Nature or Nurture? Learning and Female Labor Force Dynamics

Much of the increase in female labor force participation in the post-war period has come from the entry of married women with young children. Accompanying this change has been a rise in cultural acceptance of maternal employment. We argue that the concurrent S-shaped rise in maternal participation and its cultural acceptance is well explained by generations of women engaged in Bayesian learning about the effects of maternal employment on children. Each generation updates their parents’ beliefs by observing the children of employed women. When few women participate in the labor force, most observations are uninformative and participation rises slowly. As information accumulates and the effects of labor force participation become less uncertain, more women participate, learning accelerates and labor force participation rises faster. As beliefs converge to the truth, participation flattens out. Survey data, wage data and participation data support our mechanism and distinguish it from alternative explanations. ∗Corresponding author: [email protected], Research Department Federal Reserve Bank of Minneapolis, 90 Hennepin Ave. Minneapolis, MN 55401. We thank seminar and conference participants at Chicago GSB, Wisconsin Madison, Midwest Macro Meetings, the Minneapolis Federal Reserve and Princeton. We especially thank Stefania Marcassa for excellent research assistance and Larry Jones and Patrick Kehoe for comments and suggestions. Laura Veldkamp thanks Princeton University for their hospitality and financial support through the Kenen fellowship.