Money and Power in Marriage

Q: Everyone’s heard the cynical version of the Golden Rule, “He who has the gold makes the rules.” Does your research on the economics of marriage, in some ways, confirm the truth of that saying?

A. Yes, there’s definitely an extent to which it does. You can see a very clear pattern of what’s going on at the time of marriage - everything that predicts how well the husband and wife will do relative to the labor market will also predict how things are shared within the household.

Q. For example, spending on clothing versus cars?

A. Clothing versus cars is an obvious one. A good example is the amount spent on education for the kids versus my going out and having fun with my friends. If my spouse and I have differing views on how much we value expenditures on the kids versus expenditures on myself, then who gets to makes decisions in the household is going to affect how much gets spent on the kids.

We definitely see in the data that wives who have higher earnings potential relative to their husbands consume more than wives who have lower earnings potential. They tend to have a little bit more leisure and do a little less housework.

Q. This is survey data?

A. In particular, it’s a panel data set from Japan. Survey data where we know, from their response to the questions, how much the household spends out of their monthly or yearly budget on goods for everyone in the household. Just for the husband, just for the wife, as well as for the entire family. How many hours they’re spending in the labor market or commuting back and forth. How much they’re spending on doing household work, including time with the children, preparing meals, taking care of the house, as well as pure leisure.

Q. Given that Japan has a different culture, do you have any constraints on generalizing? Or do you think the outcomes are universal?

A. I think the patterns are generally universal. If you look at the patterns in Japan over the past 15 years – in terms of hours worked by women versus men – they’re about 20 to 25 years behind the U.S. and the United Kingdom. But the patterns all line up pretty closely.

Q. Talk about the rise of two-income families. To what degree has the phenomenon been about choice versus necessity?

A. I guess there are a couple of things going on in the rise of the two-earner households. One is just the increase in female education attainment and labor force participation. So just from the side of being a single man, the probability that you’ll meet a woman who is highly educated and is going to want to use those skills in the market is much higher than before. So just, mechanically, you’d expect there to be a higher fraction of two-person working households.

Q. Family counselors talk about “commitment” in a marriage. When an economist talks about commitment, what do you mean?

A. When I’m using the word commitment, I’m thinking of being able to agree to and commit to executing a bunch of ways of doing things in marriage at the time of marriage.

We may agree, at the time of marriage, that the husband and wife will support each other in good times and in bad. An obvious example of that is, if I get very sick and can no longer work, that my partner would still continue to possibly work a lot more and transfer some income over.

Similarly, we may agree that I’m going to go to medical school and my partner is going to work and pay all the expenses while I’m doing that investment.

That’s a kind of specialization. It can achieve an outcome that’s beneficial to both people, but only if 10 or 20 years later they’re still in a relationship together.

Q. Sounds like a real-life example of game theory, coping with uncertainty.

A. Two different scenarios.

My spouse, who in the future is going to be a doctor or lawyer, is going to split their income with me and I’m much better off than I would be otherwise. But we can’t attain that allocation because I’m pretty sure in the state of the world where they do actually become a successful surgeon that I’m no longer going to be part of the picture.

Alternatively, my partner and I might both decide to work in the labor market because neither one of us want to be in a position where 20 years down the road we’re going to be by ourselves and have to start all over.

That may mean that both of us are over-invested in the labor market and not taking advantage of as much leisure time or investing as much individual time in the children.

Q. From an economist’s perspective, why is marriage an institution worth studying?

A. There’s a couple of reasons why we want to understand the decision-making process within the household.

Coming back to the possibility that the husband and wife disagree on how much should be put into their children’s education - they both agree it should be positive, but maybe the exact numbers are different.

It’s perhaps less of an issue at the high end, but what’s often on the table – especially in developing countries – are policies where the government wants to transfer money directly to the children. Then it turns out how you get the money is going to make a difference.

Let me give an extreme example.  Suppose that, on average, husbands actually don’t care about children. Suppose they care about drinking.

Q. That’s a plausible hypothesis.

A. Suppose, on average, other than taking care of their basic needs, wives would prefer to transfer everything to the children.

Then it’s going to make a difference whether it’s the husband or the wife who has the decision-making ability within the household. Or has more influence on the agreements that they come to between each other.

It turns out that there’s substantial empirical support behind the idea that who is earning the money gets to make the decisions in the household.

Q. When one in the couple gets a promotion – or a pink slip – the family’s income can change significantly. How does risk inform a couple’s decisions about allocating household duties or making spending changes?

A. One reason to form a household is to be able to provide some insurance between spouses in the labor market. It’s easiest to see if both are working but it makes sense, otherwise, as well.

Then there’s what do you do when the shock actually happens? This relates to commitment.

There are small things, like an adjustment on the budget. Then there are the big cases where one of the partners, the industry that they were working in, is no longer profitable and there are no jobs.

You hope that the partner who wasn’t hit will work extra, to ride out the shock or invest in the education of the other partner. That’s a good time to go back to school. You’re going to need some time to get back to something else.

Q. Why should I care if you stay married? Why is it of interest to me whether a marriage holds or disintegrates?

A. One thing that marriages do seem to do reasonably well is provide a place to invest in the children for the next generation. Stability makes it easier to do those investments.

We expect that more resources are devoted to investing in children, partly because there are returns to scale to living together. …Everything you save on heat [may go] into extra-curricular activities for the kids.

Q. I have a stake in your marriage, even though I don’t know you or your wife?

A. I guess if you want to put it in that way, you would have a stake in the marriage, to the extent that marriage helps promote the human capital accumulation of the children. That’s a first-order thing that we need for economic growth.

Q. What next?

A. What I’d like to do next here is be much more ambitious in terms of modeling the dynamic investment in children, as well as the dynamics of investing in my own human capital through going to school or taking a job in which experience matters a lot, in terms of wages.

How that affects the decision on who I marry. The sorting in the marriage market and how that changes over time in response to things like increased uncertainty, better opportunities for women in the labor market. Especially, with women becoming much more educated.

Q. It would be very unlikely for the high school principal to marry the high school janitor.

A. Sure.

In terms of changes over time, this not my anecdote…50 years ago, if a woman wanted to marry a doctor, it was fine to become a nurse. That’s who you’re seeing all the time. Lots of doctors marrying nurses.

Now you have no chance, as a nurse, to marry a doctor or a surgeon because there are lots of women who are doctors that they can marry.

Part of the choice of education and pre-marital investments have to do with sort of looking forward to “Who am I going to end up with?”