Changes in Relative Wages and Family Labor Supply
The large changes in relative wages that occurred during the 1980s provide fertile ground for studying the behavioral responses of married couples to the wage changes of husbands and wives. I find estimates of own-wage and cross-wage elasticities for men that are very small. The own-wage elasticity for women is positive and the cross-wage elasticity for women suggests a strong negative response of female labor supply to changes in their husband’s wages. Family labor supply behavior determines how changes in individual wage rates translate into family earnings changes. The responses of women to changes in their husband’s wages attenuated somewhat the increases in individual wage inequality at the family level: The results suggest that the earnings of the wives of low-income men would actually have fallen over the decade if women’s labor supply did not respond to changes in their husbands’ wages. However, assortative mating implies that wage changes of husbands and wives are correlated and so family earnings inequality still grew during the decade of the 1980s.
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