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Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality

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Author Info
Raquel Fernández
Nezih Guner
John Knowles

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Abstract

This paper examines the interactions between household formation, inequality, and per capita income. We develop a model in which agents decide to become skilled or unskilled and form households. We show that the equilibrium sorting of spouses by skill type (their correlation in skills) is an increasing function of the skill premium. In the absence of perfect capital markets, the economy can converge to different steady states, depending upon initial conditions. The degree of marital sorting and wage inequality is positively correlated across steady states and negatively correlated with per capita income. We use household surveys from 34 countries to construct several measures of the skill premium and of the degree of correlation of spouses' education (marital sorting). For all our measures, we find a positive and significant relationship between the two variables. We also find that sorting and per capita GDP are negatively correlated and that greater discrimination against women leads to more sorting, in line with the predictions of our model. © 2005 MIT Press

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Publisher Info
Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 120 (2005)
Issue (Month): 1 (January)
Pages: 273-344
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Handle: RePEc:tpr:qjecon:v:120:y:2005:i:1:p:273-344

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  2. Oded Galor & David N. Weil, 1993. "The Gender Gap, Fertility, and Growth," NBER Working Papers 4550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Roland Benabou, 1996. "Heterogeneity, Stratification, and Growth," NBER Working Papers 4311, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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  5. Owen, Ann L. & Weil, David N., 1998. "Intergenerational earnings mobility, inequality and growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 71-104, February. [Downloadable!] (restricted)
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  6. Pissarides, Christopher A, 1982. "From School to University: The Demand for Post-Compulsory Education in Britain," Economic Journal, Royal Economic Society, vol. 92(367), pages 654-67, September. [Downloadable!] (restricted)
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  9. Weiss, Yoram, 1993. "The formation and dissolution of families: Why marry? Who marries whom? And what happens upon divorce," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 3, pages 81-123 Elsevier. [Downloadable!] (restricted)
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  10. Boulier, Bryan L & Rosenzweig, Mark R, 1984. "Schooling, Search, and Spouse Selection: Testing Economic Theories of Marriage and Household Behavior," Journal of Political Economy, University of Chicago Press, vol. 92(4), pages 712-32, August. [Downloadable!] (restricted)
  11. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September. [Downloadable!] (restricted)
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  13. Michael Kremer & Daniel Chen, 1999. "Income-Distribution Dynamics with Endogenous Fertility," American Economic Review, American Economic Association, vol. 89(2), pages 155-160, May. [Downloadable!] (restricted)
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  15. Raquel Fernandez, 2001. "Education, Segregation and Marital Sorting: Theory and an Application to UK Data," NBER Working Papers 8377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Dahan, Momi & Gaviria, Alejandro, 2001. "Sibling Correlations and Intergenerational Mobility in Latin America," Economic Development and Cultural Change, University of Chicago Press, vol. 49(3), pages 537-54, April.
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  22. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December. [Downloadable!] (restricted)
  23. Dahan, Momi & Tsiddon, Daniel, 1998. " Demographic Transition, Income Distribution, and Economic Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 29-52, March. [Downloadable!] (restricted)
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  24. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  25. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
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  28. Laitner, John, 1979. "Household Bequests, Perfect Expectations, and the National Distribution of Wealth," Econometrica, Econometric Society, vol. 47(5), pages 1175-93, September. [Downloadable!] (restricted)
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