10
politically viable coalition, 225
Pollak, Robert A., 37, 43, 44
polygamy, 181
poorhouse, 210
Pope, Clayne, 241, 267
popular opinion, 241
population growth, 25, 46, 47, 53, 55,
66, 67, 70–73, 80, 81, 83, 86,
136, 137, 261
poverty, 1, 9, 66, 102, 112, 115, 119,
125, 160, 165, 169, 174, 187,
206, 210, 212, 213, 221, 222,
226, 237–240, 243, 251, 253,
256, 258, 261, 263, 265, 267,
270

child poverty, 187, 195
elderly poverty, 187
poverty, children, 6, 9
poverty rate, 186, 188, 197, 198, 212,
222, 238, 240, 243, 256
preferences, 7, 17, 33, 34, 36, 52,
56–58, 118, 137, 162, 179, 214,
217, 237
preferential hiring, 116
pre-industrial economy, 140
preschool, 78, 92, 118–120
primary, secondary, and higher educa-
tion, 7, 92, 100
private colleges, 60, 108, 109
private school, 58, 104, 105, 113,
115, 120, 122, 123, 250
probation, 196, 257
process equity, 236
progressive, 69, 106, 190, 211, 249,
263
pronatalist, 76, 85
pro-natalist policies, 45, 46, 55, 61, 76
propaganda, 54, 142, 236
property rights, 6, 12–16, 20, 39, 172,
179, 240
property settlement, 37, 41, 179
property tax, 92, 102, 103, 105, 110, 111
proportional taxation, 93
public goods, 31, 37, 179, 263
public policy, 1, 2, 4, 12, 27, 28, 39,
41, 42, 46, 55, 60, 61, 91, 92,
99, 133, 136, 139, 164, 167,
201, 203, 205, 229, 230, 237,
239, 248, 249, 254, 264, 266,
267, 271
public welfare, 99
Purdue, 108
Q right-to-request, 163
quantity-quality tradeoff, 58
quotas, 69
Index 311
R
racial divisions, 102, 214, 236
racial segregation, 255
rational decision-making, 117
rationality, 61
ratio of working age people to elderly,
206
ready-made, 134
recession, 33, 45, 47, 63, 74, 187,
235, 245, 247, 264
Reconstruction, 103, 104, 113, 258
recovery, 53, 235
redistribution, 231, 233, 236, 237,
239, 248, 263, 264
regressive, 225, 249, 263
Reid, Margaret G., 144, 166–169
relative wage, 137, 178
remarriage, 180, 185, 187, 194, 221,
254
remedial education, 124
replacement cost method, 144
replacement level fertility, 55, 68
reproductive health services, 66, 195
resource allocation, 24, 43, 44, 214,
215
resource consumption, 72
restrictive covenants, 256
retaliation, 163
retention programs, 98
retirement, 2, 17, 26, 32, 39, 40, 89,
136, 157, 190, 205, 206, 208,
209, 211, 212, 214, 215, 217,
218, 221–226, 228–232, 234,
235, 239, 245, 247, 256
age at, 45, 208, 217, 220, 224
economics of, 209, 214
planning, 214
savings for, 1, 214, 225
rights within marriage, 172, 173
risk-sharing, 32, 179, 189
Roemer, John, 237, 265
312 Index
Roe v. Wade (1973), 64
Roosevelt, President Franklin, 205,
211
Rose, Elaina, 84, 168
Rothstein, Richard, 256, 269
S single mothers, 136, 186, 253
Saez, Emmanuel, 236, 264
same-sex marriage, 2, 171, 177
savings, 26, 32, 89, 214, 218, 222,
256
savings decisions, 32, 174
Scandinavia, 136
Schoeni, Robert F., 84, 231, 232
school choice, vouchers, 92, 120, 130,
131. See also vouchers
charter schools, 120
vouchers, 92, 120, 122
school days, 79
school funding, 92, 93, 110
school performance, 123
school segregation, 16, 240
science and engineering, 94, 107
Scribner, Campbell F., 110, 128
second demographic transition, 45,
76, 82, 87, 189
segregated schools, 114, 115, 129
segregation
de facto, 105, 258
de jure, 105, 113, 257
educational, 113
occupational, 114, 134, 141
residential, 270
self-insurance, 14, 32
self-interest, 23, 60
senior living communities, 217
sentencing guidelines, 196
separate spheres, 37, 134
serial monogomy, 173
serial partnering, 186
sex education, 188, 195
sexual behavior, 172
Shakers, 181
Sherman Antitrust Act, 241
shotgun marriage, 183
Shurz, Major General Carl, 114
siblings, 23, 24, 28, 39, 215, 216
Singapore, 59, 60
single parenthood, 188
skill-biased technological change, 117,
247
skills mismatch, 137
slave/slavery, 13, 27, 42, 47, 49, 50,
52, 53, 65, 83, 93, 114, 139,
172, 182, 188, 240, 258, 264
social capital, 29
social insurance, 213, 242, 243, 248
social mobility. See economic mobility
social norms, 41, 42, 56, 133, 172
Social Security, 28, 40, 57, 73, 74, 78,
144, 146, 150, 172, 176, 179,
184, 190, 191, 198, 201, 205,
206, 208, 209, 211–214, 217,
220–227, 229–231, 233, 234,
243, 244, 249, 261, 263
Cost of Living Adjustment (COLA),
212, 224, 225
Full Retirement Age (FRA), 224, 226
funding crisis, 208
Social Security Act of 1935, 211
Social Security, crowding-out effect,
217
socioeconomic, 17, 29, 58, 59, 78,
105, 125, 179, 180, 194, 196,
206, 237, 239, 240, 249–251,
253, 254, 256, 260, 261, 264,
266, 269
soft skills, 106
sorting mechanism, 178
South, 6, 17, 42, 48, 51, 53, 62, 83,
92, 93, 103–105, 113, 115, 138,
139, 181, 210

South Carolina, 29
southern congressmen, 211
southern Europe, 52, 68
spending per student, 110
spillover benefits, 6, 91, 99, 163, 244
standard of living, 1, 58, 218, 221
startup, 33
state law, 2, 37, 40
status, 13, 17, 36, 42, 45, 52, 63, 68,
80, 87, 97, 103, 108, 130, 134,
143, 160, 167, 194, 197, 212,
237, 238, 249, 250, 253, 259,
260, 264, 270
stepparents, 215, 221, 233
Stevenson, Betsey, 44, 194, 199, 202
steward, 99
store-bought, 144
submerged state, 249, 266, 268
subsidies, 25, 54, 79–81, 115, 160,
161, 216, 227, 255
substitution effect of a wage increase,
146
suffrage movement, 181, 182
suicide, 193, 238
summer months (school vacation), 79
Supplemental Nutritional Assistance
Program (SNAP), 243, 245, 249
Sweden, 55, 76, 174, 186, 237
Sylla, Richard, 209, 230, 267
T undeserving poor, 213, 237
taxable income limit (cap), 225
taxation of earnings, 224
tax benefits, 61, 77, 85, 176, 245
tax expenditures, 239, 245, 249
tax loopholes. See tax expenditures
tax policies, 61, 77, 92, 99, 128, 176,
225, 227, 229, 249, 260
teachers, 98, 110, 112, 138
technological displacement, 247
teen pregnancy, 188, 195
Index 313
television, 173
Temporary Assistance for Needy
Families (TANF), 244, 248
testing, 32, 106, 173
Texas, 15, 119
Thirteenth Amendment, 177, 182
Thomas, Duncan, 43
time allocation, 32
time transfers, 195, 220
Title X, 66, 86
Tolnay, Stewart E., 63, 85
total fertility rate (TFR), 51, 53, 55,
76, 82, 85, 183
traditional, 23, 134, 140, 172, 183,
187, 194, 196, 222
transfer programs, 205
tribal laws and customs, 182
trust fund, 223, 224
trusts, 234
turnover, 163, 172, 187, 242, 253
Tuskegee, 108
two-parent family, 164, 187, 253
two-year degree programs, 123
U
uncertainty, 1, 13, 40, 61, 224, 247,
259, 261
uncovered sector (Social Security), 190
undermatched, 124
underwriting standards, 255
unemployment, 115, 116, 144, 146, 147,
150, 184, 188, 189, 211, 235, 243
Unemployment Insurance, 211, 243
unilateral divorce, 185, 190, 193, 202
Union(s), 141
unions, 173, 177, 236, 242, 248
unitary model of household deci-
sion-making, 33
United Kingdom, 44, 55, 163, 237,
257
314 Index
universal basic income (UBI),
196–198, 203, 262, 263
universal childcare, 78, 81, 262
universal health insurance, 63, 212,
213
universal preschool, 118, 119
universal preschool, pre-K, 78, 118
unmarried parent, 187
unpaid household labor, 137
unpaid household labor of grandpar-
ents, 206
unpaid labor, 7, 144
unpaid labor valuation, 7, 144
opportunity cost method, 144
replacement cost method, 144
urbanization, 51, 86, 139
utility, 33, 35, 40, 57, 60, 80, 97, 178
V policy, 40, 136
vacation, 24, 80
vagrancy, 258
value of marriage, 189, 190, 192, 193,
197
Vanderbilt, Cornelius, 94
van Houtven, Courtney, 216, 231
veterans, 92, 115, 116, 176, 209, 210,
259
Veteran’s Administration (VA), 255
veterans’ and widows’ pensions, 209,
210
Vicksburg, Mississippi, 114
violence, 36, 97
Violence Against Women Act (VAWA),
176
Violent Crime Control and Law
Enforcement Act of 1994, 176
Virginia, 49, 93
vocational, 29, 90, 105, 117
vouchers, 93, 118, 120, 122, 125,
131, 245
W
wage insurance, 225
wage premium (college), 252, 253
Wagner Act. See National Labor
Relations Act
Waldfogel, Jane, 84, 169
War Department, U.S., 133, 142
warmer climates, 217
War on Poverty, 66, 85, 86, 107, 212,
242, 243
Warren, Elizabeth, 128
wealth, 235
housing, 254, 256, 270
inherited, 236, 250, 264
welfare
capitalism, 210, 242, 267
law, 176
male breadwinner model, 138, 150,
262
program, 40, 164, 197, 242
reform, 244
work requirements, 160
Welfare Reform, 177, 187
West, 10, 48, 49
West, Darrell, 158
widow, 13, 218
widowers, 212
Wilkerson, Isabel, 113, 129
Winkler, Anne, 199
winner-take-all, 239, 264–266
Wolfers, Justin, 44, 194, 202
Women, Infants, and Children
Nutritional Program (WIC), 243
women living in poverty, 221
women’s movement, 153
women’s rights, 15, 16, 56, 65, 180,
181
women’s rights movement, 182
women’s virtue, “virtuous” women,
49, 62
Work and Family Institute, 162
 Index 315

worker’s compensation, 144 Works Progress Administration

worker-to-beneficiary ratio, 223 (WPA), 184
work-family conflict, 137, 162, 170 World War I, 139
working hours limit, 153 World War II, 54, 79, 92, 103, 115,
working mothers, 143, 159 116, 129, 133, 135, 137, 141,
workplace flexibility, 138, 159, 162, 143, 159, 183, 255
169, 170