Title: Education, Labour Supply and Marriage
Funder: Economic and Social Research Council

Abstract: In most countries, inequality and child achievement are at the centre of public policy debate. Policies aimed at alleviating poverty or improving the opportunities of disadvantaged children often form the backbone of government welfare programmes. But such policies may fail to achieve their goals if not informed by a rigorous knowledge of what drives these outcomes. However, poverty and underachievement are not well understood. They are the result of a complex net of decisions taken throughout the course of life by both the individual and the family. Three decisions are particularly crucial: education, labour supply and marriage. Their importance stems from the long-run effects they have for wellbeing, the outcomes of children and the distribution of resources within the family and across society as a whole. To a large extent, these effects are driven by the strong interconnections between education, labour supply and marriage over the lifetime. For instance, education is understood to promote employment and the transmission of skills across generations. Since income and children's education are valued by families, education must be a valuable asset for marriage. Indeed, evidence shows that the education of wife and husband are strongly positively related. Spouses' education will then affect household resources and their allocation, particularly towards children. In turn, education investments are themselves determined by their likely returns in terms of employment, earnings, marriage and the distribution of household resources. Changes in any of these returns, maybe induced by a policy reform, lead to adjustments in education decisions and cause a chain response over the course of life. The importance of some of these links has been demonstrated by past research. But they have not been investigated in a common framework capable of dealing with all their interconnections and explaining their consequences for the distribution of income or children's outcomes. We also know that changes in the tax and benefit system have a significant direct effect on some of these outcomes, but we know a lot less about their long-run effects triggered by indirect responses on forward-looking decisions like education. In this project, we will contribute to a better understanding of the lifetime links between major decisions, their consequences for the wellbeing of spouses and children, and their implications for policy design. To this end, we will develop a model of education, labour supply, marriage and the distribution of resources within the household that explicitly deals with their lifetime links and consequences. The model will produce new systematic evidence on the nature of connections between major individual and family decisions and outcomes, their relevance for welfare policy design and their empirical significance in countries like the UK, US and Sweden. Many aspects of a modern tax and benefit system will be explicitly included, such as progressive taxation or work-contingent benefits for families with children. The joint consideration of individual and family decisions over the course of life together with a description of the main features of a modern tax system will allow us to discuss formally the design of taxes and benefits for families for the first time. We expect the evidence produced by this research to make a significant contribution towards informing policymaking on how to balance key aspects of individual and family behaviour for the design of taxes and benefits for families.


Research activity codes: 1.2 PSYCHOLOGICAL AND SOCIOECONOMIC PROCESSES
Health categories: GENERIC HEALTH RELEVANCE