Studies for many countries have shown that labor force participation by women tends to have a U-shaped pattern with respect to growth in per capita income. Explain why this contrasts with your findings in exercise 10 above. Discuss reasons why such a U-shaped curve of female labor force participation may occur. The use of income and substitution effects will help you to formulate your answer.

Data from exercise 10

In the land of Oz, there are three inputs to production: capital, physical labor, and mental labor. Men in Oz have more physical labor power than women, but both men and women have the same amount of mental labor power.

(a) Who earns more in Oz, men or women? What do these differences depend upon?

(b) Now imagine that the technology is such that more capital raises the marginal product of mental labor faster than it raises physical labor. As the economy of Oz grows over time, its stock of physical capital is steadily increasing. How would you expect the relative wage of men to women to change over time Explain.

(c) Women have one unit of labor time that they can allocate between raising children and being part of the workforce. How would this allocation be affected by the changes over time that you found in your answer to (b)? Discuss the implications for fertility levels in the population.