Assortative Mating and Inequality

"I then show that changes in the degree of assortative mating accounts for a sizeable amount of the increase in family wage inequality across these family cohorts."

That's from a paper from the US but first let's look at Germany where the discourse about equal pay and parity is gaining momentum.

Germany’s Big Pay-Gap Problem

Despite Merkel’s status as one of the world’s most powerful women and German politics peppered with strong female leaders, the role of women in the corporate world is limited. While the #MeToo movement has drawn widespread attention to sexual harassment and assault, the pay gap is in many ways anchored in German culture, with the term “Frauenberufe” (women’s jobs) used to refer to lower paid careers such as social work, hairstyling and nursing.

Even in fields dominated by women, such as medical assistants, men can get paid 40 percent more. The lower pay, along with more part-time work for women, mean they earn about 50 percent less over their working lives than male peers, according to a 2017 study by the German Institute for Economic Research in Berlin.

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The institutional challenges were evident in a rare pay-gap dispute last year before the new law took effect. A reporter with German broadcaster ZDF lost a discrimination suit against her employer after a Berlin court ruled that employment conditions of a better-paid male colleague weren’t comparable. Without legal backing, German women at best can hope for the goodwill of employers or support from works councils, which represent staff interests inside German companies.

Here is a paper from the US that puts this inequality into some perspective and gives reasons for this perceived inequality and how it is driven.

Assortative Mating and Inequality

Alparslan Tuncay

Abstract

This paper studies the evolution of assortative mating based on the permanent wage (the individual-specific component of wage) in the U.S., its role in the increase in family wage inequality, and the factors behind this evolution. I first document a remarkable trend in the assortative mating, as measured by the permanent-wage correlation of couples, from 0.3 for families formed in the late 1960s to 0.52 for families formed in the late 1980s. I show that this trend accounts for more than one-third of the increase in family wage inequality across these family cohorts. I then argue that the increased marriage age across these cohorts contributed to the assortative mating and thus to the rising inequality. Individuals face a large degree of uncertainty about their permanent wages early in their careers. If they marry early, as most individuals in the late 1960s did, this uncertainty leads to weak marital sorting along permanent wage levels. But when marriage is delayed, as in the late 1980s, the sorting becomes stronger as individuals are more able to predict their likely future wages. After providing reduced-form evidence on the impact of marriage age, I build and estimate a marriage model with wage uncertainty, and show that the increase in marriage age can explain almost 80% of the increase in the assortative mating.

Conclusion

This paper investigates the evolution of assortative mating based on permanent wage in the U.S. since the late 1960s; quantifies its impact on rising family-wage inequality; and, finally, tries to understand the factors behind this evolution. It documents a significant increase in assortative mating, as measured by couple’s permanent-wage correlation, between families formed in the late 1960s and in the late 1980s. I then show that changes in the degree of assortative mating accounts for a sizeable amount of the increase in family wage inequality across these family cohorts. This finding shows focusing on the time trends in permanent-wage inequality is not enough to understand the mechanics of increasing family wage inequality. Note, this finding does not rule out a feedback mechanism. It might be that increasing family wage inequality incentivized individuals to care more about their spouse’s wages, causing a higher degree of marital sorting along permanent wage, which in turn mechanically increased family wage inequality.

However I then argue that the increase in the marriage age can explain most of the increase in assortative mating. I first show a positive association between the degree of assortative mating and years of work experience previous to marriage. This finding is complemented with a structural model that quantifies the impact of increased marriage age on assortative mating. I show that the increase in marriage age can explain most of the increase in assortative mating and thus accounts for a significant part of the increase in family wage inequality.

It is important to keep in mind that marriage age is not exogenous as assumed in the model. A large literature already documents the exogenous factors behind the increase in marriage age. The effect I attributed to the marriage age in my analysis, thus, should be understood as the indirect effect of all these factors on assortative mating through increasing marriage age. Going forward, an interesting extension of the model would be to allow individuals to choose when they marry. With this extension, one can discuss the link between these factors and assortative mating in a more transparent way and might even be able to quantify the role of each of these factors separately.

Another interesting extension of my analysis could be an examination of fiscal policy implications of assortative mating.

Full paper here