Making Decisions As A Family

Making Decisions As A Family

By Jerry Hionis

Economics is a study of human decision-making. The dominant philosophical view of economics, the classical/neoclassical school, has had a historical focus on the homo economicus; that is, the “economic man”. What this means is that decision-making is largely done from the point of view of an individual: with any action, how do the results of said action affect the happiness and suffering of that individual?

Yet this is not always the case. People do not just act as individuals but also as individuals within groups; individuals within groups within groups; individuals within groups within groups within . . . you get the picture. We each are members of various social groupings: families, geographical entities, nationalities, ethnicities, occupations, political blocs and so on. Out of all the various social groupings one can be apart of, the “family unit” is considered to be one of the most important. Given its importance, it should be to no surprise that the family — and, invariably, how it should be run — is highly controversial.

The concept of family decision-making was largely underutilized until the early 1960s when two landmark papers by Gary Becker[1] and Jacob Mincer[2] were published. Essentially, both papers investigated how men and women make decisions in order to maximize the welfare of the family and not just the individual. The basic (neoclassical) model assumes each individual within the family has the same goal: maximize the family’s collective utility (read: happiness) by selecting the optimal combination of “utility bearing commodities”. These commodities are produced with a mixture of labor-time, to earn and purchase goods and services, and home-time, transforms said goods and services into utility.

So, how does it all work? The model is one of specialization-and-exchange; that is, dividing labor so that each agent within the family specializes in the area they are the most productive. Historically, women have been more productive in the home and men in the labor market. This is not to say that the above is the result of natural law or some existential definition of what a man or woman should or should not be doing. There are many institutional and societal factors that have contributed to this arrangement: different social expectations; education and training; discrimination; labor market earnings; and, the fact that labor skills are more marketable/valuable with experience. Further, research has shown that even though family labor has been divided this way, it has been far from optimal. Raising children according to historical gender and racial roles could (and often does) cause labor market distortions due to a mismatch of skills-to-occupation. In other words, socially determined patterns of behavior are not necessarily efficient.

Let us look at an example. Suppose there is a married couple, Ahmed and Fatimah, who each have 8 hours per day to dedicate to either labor-time or home-time. The value each receives for their actions are as follows:

  Value of Labor-Time/Hr Value of Home-Time/Hr
Ahmed $10 $5
Fatimah $15 $15

The above table states that Ahmed is twice as valuable working some marketable job than he is doing work around the house. Fatimah, on the other hand, is equally valuable in the market and at home. Notice that Fatimah is more valuable than Ahmed in both categories (sorry Ahmed). This is what economists call an absolute advantage. Yet even though Fatimah has an absolute advantage over Ahmed, Fatimah is more valuable to the family when she stays at home. What? Why?! Ahmed has what is known as a comparative advantage in regards to labor-time over Fatimah: for every hour Ahmed dedicates to housework, the value of his labor could be doubled if he was working in the labor market; Fatimah is equally valuable in both arenas.

To show this point, assume Ahmed spends all eight hours doing housework ( in value) and Fatimah spends all of her 8 hours working out in the labor market ( in value). The total value of the family’s labor is . Now let’s assume they decide on specializing using the concept of comparative advantage: Ahmed spends all eight hours working in the labor market ( in value) and Fatimah spends all eight hours doing housework ( in value). The total value of the family’s labor is now ! By specializing their labor, Ahmed and Fatimah were able to increase the total welfare of the family.

Beyond specialization, there are several other basic economic advantages to marriage. Below is a brief description of a few:

  1. Economies of Scale: In microeconomics, we have the concept of economies of scale where decreases in the per unit cost of production result from an expanding level of said production. The same is true for marriage: the cost of two individuals each buying a separate house to live in is more expensive than the two buying a single home together; cooking a meal for two does not take twice as long as cooking only for one; and so on.
  2. Institutional Advantages: Beyond legal protections and government issued benefits likes tax advantages and social security, there are many built-in societal advantages assumed with marriage, such as spousal health coverage and pension/401K benefits. One could also argue that there is a social value placed upon marriage that exceeds that of cohabitation. Unfortunately or fortunately (depending upon your opinion), cohabitation is not only increasing due to the delay many put on marriage but there is also an increasing value of it over marriage in the youth.
  3. Risk Pooling: If only one spouse works and soon becomes unemployed, the family is going to experience a set of very intense struggles. If both spouses work and only one becomes unemployed, the family can then rely on the other spouse’s income for temporary aid. Therefore, the risk of financial disaster can be minimized through marriage.
  4. Public Goods: Public goods are where one’s consumption of said good or service does not incur additional cost nor diminish the amount available for consumption by another (for example, the theory of calculus: my enjoyment of it will not affect nor diminish your possible level(s) of enjoyment). Instead of each spouse renting and watching the same movie individually, the two could rent the movie once (lowering the cost by half) and watch it together — assuming that there is no disutility with watching a movie with your spouse J. This holds true for many of activities within a marriage from bills to vacationing to children.
  5. Consumption Externalities: Externalities are “spillovers” or extra bits of utility one can gain from an economic activity. They can be both positive (living a healthy lifestyle can decrease the overall glut of national medical expenses and, hence, decrease others’ health costs) and negative (the production of coal and the increase in global pollution). Performing family activities with one’s spouse and/or children brings utility not just because of the direct personal benefit, but also the enjoyment one gains seeing the satisfaction and happiness of others.

While the specialization-and-exchange model has many advantages, it is suffice to say that there are many problems and criticisms. First, not all household tasks are the same. To say one spouse is “better” at housework than another is quite the loaded statement. Each spouse could perform each task differently. As a personal example, both my wife and I have full-time jobs, yet we divide the housework up according to what we each do best: I do the majority of the cooking, dishwashing and laundry (I am particular about wrinkles and how clothes are folded) while my wife focuses on the general detailing/cleaning of the house.

Second, the comparative advantage and the value of skills change overtime. Market wages increase with experience yet the value of housework decreases as children become older. This presents women with many challenges: in the early years of childrearing, a woman’s value for labor-time may be less than the high value of home-time; as children become older, the value of home-time and labor-time decreases further due to an erosion and/or the obsolete nature of her skills, making a re-entrance into the labor force much more difficult. Further, the societal expectation of the infamous “mommy-track” causes employers to both offer lower wages and/or dedicate fewer resources and promotional opportunities to women. As of 2013, a woman in the US earns 78 cents for each dollar a man makes within the same occupation with the same set of skills. Until recently, the legal system has by-and-large been opposed to legislation aiding gender discrimination suits.

Finally, the division of labor also influences the nature of dominant decision-makers. Those dedicated to labor-time, the “breadwinners”, tend to control family decisions; or, at the very least, have the majority vote. Spouses in these positions are less likely to have any financial means/controls and, hence, will not leave abusive relationships. In addition, there is an associated cost to interdependence: if the breadwinning spouse dies or chooses to get a divorce, the dominated spouse is left with little to no financial options beyond government assistance. It should not come to anyone’s surprise that such cases are endemic within the Muslim community.

The above criticism gives rise to an alternative model of family decision-making: bargaining. A marriage is, on a very basic level, just a contract. Or better, a constantly debated contract negotiation. The two sides of a contract are rarely assumed to have the exact same set of goals. Similarly in a marriage, proponents of the bargaining model do not assume that each agent/spouse in a marriage have the same goal of increasing the utility of the family as a whole.

Instead of comparative advantage, the bargaining model focuses on bargaining power which is determined by one’s threat point: the level of dissatisfaction one is willing to endure until they break the contract. The higher the threat point, the less the contract/marriage will reflect one’s preferences and goals; that is, one has a high tolerance for dissatisfaction. The lower the threat point, the less tolerance one has for dissatisfaction. There are a number of factors that can decrease one’s threat point: control of resources inside and outside of the marriage; laws defining the division of marital property; probability and social stigma of remarriage; welfare reforms; and so on.

In the end, it is not so much a question of which model is correct as it is which model does one wish to employ. Does one view a marriage as a co-operative partnership? Or is marriage a constant battle of competing desires? Or is it a combination of both? Far too often I hear young Muslims (and non-Muslims) discuss marriage in very unrealistic terms, usually influenced by both culture and H(B)ollywood. Marriage is integral to the life of a believer, yet it is frequently treated lightly as a mode of attention by friends and family, or, worse, a social expectation for those not ready for the responsibility. The key here is approach marriage — whether thinking about getting married or have been married for years — as a strategic approach to satisfying both individual and common goals. And like all things in economics, it comes down to rational decision-making.

[1] Becker, G. 1965. “A Theory of the Allocation of Time”. The Economic Journal. Vol. 75, No. 299, pp. 493-517. Also see Becker’s larger work, A Treatise on the Family (1981).

[2] Mincer, J. 1962. “Labor Force Participation of Married Women: A Study of Labor Supply”, pp. 63-105 in Aspects of Labor Economics. National Bureau of Economic Research, Inc.

About Jerry Hionis

About Jerry Hionis

Jerry holds a PhD from Temple University. His primary research is in conflict theory with an emphasis on civil conflicts and Warlord-like competition. Other research interests include game theory, economic development, Islamic economic theory and history, political theory and African economics.

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