Economic Quarterly

The postwar U.S. labor market has been characterized by steadily rising employment rates. An examination of the data suggests that two factors, namely demographic trends and increased female participation, have been largely responsible for this phenomenon; we focus on the latter factor. Within a dynamic stochastic general equilibrium model, we study the implications of a gradual reduction in both the implicit household cost of female employment and employer-based discrimination. For both experiments, the model predicts an endogenous decline in male employment rates and hours worked. We also find that the presence of employer-based discrimination gives rise to a countercyclical wage gap when the model is driven mainly by shocks to total factor productivity. These results are all consistent with U.S. labor market data.