Why do married men earn more: productivity or marriage selection?

INJAE LEE [*] Using data from the Current Population Survey March Supplement 1999, this study examines why married men earn more than men who have never married. We find that the marriage wage premium cannot be attributed to the unobservable higher earnings capability of married men. Instead, wage gains from marriage are explained by the degree of specialization within the household. Our findings cast doubt on the argument that the selection of high-ability men into marriage is the cause of the marriage wage premium. (JEL J12, J31) I. INTRODUCTION Labor economists have devoted considerable effort to explaining why married men earn higher wages than men who have never married. A number of theoretical hypotheses have been advanced to explore the nature of this marriage wage premium. The dominant theory is the productivity hypothesis, which argues that marriage makes men more productive (Becker, 1991). Married men have greater opportunities to specialize in labor market activities when their wives specialize in home production. The marriage wage premium reflects a productivity gap between married and never-married men, stemming from different conditions for human capital accumulation in market work. A competing argument is the selection hypothesis (Nakosteen and Zimmer, 1987, 1997). This reverses the direction of causality, proposing that men with a higher earnings capability are valued more in the marriage market and are thus more likely to marry. The marriage premium mirrors the marriage selection pattern. Married men are more productive not because they become more productive after marriage, but because they were more productive before marriage. [1] While there is compelling evidence that married men have higher earnings than never-married men (Hill, 1979), the relative merits of the productivity and selection arguments in explaining the existence of the marriage premium remain to be established. Nakosteen and Zimmer (1987) argue that the marriage premium is a statistical artifact arising from a sorting process in which high-wage males tend to be selected into marriage. When selection effects are accounted for in their wage regression, the marriage premium remains numerically large but becomes statistically insignificant. However, Korenman and Neumark (1991) show that the selection hypothesis is an incomplete explanation of the marriage premium. They find that less than one half of the marriage premium vanishes when unobservable individual factors affecting both wages and marriage are removed. The remaining premium is interpreted as the productivity-enhancing effects of marriage. Later studies examine the validity of the productivity explanation. Using measures for the household division of labor, such as a wife's labor market hours and the number of children in the household, the studies investigate the effects of household specialization on a husband's earnings. According to the productivity hypothesis, men whose wives specialize in home production should have a larger premium than men whose wives work in the labor market. The evidence for this is mixed. Daniel (1992) and Gray (1997) find that the marriage premium is negatively associated with the wife's labor market hours, whereas Loh (1996) and Jacobsen and Rayack (1996) find little evidence that the marriage premium is explained by productivity differences. Past work tries to clarify the relationship between marriage, household specialization, and a husband's earnings, but it does not allow us to reach an empirical consensus about the cause of the marriage premium. In this article we present a new empirical framework to test the relative merits of two competing, but not mutually exclusive, hypotheses. First, we develop a switching regression model with endogenous marriage selection. The selection hypothesis is founded on the premise that a man's attractiveness as a potential mate depends upon his observed earnings as well as unobservable individual traits that are positively related to his earnings potential. …