1

Gendering the 2008 Financial Crisis: A Reexamination of Intrahousehold Bargaining Power Analytics
Johnny Huynh Pomona College May 6, 2012

2 Part I: Introduction Neoclassical microeconomic thought considers the household to be the primary

decision-making agent with a set of individual preferences. However, many economists have identified that households sometimes demonstrate internal conflict and inequity (Phipps, Burton 1995). Impacts to households are also distributed unevenly between spouses, children. These findings undermine the Pareto efficiency assumption within households, which has compounding effects on market and macro productivity (Doss 1996). To fully understand households and their role in the economy requires an analysis of intra-household dynamics. I examine how cyclical unemployment and credit crunches following a financial

crisis affect household decisions and the welfare of household members. Particularly, I look at the disparate effects of the 2008 financial crisis on men and women, and reexamine past frameworks that explored decision-making and risk-bearing within the household. This paper utilizes empirics from the Panel Study of Income Dynamics (PSID) to test past models of intra-household relations. Because of the substantial role that mortgages had in the 2008 crisis, I emphasize housing assets. Housing assets are also noteworthy in New Household Economics because they accrue returns for both the breadwinner and homemaker. The 2008 financial crisis has been described to have two separable effects on the household. The first is a reduction of aggregate demand, which led to high unemployment and a decrease in income and wealth. The second is the shut down of many credit markets that led to inaccessibility of credit (Walby 2009). I focus on both impacts individually but acknowledge the interaction of income and credit accessibility1.

3 Busts in the business cycle have been shown to have unequal effects on men and women employment, as well as unequal effects in the credit market2. These outcomes are likely to alter bargaining powers within the household. Exploring changes in bargaining power helps to explain behavioral changes in household decisions due to exogenous shocks in the business cycle. Reviewing current literature, part II assesses financial crises disparate effect on men and women. Emphasized is comparative analysis between the 1997 Asian crisis and the 2008 crisis. Part III summarizes the existing analytical framework of households and crises, and looks at theoretical model predictions. Part IV tests the predictions using PSID empirics. Part V concludes with revisions to the models and implications. Part II: Empirics about the 2008 Crisis After the early 2000s recession and until the 2008 financial crisis, U.S. GDP grew

consistently at two to three percent and peaked at 3.9 percent in 2003. From 2002 to 2006, households increased durable consumption and leveraged housing mortgages to fund expenditures (Mian, Sufi 2009). Real estate speculation and a national housing bubble boosted perceived wealth. After the peak in 2003, growth slowly declined each year until 2008, when GDP growth became negative (BLS 2012). The 2008 recession primarily impacted construction, manufacturing, retail trade, finance and insurance, and real estate industries where corporate profits dropped to their lowest levels in the decade (BLS 2012). The effects of the 2008 financial crisis can be divided into two macroeconomic effects: higher unemployment and credit inaccessibility. Like most economic crises, the 2008 financial crisis witnessed a sharp decline in private investments, such as technology

4 spending, employment, and capital expenditures. Firms were also unable to borrow in traditional credit markets and fund investment opportunities (Campello, et al 2010). Despite the Federal Reserve targeting low federal funds rates, banks maintained high reserve ratios and were hesitant to make loans. Effects to the macroeconomy also spread to households. High unemployment, loss of asset wealth, and poor economic outlooks caused households to reduce spending (Hurd, Rohwedder 2010). Additionally, households lacked access to functioning credit markets, despite credit being especially important during financial crises (Sullivan 2005). Households typically substitute income with credit, use savings, and reduce consumption to make up the differential. Average U.S. households reduced expenditures by more than four percent, despite average income only falling less than two percent from 2008 to 2010. Household receipts declined in all areas except healthcare and at-home food expenditures3 (BLS 2010). Of these economic impacts, one can explore the disparities in costs incurred among men and women4. While historically most economic crises disproportionately affect female employment5, the initial effects of 2008 financial crisis were concentrated in construction, financial service, and automotive sectors, which are male-dominated. Rather, women occupy jobs less sensitive to the business cycle, such as education and health services. After the crisis, female unemployment was on average two percentage points below male unemployment in the United States. Men were also more likely to drop out of the labor force in the 2008 crisis (Hartman 2009). These trends are illustrated in the 2003 to 2009 PSID household data in Table 1.

5 The economic recovery, however, disproportionately benefited male employment relative to female employment. The Bureau of Labor Statistics (2012) notes that female unemployment rates have remained constant whereas male unemployment rates have substantially decreased, almost reaching parity with female unemployment rates by 2012. There is not yet a definitive explanation of the robustness of the male employment recovery, although some cite government stimulus of construction and automobile industries, as well as budget cuts in state and local governments, which are female- concentrated (Ruggieri 2010). The majority of literature on financial crisis and households draw on evidence from the 1997 Asian financial crisis. The differences between the 1997 Asian crisis and the 2008 crisis are notable. Prior to 1997, East Asia experienced substantial financial liberalization, dissolving interest rate controls and deregulating financial markets. In many Asian countries, financial repression often preceded liberalization policies. New capital markets spurred foreign ownership, and East Asia experienced capital inflows. Some have suggested that the inflow of capital led to a speculative bubble in real estate and equity, since demand for claims outpaced their productive capabilities (Dymski 1999). New financial institutions in East Asia also expanded credit access to households that otherwise relied on personal relations for loans. A secondary effect was that foreign investments created more opportunities for market production. Employment prospects and higher salaries generated more and smaller households, since households were more willing and able to incur the costs of not taking advantage of economies of scale. Greater job prospects and higher real wages that accompanied foreign investments also increased labor force participation among women.

6 Although male employment also rose, the disparity in male-to-female market employment proportions converged. Part III: Examining Bargaining Power Theory A husband and wife exhibit cooperative conflict. Although they value the others well being, they also struggle to optimize household and market production under budget and time constraints (M). ai + aj + X = M (1)

Empirical literature identifies that husbands and wives have different tastes concerning household expenditures. Obviously, husbands and wives place more worth to assets that accrue private returns (ai) to their respective selves. They also value consumption of public goods (X) in the household (Lam 1988; Lunderberg and Pollak 2008). Depending on the altruistic behavior of the husband or wife, they derive some utility from their spouses consumption. Ui = Ui(ai, X) + i Uj(aj, X) (2)

Because the utility profiles of husbands and wives generally differ, the optimal bundle of private assets and public goods for husbands and wives conflict. Each spouse values different proportions of his or her assets and the others assets. argmax Ui = Bi argmax Uj = Bj ai, aj, X ai, aj, X (3)

The equilibrium bundle of husbands assets and wifes assets is ultimately determined by their respective bargaining powers (). Relatively more bargaining power implies an equilibrium bundle more closely related to his or her preference. B = f (i, j) [Bi, Bj] (4)

7 Bargaining power models are continuing to be reshaped, and the variables that

influence them are still being discussed. Pollak (2005) maintains that bargaining power is a result of husbands and wifes respective market and household productivity. He cites that wage rates, not total earnings, determine household decisions. Other papers note that respective contributions to pooled household resources are significant variables. The distribution of bargaining power also varies at different levels of productivity (Bittman, et al 2001). Moreover, bargaining theory maintains that having outside options increases bargaining power because the opportunity cost of not transacting is lower for the actor with options than for the actor without options (Muthoo 2000). Costs are also lower for the spouse who can survive and thrive outside the household (Agarwal 1997). This model supposes that household production (w) can be easily substituted by market production (h), whereas the inverse is not true. Thus, in a household where the breadwinning and homemaker are equally productive, the breadwinner will have more bargaining power because he has outside options.

!!! !!!

!!!

i = f (wi, wj, hi, hj)

0
!!! !!!

!!!

!!! !!!

(5)
0 (6)

In their seminal paper, Financial Crisis, Gender, and Power: An Analytical Framework

(2000), Floro and Dymski (whose analytics I will refer to as the benchmark) explore the effects of financial liberalization and crisis on intrahousehold decision-making. Mostly using empirical accounts from the 1997 Asian financial crisis, their paper provides a narrative attempting to model the behavioral changes in risk and asset accumulation among men and women. The benchmark model posits that the deregulation of financial

8 institutions and outward orientation during the onset of the 1990s had two notable effects on households. First, financial liberalization increases access to credit, especially to wives, spurring household leveraging. Households gain credit-financed purchasing power and use it to mitigate budget constraints. This is illustrated by an increase in M in equation (1), which results in more husband assets, wife assets, and/or public goods. Higher incomes and wealth trigger more consumption of market substitutes of household production. This frees time for non-productive activities, such as leisure, but also increases many households financial fragilitythe likelihood that a household will be unable to repay its debt if there is an exogenous reduction in the flow of income or employment. Second, the model conjectures that female participation in the formal sector undermines patriarchal norms. Wives contribute more to household borrowing ability and the repayment of debt obligations due to increased formal sector income. This is demonstrated by a substitution of household production with market production in equation (5), assuming that productive capabilities remain constant. Additional outside options provide women more bargaining power in household decisions. The benchmark offers a graphical analysis of the interaction between bargaining power, credit determinants, and leverage6. They suggest that female voice ()wives bargaining powerand credit factors (C) determine loan-market leverage (H). H = f (, C) [0,1], C > 0 (7)

The model supposes that females are more risk-averse than males because females

are at greater risk of incurring the costs of financial distress7. The model also indicates that the functional form is concave.

9 !! < 0 !!! 0
!!! ! ! !!

(8)

Credit factors fix the level set function. An exogenous increase in the accessibility of credit, such as financial liberalization or a lower interest rate, shifts the trade-off curve to the right. Applying the benchmark to the 2008 financial crisis, the model should predict that during the lead-up to the 2008 financial crisis, households significantly leveraged themselves to finance assets. Leveraging should have put stress on financial fragility. Since the 2008 crisis in the United States was associated with a housing bubble from 2003 to 2007, generated wealth should have been leveraged mostly on real estate. Additionally, lower unemployment and higher salaries should have increased consumption of normal household assets. If there was a divergence or convergence of husbands and wives salaries, it should have altered the bargaining power parameters. Since the initial effects of the 2008 crisis narrowed the employment gap, the model should posit that female bargaining power increased. Part IV: Using PSID Empirics to Test the Benchmark Predictions Of the predictions that the benchmark model should predict about the 2008

financial crisis, I empirically test three hypotheses: (1) that households leveraged real estate to mitigate budget constraints during the buildup of the crisis, (2) that wives were more risk averse than husbands, and (3) that female market participation increased wives bargaining power. Using 2003 to 2009 data from the PSID, I tested the first hypothesis by looking at

remaining principal mortgage. Remaining principal mortgage measures the absolute

10 amount that households leveraged because higher mortgages imply smaller down payments, ceteris paribus. Moreover, household could borrow money on their real estate by taking out a second mortgage, increasing financial fragility. Using this metric, however, limits the scope of the data to households that currently have or have had at least one mortgage. The data demonstrate that for each year from 2003 to 2009, the proportion of households that have remaining mortgages increased. In 2003, the proportion was 73.2 percent and by 2009, it increased to 74.4 percent. The mean value of this variable has also increased for each year as well. The largest jumps occurred between 2003 and 2007, when mean mortgage increased 17,000 per two years. These results indicate that households increased absolute leveraging during the buildup to the crisis. Since the proportion and mean value of mortgages did not fall after 2008, the dataset did not yet reflect significant mortgage defaults that occurred post-crisis. Though we conclude that absolute household leveraging increased from 2003 to 2008, I also look at household leveraging relative to time-variant household characteristics, such as income and housing value. I use an OLS regression with remaining principal mortgage as the dependent variable. Since the onset of the 2008 crisis primarily impacted certain industries, I also use the same model adjusted for employment by industry. MORTGi = 0i + 1iXi + 2iYi + 3iZi + 4i*INCMi + 5i*HVALUEi +i (9)

where X is a time-invariant characteristics vector, Y is a time-variant characteristics vector (excluding income and housing value), and Z is a husband/wife differential vector. I look at the intercept term and the coefficients 4 and 5 to measure household leveraging. 4i =
!!"#$%! !!"#$!

5i = !!"#$%&!
!

!!"#$%

(10)

11 An increase in the intercept term or the coefficients implies that households are more risk tolerant because remaining principal mortgages increase exogenously or mortgages increase more than income or housing value increases, respectively. The data for Equation (9) are illustrated in Table 2, and Table 3 adjusted for

industry employment. The latter only includes households whose heads are employed in construction, manufacturing, retail trade, finance and insurance, or real estate.
Table 2: Determinants of household leveraging in two-person households with mortgage: OLS model; Dependent Variable: REMAINING PRINCIPAL MORTGAGE Variable 2003 2005 2007 2009 AGE (Head) -1582.42 -1628.68 -1948.25 -1923.37 (139.87)*** (146.05)*** (179.05)*** (189.87)*** EDU (Head) 1322.36 1979.94 2910.63 4000.78 (977.52) (1141.7)* (1811.7) (2347.6)* INCM (Head) 0.25088 0.44419 0.24273 0.15119 (0.0614)*** (0.1115)*** (0.1168)** (.13381) AGEDIFF 937.524 490.363 117.363 119.630 (276.32)*** (333.27) (62.478)* (37.790)*** EMPL DIFF 6534.38 7496.46 6484.94 4774.47 (3988.0) (4176.2)* (5799.9) (5142.4) EDU DIFF -27.7840 11.9301 -1496.40 -1728.46 (771.00) (905.16) (1212.28) (1475.9) INCMDIFF -0.20185 -0.03907 -0.24100 -0.14626 (0.0565)*** (0.1089)*** (0.1288)* (0.1358) HVALUE 0.37471 0.29559 0.29380 0.32447 (0.0339)*** (0.0247)*** (0.0436)*** (0.0543)*** INTRCPT 78666.5 86927.4 103588 95661.0 (13065)*** (15893)*** (21554)*** (27041)*** N 2099 2122 2133 2147 R2 0.6467 0.5811 0.5226 0.4879 NoteRobust standard errors are in parentheses
* Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

Table 3: Determinants of household leveraging in two-person households with mortgage; adjusted for industry: OLS model; Dependent Variable: REMAINING PRINCIPAL MORTGAGE

12
Variable AGE (Head) EDU (Head) INCM (Head) AGEDIFF EMPL DIFF EDU DIFF INCMDIFF HVALUE INTRCPT N R2 2003 -1476.61 (162.33)*** 206.859 (974.48) 0.36831 (0.0911)*** 608.675 (425.04) 7093.37 (5325.4) 958.171 (977.08) -0.31392 (0.09059)*** 0.40666 (0.0269)*** 81104.4 (13984)*** 1010 0.6272 2005 -1757.06 (205.42)*** 303.965 (1391.6) 0.43089 (0.1530)*** 106.786 (441.66) 8643.63 (6647.9) 747.966 (1104.1) -0.39634 (0.1236)*** 0.34411 (0.0316)*** 103450 (20489)*** 1102 0.6001 2007 -2205.49 (200.05)*** 2419.93 (1409.1)* 0.20432 (0.1202)* 825.738 (581.13) 6286.54 (7266.6) -396.553 (1274.2) -0.19916 (0.1233) 0.35560 (0.0220)*** 103493 (20552)*** 1119 0.5637 2009 -2095.70 (243.49)*** -77.2690 (1681.8) 0.18434 (0.1767) 68.0674 (15.872)*** 1458.11 (7906.7) 918.883 (1546.4) -0.21584 (0.1496) 0.44906 (0.0429)*** 128878 (24139)*** 1062 0.5506

NoteRobust standard errors are in parentheses * Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

There are little differences between the results for both samples. In both regressions, the intercept term increases biennially from 2003 to 2007. It continues increasing for the unadjusted group and slightly decreases for the adjusted group between 2007 and 2009. There is a statistically significant and positive overall trend of the intercept term. However, the coefficients for housing value and income are less conclusive. The housing value coefficient is significant at one percent size for all years, but its value does not change. The income coefficient peaks in 2005 and decreases for continuing years. It is significant at one percent size in 2003 and 2005, is significant at five to ten percent size in 2007 and is not significant in 2009 for both samples. These trends are illustrated in Figure 1.

13

The rise in the intercept term suggests that households exogenously leveraged

during the onset of the financial crisis. The control variables could not explain this increase in remaining principal mortgages, which could imply that the model omits an uncorrelated variable that influences household leveraging, such as interest rates or risk tolerance. Since the trends in the housing value and income coefficients are indeterminate, this paper neither accepts nor rejects the hypothesis that perceived higher incomes or rising housing prices influenced leveraging behavior. This conclusion is consistent with the benchmark prediction that household leveraging would increase during the start of a financial crisis. I test the second benchmark prediction that wives are more risk adverse than

husbands using two methods. First, I examine bargaining power metrics, such as differentials in income, employment, age, and education between husband and wife, and

14 their influence on household leveraging. Second, I compare the risk profiles of single male- headed and single female-headed households to see whether there are inherent risk aversion differentials by gender. The first method uses the same model in equation (9) but assesses the influence of

the husband/wife differential vector Z. All differential variables are calculated by subtracting the female characteristic value from the male characteristic value. Thus, a positive differential value indicates that the husband has a higher income, age, or education, or is employed whereas the wife does not participate in the formal labor market. These variables are proxies for intrahousehold bargaining power because relative levels of productivity and having outside options determine bargaining powers. A positive differential suggests that husbands have more bargaining power. The coefficients of vector Z measure bargaining powers effects on remaining principal mortgage. That is, if wives are relatively more risk averse, then a positive increase in a differential variable will increase household leveraging, ceteris paribus. The results are demonstrated in Table 2 and Table 3, though the samples provide similar conclusions.
Table 2: Determinants of household leveraging in two-person households with mortgage: OLS model; Dependent Variable: REMAINING PRINCIPAL MORTGAGE Variable 2003 2005 2007 2009 AGE (Head) -1582.42 -1628.68 -1948.25 -1923.37 (139.87)*** (146.05)*** (179.05)*** (189.87)*** EDU (Head) 1322.36 1979.94 2910.63 4000.78 (977.52) (1141.7)* (1811.7) (2347.6)* INCM (Head) 0.25088 0.44419 0.24273 0.15119 (0.0614)*** (0.1115)*** (0.1168)** (.13381) AGEDIFF 937.524 490.363 117.363 119.630 (276.32)*** (333.27) (62.478)* (37.790)***

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EMPL DIFF EDU DIFF INCMDIFF HVALUE INTRCPT N R2

6534.38 (3988.0) -27.7840 (771.00) -0.20185 (0.0565)*** 0.37471 (0.0339)*** 78666.5 (13065)*** 2099 0.6467

7496.46 (4176.2)* 11.9301 (905.16) -0.03907 (0.1089)*** 0.29559 (0.0247)*** 86927.4 (15893)*** 2122 0.5811

6484.94 (5799.9) -1496.40 (1212.28) -0.24100 (0.1288)* 0.29380 (0.0436)*** 103588 (21554)*** 2133 0.5226

4774.47 (5142.4) -1728.46 (1475.9) -0.14626 (0.1358) 0.32447 (0.0543)*** 95661.0 (27041)*** 2147 0.4879

NoteRobust standard errors are in parentheses * Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

Table 3: Determinants of household leveraging in two-person households with mortgage; adjusted for industry: OLS model; Dependent Variable: REMAINING PRINCIPAL MORTGAGE Variable 2003 2005 2007 2009 AGE (Head) -1476.61 -1757.06 -2205.49 -2095.70 (162.33)*** (205.42)*** (200.05)*** (243.49)*** EDU (Head) 206.859 303.965 2419.93 -77.2690 (974.48) (1391.6) (1409.1)* (1681.8) INCM (Head) 0.36831 0.43089 0.20432 0.18434 (0.0911)*** (0.1530)*** (0.1202)* (0.1767) AGEDIFF 608.675 106.786 825.738 68.0674 (425.04) (441.66) (581.13) (15.872)*** EMPL DIFF 7093.37 8643.63 6286.54 1458.11 (5325.4) (6647.9) (7266.6) (7906.7) EDU DIFF 958.171 747.966 -396.553 918.883 (977.08) (1104.1) (1274.2) (1546.4) INCMDIFF -0.31392 -0.39634 -0.19916 -0.21584 (0.09059)*** (0.1236)*** (0.1233) (0.1496) HVALUE 0.40666 0.34411 0.35560 0.44906 (0.0269)*** (0.0316)*** (0.0220)*** (0.0429)*** INTRCPT 81104.4 103450 103493 128878 (13984)*** (20489)*** (20552)*** (24139)*** N 1010 1102 1119 1062

16
R2 0.6272 0.6001 0.5637 0.5506

NoteRobust standard errors are in parentheses * Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

The education and employment differential variables are not statistically significant for any years, so this paper disregards them as viable measures of bargaining power in this regression. However, the age and income differentials are significant, but at different years. Since I test if gendered risk aversion exists rather than looking at trends in risk aversion over time, significance for all years is less essential. The data demonstrate that the age differential coefficient is positive for all years and for both samples. However, the income differential coefficient is negative for all years and for both samples. That the age differential coefficient is positive supports the benchmark prediction that wives are more risk averse than husbands. If age suggests more bargaining power, then wives who are less young or are older than their husbands have relatively more bargaining power. Therefore, household decisions more strongly reflect wives tastes. The positive coefficient of the age differential implies that households with weaker wifes voice will leverage more. However, the income differential coefficient rejects the benchmark prediction. Since the income differential coefficient is negative, it suggests that households with stronger wifes voice will leverage more. That is, wives have stronger tastes for risk. The second method of testing the second prediction uses a similar OLS regression as equation (9) but excludes the husband/wife differential vector Z because the data only uses single person-headed households. MORTGi = 0i + 1iXi + 2iYi + 3i*INCMi + 4i*HVALUEi +i (11)

Although comparing cohabiting and single person-headed households ignores how the distribution of costs affects risk behaviorthe spouse who incurs less cost could exhibit a moral hazardit does provide insight on how gender itself affects risk tolerance.

17 Like the previous test, I use the intercept term and the coefficients for income and housing value as leveraging metrics. A greater intercept or coefficient implies more exogenous leveraging or leveraging given a set income or housing value, respectively. The results for 2003 and 2009 are demonstrated in Table 4.
Table 4: Household leveraging among single men and women: OLS model; Dependent Variable: REMAINING PRINCIPAL MORTGAGE 2003 2009 Variable Male Female Male Female AGE -1045.72 -711.786 -1438.34 -1789.36 (203.56)*** (157.91)*** (401.71)*** (253.72)*** EDU 2177.17 -249.786 4597.05 471.003 (1239.3)* (1002.4) (2421.8)* (1327.6) INCM 0.01746 0.29913 -0.00331 0.30600 (0.0986) (0.1168)** (0.1941) (0.1664)* EMPLMT 2581.32 8282.05 -868.814 -12433.0 (8565.2) (6025.9) (17554) (11462) HVALUE 0.45602 0.31251 0.39206 0.41516 (0.0484)*** (0.0529)*** (0.0600)*** (0.0740)*** INTRCPT 32241.1 56853.9 45485.5 121290 (17031)* (15481)*** (47134) (23716)*** N 256 461 232 538 R2 0.5955 0.4924 0.4200 0.5108 NoteRobust standard errors are in parentheses
* Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

For single female-headed households, the intercept, income, and housing value coefficients are statistically significant, whereas only the housing value coefficient is significant for single male-headed households. The female intercept term is greater for both years, and in 2009, the female intercept is greater than the male intercept plus two standard deviations. Likewise, the female coefficient for income is consistently greater than the male coefficient. In 2003, the male housing value coefficient is greater than the female coefficient, but by 2009, the female coefficient surpasses the male coefficient.

18 The intercepts and income coefficients suggest that in 2003 and 2009, females were less risk averse than males. Females demonstrated significantly higher intercepts and income coefficients. Females leveraged more on real estate exogenously and relative to their incomes. However, the housing value coefficients demonstrate that males leveraged more relative to housing value in 2003, but by 2009, the males decreased their leverage and females increased their leverage. The results of the two methods do not support from the benchmark prediction that

wives are more risk averse than husbands. The only variable that supports the benchmark is the age differential coefficient. Nonetheless, a positive income differential coefficient and positive female intercept and coefficients suggest that females are actually less risk averse than males. The third benchmark predicts that increased female employment in the formal labor

market increases wives bargaining power. I use childcare as a proxy for female bargaining power. Phillips, et al. (1997) argue that traditional gender norms still consider childcare to be the wives duty despite children being a public good. Greater proportions of wives income pay for market-substituted childcare. Thus, households where wives have more bargaining power are more likely to purchase paid childcare. P (DAYCARE = 1|!"#$ ) P (DAYCARE = 1|!"#$ ) > 0 !"#$ > !"#$ ! !!! ! !!! (12)

Although the absolute proportion of households that had paid childcare decreased

during the onset of the crisis, I explore the isolated effects of bargaining power trends on paid childcare. I treat the financial crisis as a natural experiment on household expenditure behavior. Since disparities between husband and wifes income and employment converged in 2009, bargaining power models should predict that wives gained relative

19 influence during the crisis. Household expenditures should have more strongly reflected wives preferences, namely paid childcare. I test this prediction using a logit regression with the dummy variable DAYCARE, whether the household has paid childcare, as the dependent variable. P (DAYCAREi = 1|X,Y,Z) = 0i + 1iXi + 2iYi + 3iZi + i (13)

If there is no bargaining power difference, then a fall in either male or female employment ceteris paribus should decrease childcare equally because the unemployed spouse will substitute market production for household production. Positive coefficients for the husband/wife differential vector suggest that childcare is in the husbands domain, whereas negative coefficients suggest that childcare is in the wifes domain. The results are illustrated in Table 5 and Table 6. I use similar adjustments for industry employment in the latter table.
Table 5: Probability of two-person and child household with child in non-household daycare: Logit model Dependent Variable: DAYCARE Variable 2003 2005 2007 2009 AGE (Head) -0.0912 -0.0740 -0.0642 -0.0734 (0.0122)*** (0.0127)*** (0.0143)*** (0.0154)*** EDU (Head) 0.1743 0.0873 0.1403 0.1939 (0.0501)** (0.0489)* (0.0530)*** (0.0575)*** DEBT x 10-6 1.3645 3.5496 4.6849 3.3038 (4.0063) (3.6327) (3.4109) (2.995) HEQUTY x 10-6 -2.2124 -0.0763 -1.7900 -0.0468 (1.0446)** (0.5597) (0.8636)** (0.6518) INCM x 10-6 5.0147 3.2095 3.3245 0.1608 (2.2859)** (2.1472) (1.6081)** (1.9976) INCM DIFF x 10-6 -8.2887 -4.2782 -3.5281 -3.6092 (2.3644)*** (2.0934)** (1.6081)** (2.2145)* EMPL DIFF -0.9427 -0.7236 -0.9992 -0.4166 (0.2376)*** (0.2386)*** (0.3011)*** (0.2579)

20
EDU DIFF INTRCPT N Pseudo R2 -0.1046 (0.0484)** 0.0495 (0.7605) 990 0.1228 -0.0359 (0.0506) 0.3163 (0.7719) 934 0.0712 -0.1368 (0.0578)** -0.8045 (0.8664) 826 0.0886 -0.1464 (0.0603)** -1.6790 (0.9265) 759 0.0745

NoteStandard errors are in parentheses * Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

Table 6: Probability of two-person and child household with child in non-household daycare; adjusted for industry: Logit model Dependent Variable: DAYCARE Variable 2003 2005 2007 2009 AGE (Head) -0.0641 -0.0470 -0.0526 -0.0498 (0.0122)*** (0.0106)*** (0.0118)*** (0.0110)*** EDU (Head) 0.1306 0.0700 0.1764 0.1704 (0.0613)** (0.0547) (0.0568)*** (0.0551)*** DEBT x 10-6 7.4530 14.3315 3.2875 6.7646 (6.5850) (5.2736)** (3.4820) (3.1985)** HEQUTY x 10-6 -2.6112 0.1456 -0.8859 -0.8059 (1.5175)* (0.7145) (0.8733) (0.9309) INCM x 10-6 13.6091 5.5764 13.4790 0.7889 (5.8967)** (5.1235) (4.1473)*** (4.1786) INCM DIFF x 10-6 -15.9895 -5.3082 -14.6487 -5.7108 (5.0292)*** (4.4213) (4.1943)*** (3.7596) EMPL DIFF -1.5514 -1.7372 -1.4255 -1.0128 (0.3652)*** (0.3817)*** (0.3814)*** (0.2897)*** EDU DIFF -0.1024 -0.0548 -0.1185 -0.1770 (0.0558)* (0.0501) (0.0522)** (0.0502)*** INTRCPT -0.4817 -0.4229 -1.7297 -1.5425 (0.8496) (0.7584) (0.8079)** (0.7767)** N 782 874 876 842 Pseudo R2 0.1172 0.0790 0.0956 0.0818 NoteStandard errors are in parentheses
* Significant at the 10% level; ** Significant at the 5% level; *** Significant at the 1% level

The results show negative coefficients for all differential variables in every year from 2003 to 2009: education difference, income difference, and employment difference, which affirm

21 past empirical studies that consider childcare to be the wifes role. I investigate the trends in the magnitudes of these variables to measure changes in bargaining power. A reduction in magnitude (an increase in value) of the coefficients indicates that either cultural norms are erasing distinct male and female roles in childcare, which seems doubtful in this papers six-year time frame, or that the husband/wife differential is becoming less unlikely to affect a households paid childcare. The unadjusted and adjusted education differential coefficients, though consistently negative, do not offer conclusive interpretations since their trends are irregular and unsubstantial. The variable is also not ideal because it is time-invariant. I thus exclude the educational differential variable since it does not appear to be a useful metric for bargaining power. The unadjusted income differential coefficient, however, demonstrates a negative trend, especially from 2003 to 2005 when its magnitude halved. Its magnitude continues to decrease and stays relatively constant during the crisis. The adjusted income differential coefficient is irregular, largely peaking in 2003 and 2007; it provides little information about the trends. The unadjusted and adjusted employment differential coefficients demonstrate fluctuating declines in their magnitudes for all years. Between 2007 and 2009, the coefficients decline the most. For the adjusted sample, the coefficient drops from approximately -1.4 to -1.0, and the unadjusted sample is only statistically significant at ten percent size, suggesting there is only weak evidence that the value is negative. The results of the income and employment differential coefficients agree with the benchmark predictions. While the East Asian crisis models supposed that female bargaining power decreased in Asia, the disparate effect of the 2008 crisis on male salaries

22 and employment should posit the inverse. The evidence suggests that wives bargaining power did increase, though it had been gradually increasing prior to the crisis, which could be explained by the narrowing in husband/wife salaries and employment in all years from 2003 to 2008. The employment differential coefficients offer the most conclusive evidence. The loss of statistical significance in the unadjusted employment coefficient points to robust gains in female bargaining power after 2007. Likewise, the substantial decline in the adjusted employment coefficients magnitude implies stronger female voice in the household. Part V: Conclusion While the 2008 financial crisis generated tremendous economic costs to which

orthodox indices of economic wellbeing, such as consumption, GDP, and corporate profits, have pointed, the impacts have also undulated to different parts of the economy in less detectable ways. Exogenous shocks of the crisisdeclining aggregate demand and credit inaccessibilityalso affected intrahousehold behavior. Since the crisis initially impacted male-concentrated industries, households experienced shifts in bargaining powers, budget decisions, and risk aversion. This paper explores the gendered effects of the 2008 crisis on households by examining three hypotheses put forth by models that looked at the 1997 East Asian crisis. It uses 2003 to 2009 PSID data to empirically test them. First is that household significantly leveraged during the onset of the crisis. Data from a panel sample of about 2100 US households illustrates that households did exogenously leverage real estate by increasing the amount and number of mortgages, even when controlled for income and housing prices. This implies that households leveraged due

23 to uncontrolled factors, such as changing risk tolerance or interest rates. Second is that wives are more risk averse than husbands are. Using two methodologies to test the hypothesis, I compare risk tolerance among single women and single men, and looks at bargaining power variables in mortgage regressions. Both tests disagree with the hypothesis, and interestingly offer some evidence that husbands were relatively more risk averse. Third is that converging incomes and employment of wives to husbands during the crisis increased female bargaining power. Using paid childcare as a measure of female bargaining power, I investigate the influence of income and employment differentials between husbands and wives on probabilities of having paid childcare. The results indicate that wives bargaining power had been increasing from 2003 to 2007, but significantly jumped from 2007 to 2009. Since I employ models created using evidence from the 1997 East Asian crisis, the benchmark predictions and the empirical results may disagree because of drawbacks of extending the East Asian theory assumptions to the United States. The empirical conclusions of this paper endorse a revisitation of the intersection of household bargaining power and financial crises. It also illustrates the necessity of further research into household bargaining models for developed nations. Especially for policymakers and economists who attempt to realize the full costs of financial crisis, an understanding that economic crises also echo into households, and that unemployment and credit shocks disparately affect men and women is essential.

24 Notes: 1 Their endogeneity, however, is less pronounced for developed countries, such as the United States, since the elasticity between income and credit is weaker than for developing countries (Knell, Stix 2005). 2 This is especially true in developing countries where women receive most of their credit from informal credit markets. 3 I argue that is because healthcare is relatively inelastic to wealth effects. In-home food, however, is an inferior good, since out-of-home food expenditure decreased. 4 This paper considers the terms men as market producers, and women as household producers. I acknowledge that many household setups exist, such as female-headed, single- parent, and same-sex households. Drago, et al (2005); Blau, et al (2005); Black, et al (2007) explore the economics of nontraditional household structures, and some analytics overlap. 5 Recently in developed countries, unemployment rates of men are becoming more elastic to the business cycle, whereas female unemployment rates are less elastic. In developing countries, however, females typically bear higher costs of economic busts. 6 Although their paper does not specify a functional form, I propose two possible forms that agree with their analysis. H =
!!! !

or H = !(1 ! ) [0,1], C > 0

I provide the functional form to test whether empirics confirm Floro and Dymskis graphical analysis. 7 Although significant literature cite that women are more risk averse than men, these studies focus on developing countries and single women. See Kaber (2002), and Jianakoplos et al. (1998).

25
2009 0.1764 (0.3813)

Table 1: Summary statisticsMeans with standard deviations in parentheses Variable 2003 2005 2007 DAYCARE 0.2129 0.1917 0.1727 (0.4095) (0.3938) (0.3782) AGE (Head) 40.351 41.160 42.078 (8.2242) (8.0741) (7.9522) EDU (Head) 13.328 13.310 13.261 (2.6415) (2.6782) (2.6892) EDU (Wife) 13.442 13.473 13.483 (2.6329) (2.6173) (2.6126) EDU DIFF -0.1263 -0.1863 -0.2514 (2.1248) (2.0867) (2.0780) DEBT 8410.6 9545.1 12016 (19116) (20104) (24369) HEQUTY 68556 98932 126810 (113877) (162503) (199726) INCM (Head) 24243 23968 29751 (69937) (41273) (110814) INCM (Wife) 8979.9 9681.3 11505 (21617) (23601) (27631) INCM DIFF 15346 14504 18271 (69890) (45231) (109342) EMPL (Head) 0.9727 0.9634 0.9575 (0.1629) (0.1877) (0.2017) EMPL (Wife) 0.7989 0.8019 0.8035 (0.4009) (0.3986) (0.3975) EMPL DIFF 0.1737 0.1614 0.1539 (0.4216) (0.4307) (0.433)

43.082 (7.9021) 13.204 (2.7457) 13.488 (2.6685) -0.3016 (2.0825) 14251 (35005) 91473 (149953) 26745 (45795) 12255 (27327) 14715 (49890) 0.9491 (0.2198) 0.8051 (0.3962)
0.1439 (0.4389)

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