The Second Paycheck to Keep Up with the Joneses: Relative Income Concerns and Labor Market Decisions of Married Women
This paper provides a simple model and an empirical test of the effect of interpersonal income comparisons on labor supply. By focusing on the relative income of a full-time working man and its effect on the wife’s labor supply decision, we examine the role of relative income in labor supply decisions while avoiding the endogeneity problem that plagues the relative income–labor supply connection. The results show that the relative income of husbands plays an important role in the labor supply decisions of married women. The effects are economically meaningful and robust across various measures of relative income and reference groups.
Volume (Year): 36 (2010)
Issue (Month): 2 (Spring)
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