Incomes and outcomes : the dynamic interaction of the marriage market and the labor market

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Liu, Jing, 1979-

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In this thesis we study the interdependency of individual decisions on work and family, particularly the dynamic interaction of the marriage market and the labor market. My basic idea is that marital status affects individual labor supply decisions, and in turn, labor market condition influences marriage formation and dissolution. While these interactions are evident, the overwhelming majority of research on labor or family economics usually simplifies the individual decision-making by assuming that one of two markets outcomes is given while studying the other one. In the empirical study, endogeneity issues are troublesome, especially under the dynamic setting. My work takes a different approach. I directly model the individual decision-making, which describes how marriage market and labor market interact with each other; and matching with survey data we empirically recover the underlying economic environments that characterize the structure of the marriage market and the labor market. I further examine to what extent my model explains the observed facts. Very few studies have been conducted to explore work and family issues in this direction partly due to its complexity. The structural models, besides the conventional regression, improve our perceptions on how individuals form decisions on work and family, which have far-reaching implications on policy designs and welfare evaluations. In my thesis, I explore all these issues in three steps. In chapter 1, I explain a stylized fact that there exists a positive correlation between rising wage inequality and declining marriage rates. A two-sided matching model is developed to exploit a theoretical channel through which wage inequality affects marriage rates. My model features a steady state equilibrium in which the whole marriage market is divided into groups and only people in the same group will marry each other. Using the Integrated Public Use Microdata Series (IPUMS) data from 1970 to 2000, my estimates indicate that a structural change occurs in the U.S. marriage market. The higher matching efficiency and declining elasticity of men suggest that the nowadays marriage market provides more chance to meet and better gender equity, though higher arrival rates also raise the outside options of getting married. Additionally, I find that wage inequality accounts for over 38% of the decline in marriage rate, which is underestimated in Gould (2003). Chapter 2 examines household dynamic labor supply after introducing bargaining between husbands and wives, which has not been thoroughly studied previously in literature. Here bargaining between husbands and wives determines the amount of husbands' earnings that are transferred to wives for their private consumption. A household search model that incorporates the intrahousehold bargaining is developed and estimated using panel data from the year 2001 Survey of Income and Program Participation (SIPP). My results show that the portion of household income shared by husbands for private consumption is responsive to their employment status, suggesting the existence of the bargaining between the U.S. couples. My findings also imply that the labor supply of women will increase with higher women wage and lower money transfer from husbands to wives, showing that the income effect dominates for wives. Moreover, the wage frontier of husbands is positively correlated with wives' wages and negatively correlated with husbands' earnings transferred to wives, highlighting that husbands are subject to both the income effect and intra-household bargaining, and their decisions depend on which effect dominates. In the third and the last chapter, I study household unemployment duration. Previously, most studies have addressed the topic of job search at the individual level. This chapter studies job search patterns of married couples and in particular compares couple's unemployment duration given their spousal earnings. A household search model is introduced, which includes the bargaining between husbands and wives. I use the year 2001 panel data Survey of Income and Program Participation (SIPP) to estimate the structural model of family decisions. Our findings reveal that there exists a gender asymmetry in job search of the U.S. household: The more husbands earn, the longer wives search for a job; but the more wives earn, the sooner husbands find a job.