The literature on households indicates that the distribution of bargaining power plays an important role in intra-household resource allocation. In particular, empowering women is found to correlate strongly with improvements in child welfare and consumption. However, there is no empirical evidence of the potential for divorce laws to influence female autonomy in developing countries. This paper examines whether the creation of unilateral divorce laws for women in Egypt alters their bargaining position within the household. It refutes the theory held among proponents of ‘separate spheres bargaining models’, that changes in outside options for women pose an empty threat in less developed countries. The results presented are significant in the bargaining literature to lend support to models using exit threat scenarios. A theoretical model of discrete labor choice with the introduction of distribution factors is used to derive predictions on female labor force participation. The model provides an alternative to existing ones by allowing for an analysis of labor decisions on the extensive margin. This is particularly important in the context of third world countries where a sizeable proportion of women do not participate in the labor force. Using data
from the Demographic and Health Survey for Egypt, I find that the introduction of divorce rights favoring married women led to a significantly higher non-participation rate in labor force relative to widowed counterparts due to the law. For working women, the divorce law also increased female self-employment. Given the nature of the law passed in Egypt, this corresponds with an improvement to the female spousal position within the family. The significant negative Average Treatment Effect to stay out of the labor force is strongest among sub-groups of the population of women with some education and fewer household assets. Results across the agriculture and non- agriculture sectors indicate no signs of women switching between sectors for employment. Noted is improved autonomy for women in the latter sector but not the former, who work mostly without pay. In additon, I derive results on children’s schooling enrollment status. I find evidence for an increase in school attendance among first born female children of married women, after the law. The set of results on child enrollment point to a shift in resource allocation determined by gender and birth order. These results suggest that well-defined policy has potential to change the female position and alter the behavior among agents with heterogeneous preferences in a household.