Gary Becker's research program
is founded on the idea that the behavior of an individual adheres to the
same fundamental principles in a number of different areas. The same explanatory
model should thus, according to Becker, be applicable in analyzing highly
diverse aspects of human behavior. The explanatory model which Becker has
chosen to work with is based on what he calls an economic approach, which
he has applied to one area after another. This approach is characterized
by the fact that individual agents - regardless of whether they are households,
firms or other organizations - are assumed to behave rationally, i.e.,
purposefully, and that their behavior can be described as if they maximized
a specific objective function, such as utility or wealth. Gary Becker has
applied the principle of rational, optimizing behavior to areas where researchers
formerly assumed that behavior is habitual and often downright irrational.
Becker has borrowed an aphorism from Bernard Shaw to describe his methodological
philosophy: "Economy is the art of making the most of life".
Becker's applications of his basic
model to different types of human behavior can be accounted for by distinguishing
among four research areas: (i) investments in human capital; (ii) behavior
of the family (or household), including distribution of work and allocation
of time in the family; (iii) crime and punishment; and (iv) discrimination
on the markets for labor and goods.
Human Capital
Gary Becker's most noteworthy contribution
is perhaps to be found in the area of human capital, i.e., human competence,
and the consequences of investments in human competence. The theory of
human capital is considerably older than Becker's work in this field. His
foremost achievement is to have formulated and formalized the microeconomic
foundations of the theory. In doing so, he has developed the human-capital
approach into a general theory for determining the distribution of labor
income. The predictions of the theory with respect to the wage structure
have been formulated in so-called human-capital- earnings functions, which
specify the relation between earnings and human capital. These contributions
were first presented in some articles in the early 1960s and were developed
further, both theoretically and empirically, in his book, Human Capital,
written in 1964.
The theory of human capital has created
a uniform and generally applicable analytical framework for studying not
only the return on education and on-the-job training, but also wage differentials
and wage profiles over time. Other important applications, pursued by various
economists, include a breakdown into components of the factors underlying
economic growth, migration, as well as investments and earnings in the
health sector. The human-capital approach also helps explain trade patterns
across countries; in fact, differences in the supply of human capital among
countries have been shown to have more explanatory power than differences
in the supply of real capital.
Practical applications of the theory
of human capital have been facilitated dramatically by the increased availability
of microdata, for example, panel data, on wages and different characteristics
of labor. This development has also been stimulated by Becker's theoretical
and empirical studies. It is hardly an overstatement to say that the human-capital
approach is one of the most empirically applied theories in economics today.
Household
and Family
Gary Becker has carried out an even
more radical extension of the applicability of economic theory in his analysis
of relations among individuals outside of the market system. The most notable
example is his analysis of the functions of the family. These studies are
summarized in his book, A Treatise on the Family, written in 1981.
A basic idea in Becker's analysis
is that a household can be regarded as a "small factory" which produces
what he calls basic goods, such as meals, a residence, entertainment, etc.,
using time and input of ordinary market goods, "semi-manufactures", which
the household purchases on the market. In this type of analysis, prices
of basic goods have two components. The first is comprised of the direct
costs of purchasing intermediate goods on the market. The second is the
time expenditure for production and consumption of the good in question
for a specific good, this time expenditure is equivalent to wages multiplied
by the time spent per unit of the good produced in the household. This
implies that an increase in the wage of one member of the household gives
rise not only to changed incentives for work on the market, but also to
a shift from more to less time-intensive product on and consumption of
goods produced by the household, i.e., basic goods. Instead of an analysis
in terms of the traditional dichotomy between work and leisure, Becker's
model provides a general theory for the household's allocation of time,
as exemplified in the essay, A Theory of the Allocation of Time, from 1965.
This approach has turned out to be a highly useful foundation for examining
many different issues associated with household behavior.
Becker has gone even further. He has
formulated a general theory for behavior of the family - including not
only the distribution of work and the allocation of time in the family,
but also decisions regarding marriage, divorce and children. As real wages
increase, along with the possibilities of substituting capital for labor
in housework, labor is released in the household, so that it becomes more
and more uneconomical to let one member of the household specialize wholly
in household production (for instance, child care). As a result, some of
the family's previous social and economic functions are shifted to other
institutions such as firms, schools and other public agencies. Becker has
argued that these processes explain not only the increase in married women's
job participation outside the home, but also the rising tendency toward
divorce; see his article, Human Capital and the Rise and Fall of Families
(coauthored by N. Tomes), 1986.
Alongside Becker's analysis of the
distribution of labor and allocation of time in the household, his most
influential contribution in the context of the household and the family
is probably his studies on fertility, which were initiated in an essay
entitled, An Economic Analysis of Fertility, 1960. Parents are assumed
to have preferences regarding both the number and educational level of
their children, where the educational level is affected by the amount of
time and other resources that parents spend on their children. Investments
in children's human capital may then be derived as a function of income
and prices. As wages rise, parents increase their investments in human
capital, combined with a decrease in the number of children. Becker uses
this theory to explain, for example, the historical decline in fertility
in industrialized countries, as well as the variations in fertility among
different countries and between urban and rural areas. In particular, the
highly extensive family policy in Sweden, to which Becker often refers,
suggests the merits of an economic approach to the analysis of these issues.
Crime and Punishment
The third area where Gary Becker has
applied the theory of rational behavior and human capital is "crime and
punishment". A criminal, with the exception of a limited number of psychopaths,
is assumed to react to different stimuli in a predictable ("rational")
way, both with respect to returns and costs, such as in the form of expected
punishment. Instead of regarding criminal activity as irrational behavior
associated with the specific psychological and social status of an offender,
criminality is analyzed as rational behavior under uncertainty. These ideas
are set forth, for example, in Becker's essay, Crime and Punishment: An
Economic Approach, 1968, and in Essays in the Economics of Crime and Punishment,
1974.
Empirical studies related to this
approach indicate that the type of crime committed by a certain group of
individuals may to a large extent be explained by an individual's human
capital (and hence, education). These empirical studies have also shown
that the probability of getting caught has a more deterrent effect on criminality
than the term of the punishment.
Economic
Discrimination
Another example of Becker's unconventional
application of the theory of rational, optimizing behavior is his analysis
of discrimination on the basis of race, sex, etc. This was Becker's first
significant research contribution, published in his book entitled, The
Economics of Discrimination, 1957. Discrimination is defined as a situation
where an economic agent is prepared to incur a cost in order to refrain
from an economic transaction, or from entering into an economic contract,
with someone who is characterized by traits other than his/her own with
respect to race or sex. Becker demonstrates that such behavior, in purely
analytical terms, acts as a "tax wedge" between social and private economic
rates of return. The explanation is that the discriminating agent behaves
as if the price of the good or service purchased from the discriminated
agent were higher than the price actually paid, and the selling price to
the discriminated agent is lower than the price actually obtained. Discrimination
thus tends to be economically detrimental not only to those who are discriminated
against, but also to those who practice discrimination.
Becker's
Influence
Gary Becker's analysis has often been
controversial and hence, at the outset, met with scepticism and even distrust
. Despite this, he was not discouraged, but persevered in developing his
research, gradually gaining increasing acceptance among economists for
his ideas and methods.
A not insignificant influence may
also be discerned in other social sciences. Various aspects of demography
constitute one example, particularly in regard to fertility, parents' efforts
to ensure their children's education and development, as well as inheritance.
Additional examples are research on discrimination in the labor market,
and crime and punishment. But Becker has also had an indirect impact on
scientific approaches in social sciences other than economics; more frequently
than in the past, sociologists and political scientists work with models
based on theories of "rational choice".
