EXAMINING THE WAGE DIFFERENTIAL FOR MARRIED AND COHABITING MEN

Leslie S. Stratton (*) I. INTRODUCTION Wage analyses almost universally indicate that married men earn more than do single men, even after controlling for observable human capital characteristics. The same appears to be true for cohabiting men. Research has failed as yet to reach a consensus regarding the nature of these differentials. The evidence is consistent with a number of alternative explanations. First, marriage could increase men's market productivity because economies of scale and increased specialization within a multiperson household give them more time and energy to devote to market-related activities. If this is the mechanism driving the marital wage differential, then cohabiting men may also experience a wage boost, albeit a smaller one, as cohabitation is a less stable relationship and less likely to engender specialization. Wages could jump at the start of a relationship, but an increased focus on market-related activities is more likely to cause wages to rise at a faster pace. Alternatively, men who marry or cohabit may be inher ently different from men who do not. If men are selected into relationships based on their earnings ability, then cross-section wage analyses will indicate a wage differential for married and cohabiting men, but difference estimation will not. The goal of this analysis is to shed light on the nature of the marital and cohabitation wage premiums for men by estimating wage models that permit both differential wage growth and selection effects. II. LITERATURE REVIEW Evidence of a marital wage premium for men abounds. A thorough literature review is beyond the scope of this article, but incorporation of a marital dummy in wage specifications for men is fairly standard. Hill (1979) provides one much-cited work. Empirical estimates in the range of 10% to 30% are typical. A number of researchers have explored the nature of this wage differential. One explanation focuses on the marital decision itself, the argument being that men who are inherently more productive are more sought after marriage partners and hence more likely to marry. This is the selection model. Attempts, such as that by Nakosteen and Zimmer (1987), to estimate a model in which marital status and wages are endogenously determined have yielded inconclusive results and are sensitive to identification restrictions. An alternative approach, less subject to specification error, is to estimate a fixed effects specification that eliminates all individual-specific time-invariant characteristics. (1) Researchers Korenman and Neumark (1991), Bartlett and Callahan (1984), Daniel (1991), and Gray (1997) have employed this technique and continue to observe a significant marital wage differential, indicating that selection effects do not explain the entire differential. Gray (1997) finds some evidence that the premium has declined over time, as he does not find a significant marital wage differential using data from the National Longitudinal Survey of Youth (NLSY), the most recent cohort of data tested. However, Daniel (1991) also uses data from the NLSY, and he finds a significant marital wage differential of about the same magnitude as that obtained from older cohorts. Generally speaking, a comparison of cross-section and panel results suggests that less than 20% of the marital wage differential is attributable to individual specific components or selectivity. If selection alone does not explain the differential, then wages must increase following marriage. Wages could be higher because they jump or because they rise more rapidly following marriage. Empirical estimates reported by Kenny (1983) using the Coleman-Rossi Retrospective Life Histories Study and by Korenman and Neumark (1991), Loh (1996), and Gray (1997) using the National Longitudinal Study of Young Men suggest that the growth rate of wages increases on marriage. Once again, results from the NLSY are mixed with Daniel (1991) finding faster wage growth following marriage and Gray (1997) finding no marital wage differential. …