Abstract

In many countries, income is taxed at the household level with a progressive tax schedule. This paper analyzes the impact of joint progressive taxation for employment and wages of dual-earner households in the presence of labor market frictions. We develop a directed search model in which firms offer wage contracts to workers in single and couple households, anticipating that workers may quit into other jobs or non-employment in response to spousal income and the tax system. The model is calibrated to replicate job-finding, job-to-job transition, layoff and quit rates of the U.S. labor market, and a progressive joint tax schedule and UI benefits at the individual level. When comparing the benchmark economy to a counterfactual scenario with individual taxation, we find that replacing the tax rules for couples with those for singles reduces the share of non-employed workers by one-tenth. Furthermore, it increases wages by about 6 percent.

Abstract

This paper revisits the link between education-based marriage market sorting and income inequality. Leveraging Danish administrative data, we develop a novel categoriza- tion of marriage market types based on the starting wages and wage growth trajectories associated with educational programs: ambition types. We find a substantial increase in sorting by educational ambition over time, which explains more than 40% of increasing inequality since 1980. In contrast, sorting trends are flat with the commonly-used level of education. Hence, the mapping between education and marriage-market types matters crucially for conclusions about the role of marital sorting in rising income inequality.

Abstract

Married women's greater allocation of time towards household chores and childcare suggests that an increase in their labor supply may result in reduced marital surplus and stability. This mechanism can explain persistent gender gaps in labor supply if the potential reduction is considered in decisions about reservation wages and job search efforts. An implication is that divorces may be caused by transitions into employment. This paper analyzes these ``labor market divorces'' in a novel model of simultaneous search in labor and marriage markets. Labor market search intensity choices depend on marital status and the partner's type. The model matches key trends in German household survey data: declining marriage rates, increasing employment rates of married women, and a reduction of married women's domestic time inputs. Our laboratory to quantify the role of labor market divorces is a period of rapid employment growth in Germany that started in the mid-2000s. This development in the labor market was not neutral with respect to marriage. Although more married women entering employment led to more divorces, the decrease in divorces caused by job loss among married men was greater, resulting in a net decrease in the overall divorce rate.

Abstract

We investigate how job displacement affects with whom men match on the marriage market and study implications for marriage market matching theory. Leveraging quasi- experimental variation from Danish establishment closures, we show that displaced men on average match with higher earning women, relative to an untreated control group. We show that in standard search and matching models it is challenging to reconcile this finding with the widely documented positive correlation between matched spouses’ incomes. To realign theory with our empirical results we propose a multidimensional frictional marriage market model in which sorting on income is negative, yet a positive correlation between matched partners’ incomes can arise spuriously, driven by unobserved characteristics. We highlight the policy relevance of our results, by contrasting the impact of simulated tax reforms on marital sorting and income inequality in one-dimensional and in multidimensional specifications of our framework.