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For Richer, Or For Poorer...

Working Spouses And Labor Inequality

Research by Kevin M. Murphy

Over the past 30 years, American men on the whole have experienced both declines in employment and lackluster earnings growth. During the same period, their wives have entered the job market as never before, and have scored substantial gains in wages and earnings. At first glance, the two trends appear related. In other words, some might hazard a guess that women are working more because their husbands are earning less, or that husbands are working less because their wives are bringing home more of the income. Not so, says Kevin Murphy, professor of business economics and industrial relations at the University of Chicago Graduate School of Business.

In his recent study entitled "Wage Inequality and Family Labor Supply," which he conducted with the University of Houston's Chinhui Juhn, Murphy reports that the apparent relationship between the two phenomena takes a backseat to a wholly different labor market reality.

"The central thrust in what we're arguing is that there's been an enormous increase in married women in the labor market," Murphy says. "Many people have thought that's because their husbands' earnings are stagnant. But in fact, the largest increase in earnings has been among the wives of middle and high income men."

As Murphy notes, examining differing levels of men's income -- rather than wages and earnings in the aggregate -- tends to negate the theory that the two trends are strongly related. The evidence is compelling when data extending back more than 30 years is examined. "The very groups of men who are earning the least compared with three decades ago are men from the lowest income levels, and their wives have shown the least increase in labor participation," says Murphy. "In the case of these low income men, their wives' increases just compensate for the shortfall in their earnings. By contrast, the earnings of the highest income men from 30 years ago have gone up, and their wives' incomes have just added to that."

Comparing earnings advances in the 1960s with those of the 1970s and '80s lends additional weight to the argument. In the 1960s, when their husbands' earnings grew 42 percent, wives of low-wage men enjoyed their fastest employment growth. But during the following two decades, while their husbands' earnings plummeted, the entry into the labor market for these same women slowed substantially. Over the same period, wives of high-wage men were benefiting from sharply increased market opportunities.

What this suggests, says Murphy, is that increased market opportunities for women -- particularly highly-skilled women -- are likely to be more responsible than shortfalls in husbands' earnings for the growth of female employment in the 1970s and '80s.

Equally important, the trend amplifies the enormous rise in labor inequality between the highest earning men and the lowest earning men over the years from 1969 to 1989. As Murphy notes, "One of the dominant features of the '70s and '80s was increasing labor inequality. You might expect lower income wives to have earned more than middle and higher income wives to make up for that. But we really didn't see that." Murphy's report states that while real wages of men in the top wage range increased by 15 percent over that period, real wages of men in the bottom wage range declined by 29 percent. When both wages and employment rates are considered, the real annual earnings for men in the bottom range declined about 35 percent.

During the same period, employment rates increased among all women, but increased the most among wives of men not from the lowest ranges, but from the middle and top wage ranges. The result was a dramatic shift in women's likelihood to work from 1969 to 1989. In 1969, the higher the husband's wage, the less likely his wife was to hold a job. By 1989, wives of men in the middle of the wage spectrum were the ones working the most. While it has traditionally been thought that married women with children were less likely to work than those without children, here again the reports' findings seemed to stand conventional wisdom on its head.

In fact, the report demonstrated, having children to raise did little to slow women's gains in the labor market. "The increase in [labor] participation of women with children was as large or larger than the increase of women without children," notes Murphy. "Change in fertility was not the biggest factor."

Having addressed these issues, Murphy and Juhn next examined to what extent the fall in male employment could be linked to the rise in wives' earnings. Conversely, they also attempted to determine to what extent the growth in wives' employment could be linked to poor economic performance of their husbands. In both cases, the answer was the same: the performance of their spouses in the labor market did not greatly impact the losses and gains of married men and women respectively.

"The answers to these questions are pretty symmetrical," observes Murphy. "Far and away, the decline in opportunities for lower wage men outweighed [in importance] the growth in their wives' earnings. And the reasons women were working more had a lot more to do with greater opportunities for them.

"Seventy to 80 percent of the change has to do with labor opportunities -- factors directly impacting their participation behavior, not that of their spouses. Only about 20 to 30 percent of the change could be attributable to changes in spouses' earnings."

Taken together, the findings have substantiated the long-held belief that high-wage men have traditionally tended to marry high-wage women. "That's always been true," says Murphy. "But it used to be relatively flat. In other words, [because they worked fewer hours] the spouses of the high-wage men used to earn as much as spouses of low-wage men.

"But there's been substantial increase in participation of high-wage women married to high-wage men. So what used to be true in wages now comes through in earnings. It's evolved into the fact that high-earnings men tend to marry high-earnings women."

Kevin M. Murphy is the George Pratt Shultz Professor of Economics and Industrial Relations at the University of Chicago Graduate School of Business.

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