Money and Marriage: Implications of Wage Inequality on Marriage Outcomes

Abstract

This paper explains a stylized fact about the correlation between rising wage inequality and declining marriage rates. A two-sided matching model is developed to explore how this interaction occurs. The model features a steady state equilibrium in which the whole marriage market is divided into distinct groups and only people in the same group will marry each other. Using IPUMS data from 1970 to 2000, our estimates show that in past decades the U.S. marriage market experienced a structural change. The higher matching efficiency and declining elasticity of matching suggest that the marriage market today provides more chance to meet and better gender equity, though higher arrival rates also raise the outside option of getting married. Additionally, the results obtained reveal that wage inequality accounts for over 38% of the decline in marriage rate, which is underestimated in Gould (2003).