AWomen=s roles in our society have changed tremendously in ...



Principles of Economics

by N Gregory Mankiw

The Video Series script

Principle #2 The Cost of Something is What You Give Up to Get It

Women's roles in our society have changed tremendously in the last hundred years. This change has impacted the opportunity costs for women as they consider whether to work inside or outside the home.

The opportunity cost of an item is what you give up in order to get it. Similarly, the opportunity cost of an activity is what you give up in order to do it.Your choices depend on opportunity costs which in turn depend on many factors including money, time, and quality of experience.

In earlier, pre-industrial generations, women received most of their social prestige for their roles as wife and mother, while their labor was needed literally to keep the home fires burning. The kinds of jobs open to them, on the other hand, were limited and paid poorly. The opportunity cost of working outside the home was often too high to be worthwhile given the importance of their responsibilities at home.

As barriers to women entering certain professions have fallen, more women have sought preparation for those professions. In 1968, women received 8% of the medical degrees, 3% of the MBAs and 4% of the law degrees granted that year.

By 1986, women were awarded 31% of the MD’s and MBAs, and accounted for 39% of the law degrees. Today, the figures continue to climb, with women composing 43% of law school enrollment.

The broader, more lucrative career fields open to women today require the careful evaluation of changed opportunity costs when choosing whether or not to work outside the home.

For example, let us consider a couple who currently work full time, each

making $50,000 a year. what is the opportunity cost of choosing to work? What is the opportunity cost of choosing to stay at home?

Suppose the couple has a child, and no options for free child care. They will

have to purchase equivalent child care from a baby sitter, day care center, or give up one of their salaries and stay home. Child care will require an annual cash outlay of $15,000.

They have limited free time each week, and find that house cleaning rarely gets done. They can employ a professional house cleaning service or stay home to do the cleaning themselves.

The opportunity cost of working is the value they place on their time if they did not work. One of them could provide child care worth $15,000 and house cleaning worth $1,200.

Assuming these are the only benefits foregone by working, the opportunity cost of working is the $16,200.

They both have highly lucrative job skills so the financial benefits of working We get the same answer y asking the question: “What is the opportunity cost of staying at home?” By staying at home, one forgoes the opportunity to work, thus giving up an income of $50,000 a year. The opportunity cost of staying home is $50,000.

The monetary benefit of staying at home to take care of the household tasks and care for the child is $16,200. Although there are financial benefits to staying at home, these benefits have a lower monetary value than the opportunity cost of forgoing their salary.

These considerations reflect important aspects of opportunity cost. Understandably, as possibilities for women to work outside the home have multiplied, the opportunity costs for women to remain at home have increased.

Of course, there may be non-monetary costs to working that we have not yet considered. Often a worker will turn down overtime even though it pays one and a half times the normal hourly wage. Why? The worker places more value on free time than the extra 50% the employer is offering.

This non-monetary opportunity cost is harder to measure. If it were strictly dollars and cents, our couple’s decision would be easy.

But they both place a great deal of value on the quality of life for their child and they both love the time they spend with their child. So the opportunity cost of working may be much higher than the financial cost of $16,2000.

In 1979, the hourly earnings of women were only 62% of the wages earned by their male counterparts. By 1992, that percentage had risen to 74%

As women’s salaries become comparable to men’s, the opportunity cost for women staying at home has become closer to the opportunity cost for men.

The decision to stay home with the children is no longer the sole responsibility of the woman.

As men and women reassess the changing nature of work both inside and outside the home, their shifting priorities will give them a new understanding of opportunity cost and help them find a new balance between family and career.

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