The basic human economic unit

There is much that is puzzling about human behaviour. Economics is a method of trying to puzzle out what the heck is going on. And within economics there are puzzles that just don’t seem to make sense. Like, say, female working lives and habits. There is an answer to this:

It is well documented that individuals in couples tend to retire around the same time. But because women tend to marry older men, this means many married women retire at younger ages than their husbands. This fact is somewhat at odds with lifecycle theory that suggests women might otherwise retire at later ages than men because they have longer life expectancies, and often have had shorter careers on account of childrearing. As a result, the opportunity cost of retirement—in terms of foregone potential earnings and accruals to Social Security wealth—may be larger for married women than for their husbands. Using the Health and Retirement Study (HRS), I find evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70.

We do generally think that people try to maximise utility. A good, a larger, income is generally thought to be a rise in utility. Yet that’s not happening here with women.

Why the heck not?

Sure, we can make all sorts of suggestions about how utility maximisation is wrong, or be a bit more subtle and argue that income only contributes to, does not define, utility.

Or we can cut through the Gordian Knot and note that the household is the basic human economic unit. The activity of the women above then makes perfect sense.

As does that noted likelihood of women marrying men a few years older than they are – they can see the greater resources that will be available to the new household. And it’s hardly a revelation about evolution that humans rather need – OK, needed – a household to raise children rather than it being done alone.

Why do women tend to retire at the same time, thus a younger age than, as the men in their lives? Because it’s the household which is that basic human unit.

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Bernie G.Rhoda KlappMohave GreenieSpikeTim Worstall Recent comment authors

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Rhoda Klapp
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Rhoda Klapp

And this is yet another example of the power of economic theory to miss the point entirely. People do things because they want to, not to maximize opportunity in the economic sense.

Spike
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Say instead, Not to maximize opportunity in the macroeconomic sense. They maximize their own benefits according to their own values (many of which they don’t even measure in money; having kids is mostly a cost and not a benefit, but a lot of people want to have them!) and not to optimize human-herd statistics.

Mohave Greenie
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Mohave Greenie

I don’t know what this “Social Security wealth” thing is that she keeps wittering on about. My “Social Security wealth” is negative. I would have done better by stuffing my money into a mattress.

Bernie G.
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Bernie G.

While few of us would choose to work (paid employment) if we didn’t have to, some men positively relish the role of breadwinner, take a perverse pleasure in their status – a sort of martyrdom. I’m sure if women HAD to work to secure a comfortable later life, acquire greater Social Security wealth, they would. But as part of a successful economic unit, when presented with an option to bale…