NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Raquel Fernandez, Nezih Guner, John Knowles

NBER Working Paper No. 8580
Issued in November 2001
NBER Program(s):   EFG

This paper examines the interactions between household matching, inequality, and per capita income. We develop a model in which agents decide whether to become skilled or unskilled, form households, consume and have children. We show that the equilibrium sorting of spouses by skill type (their correlation in education) is increasing as a 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, wage inequality, and fertility differentials are 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.

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Document Object Identifier (DOI): 10.3386/w8580

Published: Fernandez, Raquel, Nezih Guner and John Knowles. "Love And Money: A Theoretical And Empirical Analysis Of Household Sorting And Inequality," Quarterly Journal of Economics, 2005, v120(1,Feb), 273-344.

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