Why Policy Matters? : A Game Theoretic Approach on Female Lifecycle Decisions

Recently, a dramatic increase in the proportion of females in the labor force has been observed in many developed countries. Female lifestyle choices are more flexible than they were earlier – one can concentrate solely on career or caretaker or others may balance paid and unpaid works. Yet, the significant cross-national differences remain. What would be the determinants of female lifecycle decisions? How the cross-national differences can be explained? This study addresses how decisions of firms regarding family leave influence the decision-making process of women. In this paper, I construct a game theoretic model, describing the decision-making process between women and firms. The model proceeds from when a woman starts to work in a company, to when she decides how to earn income for the joint household. It assesses the impact of family policy, the lifestyle preference of female workers, and the net benefit of firms on the decisions a woman makes in terms of having children and future employment. According to the model, availability and cost of childcare are crucial factors to explain the choices of having a child and future employment after a leave, if the availability is low or the cost of childcare is high, the women tend to make undesired decisions. Moreover, the replacement rate of paternity leave raises the father’s participation in childcare. The length of leave also has a great impact on both benefit and cost of a child, while fine weight the cost of employees, in case the firm does not want to offer a leave. Last, gender wage differences in labor market affect the role within households. In sum, childcare plays an important role to female lifecycle decisions. Furthermore, the length of leave, the replacement rate of paternity leave and diminishing gender wage differences are crucial factors to determine role within households. Last, the influences of firms are significant - hence appropriate support from government is required to enhance fair evaluation of employees.