Academic journal article Economic Inquiry

Unobservable Individual Effects, Marriage and the Earnings of Young Men

Academic journal article Economic Inquiry

Unobservable Individual Effects, Marriage and the Earnings of Young Men

Article excerpt

I. INTRODUCTION

Married men earn more than unmarried men. This fact is unassailable and is robust across data sets and over time. Two common explanations of the married-male wage premium are (i) the division of labor in a married household which allocates more of the man's time to the market and (ii) lower cost human capital acquisition for married men. Both of these stories view marriage as productivity-enhancing. Kenny [1983] provides some evidence that marriage facilitates human capital acquisition, however the potential endogeneity of marital status is ignored. Furthermore, the argument that marriage makes it cheaper to accumulate human capital is difficult to reconcile with the fact that individuals who acquire more formal education tend to marry later than those who acquire less (Bergstrom and Schoeni [1992]). An alternative explanation for the marriage premium is that marriage signals certain unobservable individual characteristics, such as ability, honesty, loyalty, dependability and determination that are valued in both the labor and marriage markets.l

Although (i) and (ii) are quite different in terms of their behavioral content, they do share a common thread. Whether marriage per se increases productivity or high-productivity men are more likely to be married, marital status should not be treated as an exogenous determinant of the wage rate.

Nevertheless, in most wage regressions that control for marital status, it is assumed to be exogenous, resulting in an estimated marriage premium that is biased upward. Two exceptions are Nakosteen and Zimmer [1987] and Korenman and Neumark [1991]. Although both papers base their empirics on samples of young men, they come to very different conclusions regarding the size and source of the marriage premium. Nakosteen and Zimmer find the marriage premium to be insignificantly different from zero and claim that marriage does not make men more productive. Korenman and Neumark (KN) present evidence that the marriage premium is at least 15% and rises with years married, indicating that marriage may be productivity enhancing.

In this paper we reexamine the empirical relationship between marriage and wages using a sample drawn from the 1971, 1976, 1978 and 1980 waves of the National Longitudinal Survey of Young Men (NLSYM). Our data set is an extension of the one used by KN, whose empirical work is based on the 1976, 1978 and 1980 waves of the NLSYM.(2)

Our results may be summarized as follows. Estimates of the marriage premium derived from fixed effects models (which control for unobserved heterogeneity) are uniformly smaller than those obtained from random effects models (and other cross-section approaches that do not). Specification tests reject the latter and suggest that the individual effects are positively correlated with both marriage and wages. Conditional on labor market experience, job tenure and year effects, time spent in marriage has no significant effect on wages. This stands as evidence against any dynamic productivity enhancing effect of marriage. We conclude that whatever the source, the marriage premium is a pure intercept shift and no more than 5% to 7%.

Further support for this conclusion comes from the relationship between prospective marriage and wages. Using our longer panel, we construct a "to-be-married" variable which identifies men who marry sometime during the sample period; men who are not married in 1971, but who will be, earn at least as much as those who are already married. Finally, an interesting related result is the robust and significant effect of children on wages; conditional on marital status and years married, the presence of children raises wages about 5% regardless of the estimator employed. We interpret the effects of marriage and children on wages similarly - as structural breaks in the wage-generating process involving adjustments in market work and homework (among other things). …

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