Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality

53 Pages Posted: 2 Nov 2001 Last revised: 13 Jun 2021

See all articles by Raquel Fernández

Raquel Fernández

New York University - Leonard N. Stern School of Business, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Nezih Guner

Universidad Carlos III de Madrid; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

John Knowles

University of Pennsylvania - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: November 2001

Abstract

This paper examines the interactions between household matching, inequality, and per capita income. We develop a model in which agents decide whether to become skilled or unskilled, form households, consume and have children. We show that the equilibrium sorting of spouses by skill type (their correlation in education) is increasing as a 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, wage inequality, and fertility differentials are 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.

Suggested Citation

Fernández, Raquel and Guner, Nezih and Knowles, John, Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality (November 2001). NBER Working Paper No. w8580, Available at SSRN: https://ssrn.com/abstract=289329

Raquel Fernández (Contact Author)

New York University - Leonard N. Stern School of Business, Department of Economics ( email )

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New York, NY 10003
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Nezih Guner

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

John Knowles

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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215-573-2057 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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