Assortative Matching and Household Income Inequality: A Structural Approach

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Assortative Matching and Household Income Inequality: A Structural Approach (joint with Shu Lin Wee)

Income inequality across households has risen dramatically in the last 40 years. At the same time, there have been significant changes in the determinants of household income, including educational attainment, the skill premium, marriage propensities, and the educational distribution of marriages. We link these phenomena through a model of investment in schooling, marriage, and household search in which the degree of sorting in marriages affects both who marries whom and educational investment decisions. We estimate the model separately for both the 1980's and the 2000's, and use the estimated models to quantify the effects of changes in marital sorting on household income inequality. We do so both (i) in a long run environment in which we let the degree educational attainment respond endogenously to changes in sorting, and (ii) in a short run environment in which educational attainment is held fixed.