Gary Becker was born in Pottsville, Pennsylvannia on
December 2, 1930. Becker attended Princeton, where he first promted
his interest in economics. He continued his studies in economics at
graduate school at the University of Chicago. In 1957, Becker published
a book from his dissertation relating economics with sociology. He incoporated
economic theories to evaluate the effects of discrimination on employment
and salaries of minorities. He proved that discrimination is more costly
on the companies that discriminate, because they would be less competitive
and lose more market consumption than the companies that do not discriminate.
Becker remained at Chicago for a few years as a assistant
professor, but decided to move to Manhattan in 1957. There he took up
a professorship at Columbia and worked for the National Bureau of Economic
Research. Becker remained in New York for the next twelve years doing
research and teaching. It was at Columbia that Becker, along with Jacob
Mincer, began performing extensive research on human capital and demonstrated
that education is an asset to society.
In 1970, Becker returned to the University of Chicago,
where he collaborated with George Stigler on the economics of politics
and family. In 1981, he published A Treatise on the Family, a
collection of articles with issues ranging from marriage to birth rates.
Furthermore, Becker researched the correlations between societal economic
growth and family consumption and size.
The following press release
from the Royal Swedish Academy of Sciences
describes Becker’s work:
Gary Becker's research contribution consists primarily
of having extended the domain of economic theory to aspects of human
behavior which had previously been dealt with - if at all - by other
social science disciplines such as sociology, demography and criminology.
In so doing, he has stimulated economists to tackle new problems.
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.”