Spouses who work together - Evidence on relative income within households

30.6.2021 Blog

New research by Natalia Zinovyeva and Maryna Tverdostup examines why there are many more couples where men slightly out-earn women than couples in which women slightly out-earn men. Previous research has attributed this discrepancy to the existence of a ‘gender identity norm’ that prescribes a bread-winner role to the husband and, consequently, limits the income of married women. Instead, the new study shows that the phenomenon is a reflection of earnings equalization in co-working couples which actually helps women to earn more.

Kuva: Christin Hume/Unsplash.

According to the World Values Survey (Inglehart et al., 2014), 36% of Americans agree with the statement “[I]f a woman earns more money than her husband, it’s almost certain to cause problems.” In the European Union, this view is shared by 39% of the population. Even in places like Finland, 34% agree with this view.

In an influential article, Marianne Bertrand and colleagues (2015) point out that a social norm that assigns a bread-winner role to the husband may put women with high-earning potential at a disadvantage. It may affect the formation of couples and it can induce high-earning married women to reduce their labour supply.

Analysing U.S. data, Bertrand et al. argue that this gender identity norm explains why there is a discontinuity to the right of 0.5 in the distribution of married couples according to the share of income earned by the wife – see panel (a) of Figure 1. That is, a disproportionally large share of women seem to be earning just a little bit less than their spouses. The existence of this discontinuity has been widely cited both in the media and in academia.

Figure 1: Relative earnings of women

(a) U.S. households

Figure 1: Relative earnings of women (a) U.S. households
(b) Finnish households
Figure 1 Relative earnings of women (b) Finnish households

Sources: SIPP Complete Gold Standard Files 1990-2004, Panel (a); and FLEED 1988-2014, Panel (b).

The research by Natalia Zinovyeva and Maryna Tverdostup, forthcoming in American Economic Journal: Applied Economics, revisits the analysis by Bertrand et al. using exceptionally rich data from Finland. It shows that there is a similar discontinuity among Finnish households – panel (b) in Figure 1.

But the Finnish data makes it possible to examine some additional patterns that cast doubts on the gender identity norm explanation. The study shows that the discontinuity only exists within a very specific group of couples: spouses who start working together (see Figure 2). This group includes around 15% of working couples. In the rest of the population, there is no evidence of any unusual phenomena in the vicinity of the 0.5 point.

Figure 2: Relative earnings of women, by co-working status

(a) Different firms, not self-employed

Figure 2: Relative earnings of women, by co-working status (a) Different firms, not self-employed

(b) Same firm or both self-employed

Figure 2: Relative earnings of women, by co-working status (b) Same firm or both self-employed

Source: FLEED 1988-2014.

Furthermore, the discontinuity in co-working couples does not exist when couples are formed. It emerges over time as a result of earnings equalisation in self-employed couples and earnings convergence in couples where spouses work for the same employer. As panel (a) of Figure 3 shows, immediately after spouses start being jointly self-employed, in a sizable proportion of households earnings equalise. At the same time, spouses who start working for the same employer start having more similar earnings (panel (b) of Figure 3). Earnings convergence occurs both in couples where women initially out-earned their partners and in couples where women were the second earners. Given that the latter group is larger, the process of earnings convergence in co-working couples generates an excess mass of households to the left of point 0.5.

Figure 3: Dynamics of the relative earnings of women

(a) Self-employed

Figure 3: Dynamics of the relative earnings of women a) self-employed

(b) Same firm
Figure 3: Dynamics of the relative earnings of women b) same firm

Source: FLEED 1988-2014.

There may be several reasons explaining why self-employed couples tend to equalise their earnings. If spouses are eventually going to pool their income, it would be unnecessary to negotiate different salaries. Self-employed couples may be inclined to report similar earnings to minimise the tax burden. Instead, earnings convergence in couples co-working in the same firm may be due to wage compression at the firm level which may push spouses towards having more similar earnings. To test this hypothesis, the authors analyse the evolution of relative earnings in placebo couples constructed by randomly matching unrelated co-working women and men. Consistently with the idea of firm-level earnings compression, also in these placebo couples, earnings converge over time and the discontinuity emerges.

The authors observe that women co-working with their partners on average tend to have higher earnings than similar women in other couples suggesting that, if anything, they seem to benefit from co-working, at least, in terms of their earnings.

Overall, the evidence suggests that the observed discontinuity in the distribution of spouses’ relative earnings is not due to the existence of a social norm that limits the income of married women. Paradoxically, the observed discontinuity is the result of a phenomenon – co-working couples – that helps women to have higher earnings.

References:

Bertrand, Marianne, Emir Kamenica and Jessica Pan (2015) ‘Gender Identity Norms and Relative Income within Households’, Quarterly Journal of Economics 130(2): 571-614.

FLEED (2015) Finnish Linked Employer-Employee Data, Statistics Finland.

Inglehart, Ronald, Christian Haerpfer, Alejandro Moreno, Christian Welzel, Kseniya Kizilova, Jaime Diez-Medrano, Marta Lagos, Pippa Norris, Eduard Ponarin, Bi Puranen, and others. (eds). 2014. “World Values Survey: Round Three - Country-Pooled Datafile 1995-1998.” Version: http: //www.worldvaluessurvey.org/WVSDocumentationWV3.jsp (accessed August 25, 2020). Madrid: JD Systems Institute.

US Census Bureau (2015) SIPP Synthetic Beta: Version 6.0, Washington DC; Cornell University, Synthetic Data Server, Ithaca, NY.

Natalia Zinovyeva and Maryna Tverdostup (2018) ‘Gender Identity, Co-Working Spouses and Relative Income Within Households’, forthcoming in American Economic Journal: Applied Economics

Corresponding author:

Natalia Zinovyeva
University of Warwick
Department of Economics
Email: [email protected]

Natalia Zinovyeva

Natalia Zinovyeva is an Associate Professor at the University of Warwick. Prior to Warwick, she worked as an Assistant Professor of Economics at Aalto University, a Research Fellow at the Spanish National Research Council (CSIC) and Foundation for Applied Economic Research (FEDEA). She received her Ph.D. in Economics and Management from the Sant’Anna School of Advanced Studies in Pisa. Her research interests include Labor Economics and the Economics of Education, Science and Innovation. Natalia Zinovyeva's home page >

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