Marriage Dynamics, Earnings Dynamics, and Lifetime Family Income
We examine what determines the family income that men and women experience over their adult lives. To this end, we estimate a dynamic model of earnings, nonlabor income, fertility, marriage, and divorce. We use the model to address a number of important questions in labor and family economics, including the effects of education and unobserved permanent characteristics on marital status and on spouse characteristics conditional on marriage. We estimate the dynamic response of wage rates, work hours, earnings, marriage and spouse characteristics and family income to various shocks. Marital status has a much larger effect on family income for women than men, while labor market shocks to men are more important than shocks to women. Marital sorting plays a major role in the return to education and permanent wages, especially for women. We use the model to provide gender-specific estimates of the contribution of education, permanent wages, labor market shocks, spouse characteristics, and marital histories to the variance of family income at a given age and over a lifetime.
Our research has been supported by the Cowles Foundation and the Economic Growth Center, Yale University (Altonji). This work was also supported in part by the facilities and staff of the Yale University Faculty of Arts and Sciences High Performance Computing Center, and by the National Science Foundation under grant #CNS 08-21132 that partially funded acquisition of the facilities. We thank Mariacristina De Nardi, Yujung Hwang, Costas Meghir, Luigi Pistaferri, Jean Marc Robin, Seth Zimmerman, participants in seminars at CEPR/Stockholm University, Cornell, Stanford, UCL, and participants in conferences organized by CREAM, the Econometric Society, SED, and SoCCAM for helpful comments. The views expressed in the paper are our own and not necessarily those of the Federal Reserve Board, Yale University, NBER, IZA, or other members of their staffs. We are responsible for the remaining shortcomings of the paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.