Marriage and employment participation with wage bargaining in search equilibrium
| Published date | 01 September 2021 |
| Author | Roberto Bonilla,Alberto Trejos |
| Date | 01 September 2021 |
| DOI | http://doi.org/10.1111/sjpe.12289 |
Scott J Polit Econ . 2021;68:517–533.
|
517
wileyonlinelibrary.com/journal/sjpe
1 | INTRODUCTION
The empirica l literature address ing links between th e labour and marriage m arkets is long and vari ed. Despite this,
the theoreti cal (equilibrium) literature t hat explicitly links the t wo markets is less developed, p articularly so with
frictional m arkets. To cite only a few empirica l contributions with resu lts addressed by our mod el: Korenman and
Newmark (1991) is among the ma ny pieces to document empiric ally a premium in wages for mar ried men; others
have elaborated t hat this relationship is st ronger or more robust amon g married men with workin g wives. Among
them, Jacobse n and Rayack (1996) show the data are consi stent with the explan ation that the wife's incom e allows
the husband to se arch for better jobs. S ong (2007) finds that t he relationship is posit ive except when the wife is in
management (whic h perhaps can be interp reted as her being in the lab our market permanentl y rather than transi-
torily). Other p apers show a positive corre lation between spouse's w ages (Rosetti and Tanda (200 0)).
Accepted: 5 May 2021
DOI: 10 .1111/sjpe.1 2289
ORIGINAL ARTICLE
Marriage and employment participation with wage
bargaining in search equilibrium
Roberto Bonilla1 | Alberto Trejos2
This is an open access article under the terms of the Creat ive Commo ns Attri butio n- NonCo mmerc ial- NoDerivs License, which
permits us e and distributio n in any medium, provid ed the original wor k is properly cited , the use is non- commercial and no
modifications or adaptations are made.
© 2021 The Author s. Scottish Journal of Political Economy published by John W iley & Sons Ltd on behal f of Scottish Economi c
Soci ety.
1Newcastle U niversity, Newcast le upon
Tyne , UK
2INCAE, Al ajuela, Costa Ri ca
Correspondence
Roberto Bon illa, Newcastle U niversity
Business Sch ool, 5 Barrack Roa d, Newcastle
upon Tyne, UK.
Email: roberto.bonilla@ncl.ac.uk
Abstract
We build an equilibrium se arch model where marr ied cou-
ples make joint decisions on h ome production an d labour
market participat ion and analyse the implications of our re-
sults for a frict ional marriage market. A wo rker's bargain-
ing position reflects their productivity, and the productivity
and employment status of their spouse. People sometimes
accept transitor y jobs only to raise the spo use's long- term
wages. Firms sometimes reduce turnover by unilaterally in-
creasing a worker's wage, en suring that the spouse s tays at
home.
KEYWORDS
labour market participation, linked search markets, marriage
market, wage formation
518
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BONILLA ANd TREJ OS
More import antly, various contribu tions show a relationship b etween wages and spo use's education that do es
not stem from asso rtative matchi ng. With Chines e twins data, Hua ng et al. (2009) use f ixed- effect s model to
control for the ass ortative matching ef fect and conclude th at there remains a positi ve effect of spousal ed ucation
on own earnings . They interpret this as cros s- produc tivity effect . Using US data from 1960s, Benh am (1974) finds
a positive associ ation between a wi fe's education and h er husband's wages and provides co nvincing arguments
that the causality is in that direction, and not only the result of assortative matching. Similar results are obtained
in Jepsen (200 5) and Tiefenthaler (1997). We believe th at there is a shortage of th eoretical (equilibr ium) literature
addressing th e link between these t wo markets, and our aim is to cont ribute towards filling that vo id.
We extend the labo ur market framework in Bonill a and Trejos (2015) by adding wage bargainin g. The ob-
jective of that pa per was to study the long- t erm labour participati on strategies of different k inds of couples,
as affected by h ome production. Here, in stead, we make some simplific ations on other aspects t hat enable a
richer analysi s of wage determination. The resul ts differ substantiall y, and we show that this has i nteresting
and new implica tions not only for the labou r market outcomes but also fo r the modelling of a related ma rriage
market. In the mo del we develop here, a gents enter the job m arket in married co uples, with both p artners
unemployed, an d they have a decision to all ocate their eff orts betwe en job search, em ployment and home
production . We focus on parameters such that t he complementarity bet ween wage income and the value of
home produc tion is so high that every coupl e will find optimal to always have on e of the spouses occupied in
home production.1
We assume wages are dete rmined by bargaini ng between firms a nd potential employee s. Because the bar gain-
ing position of a wor ker is stronger when their sp ouse has a higher income, mar ried peoples’ income is cor related
in that the bett er paid you are, the hig her pay your spouse c an bargain. Thi s generates a correl ation in spouse
earnings that d oes not only arise direc tly from, but also aff ects, the degree of as sortative matching . We find equi-
libria where th e spouse with lower earnin g potential transitoril y goes to the job market, just to i mprove with their
salary the b argaining power of t heir partner ; in other equilibr ia, that spouse ref rains at all from lab our market
participat ion. This can make family inco me inequality larger than i ndividual income inequal ity. We also find that,
for fairly prod uctive couples whe re the productivi ties are neither too fa r apart nor too similar, emp loyers prefer to
unilaterally in crease the wage of th e more product ive spouse in order to r educe turnover by ens uring that the
spouse stays at h ome.2 Throughout , we call this colloquial ly a “bribe.” This compresse s the upper part of the w age
distribution relative to the productivity distribution as some relatively productive workers see their wage in-
creased. It also l eads to multiple equilib rium wages and job search s trategies for some coup les. The multiplicit y of
equilibria res ults from the feedback be tween a unilateral wage incr ease by the firm and the effe cts of this on in-
dividual wages: i f firms follow this strat egy in equilibrium, th is increases the worker's b argaining position vis- a- vis
an individual f irm. This reduces the br ibe required relative to th e otherwise agreed wage a nd makes it more likely
to be optimal.
To be clear, we assume that employe rs are informed about the mar ital status and partn er's characteristic s of
prospecti ve employees, and this inf ormation is therefor e considered in the wage ba rgaining process. S ince it could
be inferred more o r less accurately from the d egree of (positive or negati ve) assortative matching in t he marriage
market and indiv idual worker's characte ristics, we consider th is a good benchmark to star t thinking in theoret ical
terms about how t he outcomes of marriage and the la bour market are interrelated in a n environment with wage
bargaining. I n a more general framewor k, one could indeed have f irms not observing di rectly the produc tivity of a
worker's part ner, but, in equilibrium , knowing the distrib ution of the partne r's productivit y. For this to be possible,
it would have to be the c ase that existing marria ges are indeed the result of (p ositive and/or negative) assor tative
1In Bonilla and Trej os (2015), we look at ot her paramete rs in which the ch oice about whet her to be a two- income family is rel evant. We simplif y
matters he re in order to focus o n the wage and bar gaining probl em.
2One could thi nk of this as an effi ciency wage, si nce the firm pay s the inducemen t with the objec tive that the wor ker does not quit , and affecti ng
the partn er's behaviour i s just a tool toward s this end.
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