Love and money

A theoretical and empirical analysis of household sorting and inequality

Raquel Fernandez, Nezih Guner, John Knowles

    Research output: Contribution to journalArticle

    Abstract

    This paper examines the interactions between household formation, inequality, and per capita income. We develop a model in which agents decide to become skilled or unskilled and form households. We show that the equilibrium sorting of spouses by skill type (their correlation in skills) is an increasing function of the skill premium. In the absence of perfect capital markets, the economy can converge to different steady states, depending upon initial conditions. The degree of marital sorting and wage inequality is positively correlated across steady states and negatively correlated with per capita income. We use household surveys from 34 countries to construct several measures of the skill premium and of the degree of correlation of spouses' education (marital sorting). For all our measures, we find a positive and significant relationship between the two variables. We also find that sorting and per capita GDP are negatively correlated and that greater discrimination against women leads to more sorting, in line with the predictions of our model.

    Original languageEnglish (US)
    Pages (from-to)273-344
    Number of pages72
    JournalQuarterly Journal of Economics
    Volume120
    Issue number1
    DOIs
    StatePublished - Feb 2005

    Fingerprint

    Empirical analysis
    Theoretical analysis
    Household
    Sorting
    Skill premium
    Per capita income
    Spouses
    Capital markets
    Household formation
    Education
    Per capita GDP
    Discrimination
    Interaction
    Initial conditions
    Household survey
    Prediction
    Wage inequality

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Love and money : A theoretical and empirical analysis of household sorting and inequality. / Fernandez, Raquel; Guner, Nezih; Knowles, John.

    In: Quarterly Journal of Economics, Vol. 120, No. 1, 02.2005, p. 273-344.

    Research output: Contribution to journalArticle

    Fernandez, Raquel ; Guner, Nezih ; Knowles, John. / Love and money : A theoretical and empirical analysis of household sorting and inequality. In: Quarterly Journal of Economics. 2005 ; Vol. 120, No. 1. pp. 273-344.
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