How the economy helped change marriage

I've never been impressed by those economists who think they can use their little pocket model of the economy to explain every aspect of life. Who want to understand the search for a partner by thinking of marriage as a market. Who think the only motivation – the only emotion – is the desire to make a buck.

On the other hand, if economics is, as one great economist said, the study of the daily business of life, if none of us could exist without the wherewithal to pay for food, clothing, shelter and much else, if most of us have to work to earn that wherewithal, and if most of our time is devoted to producing and consuming, then it's hardly likely that big changes in the economy and education and technology have no effect on such things as marriage.

(While I'm on the topic, I'm never impressed by people who profess to have a soul above such a venal and boring subject as economics. Just threaten to cut their income and see if they're still so uninterested.)

So I thought it worth explaining the theories of two academic economists, Betsey Stevenson and Justin Wolfers. Wolfers is the young Sydney economist, long resident in America, who's most likely to make a name for himself in international economics circles. Already has, really.

Wolfers has taken time off from his job as a professor at the University of Michigan while his partner, Stevenson, is working in Washington as an adviser to President Obama.

Their theory is that economic and social changes have caused the basic rationale for marriage to change from "productive" to "hedonic".

Historically, marriage has been the product of the economic environment of the time. People have used marriage and family to overcome the limitations of the formal economy at the time. Social institutions such as marriage have evolved as economic opportunities have changed and the economy's degree of development has risen.

There was a time – I can remember it – when a number of goods and services, such as freshly cooked meals and childcare, weren't sold in the marketplace. And when keeping house involved long hours of labour.

In such circumstances, it made sense for the family to become the firm producing these household services. It also made sense for the partners to a marriage to increase the efficiency of the "firm" by specialisation.

It was usually the case that husbands, being better educated, were better suited to going out and earning income in the marketplace, while wives had prepared themselves for a life of child-rearing and housekeeping.

Largely unconsciously, young women and men sought out partners they believed would be capable opposite numbers in such a production team.

Then followed, in the lifespan of the Baby Boomers, much technological and social change, all of it with economic implications.

With the invention of a host of "mod cons", housekeeping became a lot less time-consuming and onerous. Cheap imported clothing became available, so people stopped making and repairing their own. More processed foods and takeaways became available.

"While the political emancipation of women is surely a key factor in their movement from the home to the market, deeper economic forces are also at play," Stevenson and Wolfers say.

What came first? The rise of feminism, advances in technology or changes in the economy? Easiest to say they all happened at about the same time and interacted with each other.

Once girls started staying on to the end of school, then going on to uni, things really started to change, in the way partners were selected for marriage and in the things going on in the economy.

With more women wanting to take paid work, the market began supplying things to make that possible: more pre-prepared food, childcare, after-school care, people who mow your lawn, cleaners who can whip through your house in an hour before moving on to the next one.

"While the benefits of one member of a family specialising in the home have fallen, the costs of being such a specialist have risen. Improvements in the technology of birth control have made investing in a wife's human capital a better bet ...

"These greater opportunities also connote a greater opportunity cost for a couple contemplating a stay-at-home spouse," the authors say.

Advances in medicine have yielded rising life expectancy, and the average woman will now spend less than a quarter of her adult life with young children in the household.

By increasing the number of potential years in the labour force, the opportunity cost of women staying out of the labour market to be home with children is higher.

"Rising life expectancy also reduces the centrality of children to married life, as couples now expect to live together for decades after children have left the nest," they say.

With women now better educated than men, we've seen the rise of a human version of "assortative mating": the tendency for people to marry those of the same level of education, even the same occupation.

So what drives modern marriage? "We believe the answer lies in a shift from the family as a forum for shared production, to shared consumption . . .

Modern marriage is about love and companionship. Most things in life are simply better [when] shared with another person.

"We call this new model of sharing our lives 'hedonic marriage'."

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Social and economic case for helping women work

Surely the most momentous social change of our times began sometime in the 1960s or '70s when parents decided their daughters were just as entitled to an education as their sons. Girls embraced this opportunity with such diligence that today they leave schools and universities better educated than boys.

Fine. But this has required much change to social and economic institutions, which we've found quite painful and is far from complete. It's changed the way marriages and families operate - changed even the demands made on grandparents - greatly increased public and private spending on education, led to the rise of new classes of education and childcare, changed professions and changed the workplace.

It has led to greater "assortative mating", where people are more likely to marry those not just of similar social background, but of a similar level of education.

For centuries the labour market was built around the needs of men. Changing it to accommodate the needs of the child-bearing sex has met much resistance, and we have a lot further to go. This is evident from last week's report of the Human Rights Commission, which found much evidence to show "discrimination towards pregnant employees and working parents remains a widespread and systemic issue which inhibits the full and equal participation of working parents, and in particular, women, in the labour force".

You can see this from a largely social perspective - accommodating the rising aspirations of women and ensuring they get equal treatment - or, as is the custom in this more materialist age, you can see it from an economic perspective.

By now we - the taxpayer, parents and the young women themselves - have made a hugely expensive investment in the education of women. It accounts for a little over half our annual investment in education.

If we fail to make it reasonably easy for women to use their education in the paid workforce, we'll waste a lot of that money. Our neglect will cause us to be a lot less prosperous than we could be.

Of late, economists are worried our material standard of living will rise more slowly than we're used to, partly because mineral export prices have fallen but also because, with the ageing of the baby boomers, a smaller proportion of the population will be working.

They see increased female participation in the labour force - more women with paid work, more working women with full-time jobs - as a big part of the answer to this looming catastrophe (not).

But how? One way would be to impose more requirements on employers, but in an era where the interests of business are paramount, politicians are reluctant to do that. Make employers provide childcare or paid parental leave? Unthinkable.

So, for the most part, taxpayers have picked up the tab. Government funding of childcare has reached about $7 billion a year, covering almost two-thirds of the total cost. The cost of government-provided paid parental leave is on top of that.

Governments' goals in childcare have evolved over time. In the '70s and '80s, the focus was on increasing the number of places provided. In the '90s, the focus shifted to improving the affordability of care, with the introduction of, first, the means-tested childcare benefit, and then the unmeans-tested childcare rebate. Under the Howard government, the rebate covered 30 per cent of net cost, but Labor increased it to 50 per cent.

More recently, increased evidence of the impact of the early years of a child's life on their future wellbeing has shifted governments' objectives towards child development and higher-quality, more educationally informed, childcare. This includes getting all children to attend pre-school. Linked with this has been a push to raise the pay of childcare workers.

The federal government asked the Productivity Commission to inquire into childcare and early childhood learning. Last week it produced a draft report. I suspect the pollies were hoping the commission would find a way to reduce regulation of what they kept calling the childcare "market"; thus improving workforce participation and "flexibility" while achieving "fiscal sustainability".

If so, they wouldn't have been pleased with the results. The main proposal was that the childcare benefit and rebate be combined into one, means-tested subsidy payment paid direct to childcare providers.

This would involve low-income families getting more help while high-income families get less. There would be a small additional cost to the government, but this could be covered by diverting money from Tony Abbott's proposed changes to paid parental leave. It was "unclear" his changes would bring significant additional benefits to the community.

The commission wasn't able to claim its proposals would do much to raise participation in the labour force, mainly because our system of means-testing benefits - which works well in keeping taxes low, something that seems to be this government's overriding goal - means women face almost prohibitively high effective tax rates as their incomes rise, particularly moving from part-time to full-time jobs.

Like the Henry tax review before it, the commission just threw up its hands at this problem. And even the commission couldn't bring itself to propose major reductions in the quality of education and care. Sorry, no easy answers on childcare.

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House, marriage and children - in their own sweet time

The media leap on any suggestion of social change. At present there's talk of younger people being happy to keep renting rather than buy their own homes. Before that there was talk of career women not wanting children. And before that, we kept hearing about young people not bothering to get married, even after the kids had started arriving.

I guess there's some truth in all these stories. Perhaps the truth is that, whereas in times past just about everybody conformed to expected behaviour, these days a minority rebels. Or perhaps it's just that these days more young adults are turning to the conventional response later, rather than not at all.

But whatever the explanation, don't let an excitable media convince you the world is changing beyond recognition. Human nature's a bit more resistant. Things change, but not dramatically.

According to a new report from social researchers Ipsos Mackay, almost everyone in their 20s to mid-30s who participated in their group discussions wanted the "trifecta" of marriage, house and children. What's changed is they're a lot more flexible about the order in which they come and how long they take.

Young adults still want to see the world before they settle down. Perhaps these days it's easier for more of them to do so and they're inclined to make several overseas visits rather than just one extended working holiday. (Sometimes I wonder whether declining oil supply and concerns about greenhouse gas emissions will one day cause us to look back with longing on a golden age of international travel.)

One change is that, when young adults start to settle down, buying a property is often the highest priority. They're "keen to get started for fear of missing out," according to the report. So much so that some of them, unable to afford their own home, nonetheless seek a foothold in the market by buying an apartment and renting it out.

The fear of missing out - of delaying until the point where prices become unaffordable - is the very mentality that keeps prices rising, of course. It's a self-fulfilling prophecy.

The surprising thing is many years of strongly rising house prices seem to have done so little to dull the home-owning ardour of the next generation. They repeat their parents' conviction that rent is "dead money" and mortgage payments are no higher than rent (not really true).

They see property as a good investment and - in what may be an advance on their parents - a means of forced saving. Just so. Until the advent of compulsory superannuation, it had long been the case the main way Australians saved was to borrow a huge sum on their mortgage and spend the next 25 years paying it back.

Even where people continue to live in that home in retirement rather than trading down to a smaller and cheaper one, owning your home makes it a lot easier to live on the age pension.

Why is the next generation so keen to own the roof over its head? Because it creates "a sense of security and pride in ownership".

Just so. We all have an urge to own. I have a holiday house I love, but only rent. It took my head years to convince my heart I was getting the best of all worlds since the place was almost always available when I wanted it and I had no responsibility for the upkeep of the place. If the grass needs cutting when I roll up for a break, I experience not the slightest twinge of conscience.

The report says young people "invariably" rely on support from family. That's something all parents need to understand. The rise in house prices represents a transfer of wealth from the younger generation to the older. At the level of the individual, that wealth needs to be recycled from old to young if the young aren't to be dispossessed.

At the collective level, should sufficient recycling fail to occur, house prices would slip (which might be no bad thing). In the end, this generation sells its homes to the next. If the next generation can't stump up the money, prices will fall until they can. The remarkable thing is, so great is our continuing desire to own our homes that young couples keep finding the money from somewhere. One way they do it is by allowing housing costs to take up a bigger share of their weekly budgets than in earlier times. Another way is for wives to keep working and delay the start of their families.

There's the rub. According to the report, most young people accept the impossibility of buying property on one income. In theory, having two incomes makes it possible for couples to enjoy a much higher standard of living. In practice, the presence of two incomes, with their greater purchasing power, has simply bid up the price of houses. What began as an advantage to those couples able to command two incomes has become a disadvantage to those unable or unwilling to have the wife go out to work.

It seems to remain the case that most young people marry - eventually. What's changed is the variability in when in the process of acquiring a house and children marriage occurs.

Big weddings are fashionable and seem to have become more expensive - with the average cost said to exceed $35,000 - but the couple is now likely to pick up more of the tab. With prices like that, it's not hard to see it postponed to a more financially convenient time.

So marriage is no longer a major point of transition for many young people. On the other hand, the young adults covered in the report found having kids radically transformed their lifestyle. Now who among us oldies would ever have imaged that?

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