Income differences across households are larger the more similar are the earnings potentials of breadwinners within the household. As such, the tendency for individuals to marry people similar to them has likely served to amplify inequality across households. In this paper I study the effect that educational assortative matching has on income inequality in the United States. Quantifying this effect presents a serious empirical challenge because education and marriage patterns are jointly determined equilibrium outcomes. Observed patterns of marriage are an outcome of a two-sided dynamic matching process. Individuals on both sides of the market take as given the distribution of available singles at each point in time. Anticipating this process, forward looking individuals make pre-marital investments in human capital to improve future prospects on the marriage and labor markets. As such, I develop a dynamic discrete choice model of endogenous educational attainment and subsequent marriage market matching. I estimate the parameters of the model using US Census data combined with information on marriage registrations. I use the estimated model to perform a series of counterfactual experiments that help quantify the role of female educational attainment and assortative matching on education in amplifying income inequality across households.
Conventional suggests wisdom and numerous studies find that married men earn more than single men. However, identifying whether and why marriage affects earnings is complicated by the fact that marriage market outcomes are jointly determined with potential earnings. To address this issue, I exploit exogenous variation in marriage induced by the geographically-staggered introduction of no-fault divorce laws in the United States over two decades. I find an average causal effect of marriage on earnings. I find that marriage causes a 32% increase in the earnings of husbands. This increase in earnings is explained by a large increase in labor market work after marriage. My findings are robust to the possibility of unobserved heterogeneity in the effect of marriage on earnings across individuals, and support the idea that husbands specialize in labor market work.
Work in Progress:
A Dynamic Matching Model of Marriage with Endogenous Divorce (draft coming soon)
The Labor Market Effects of the Arizona Immigration Reforms in 2010