It has been shown that married men earn more money than non-married men with similar characteristics. Why is this? A few explanations are:
- Married men are more productive since they specialize in non-household production,
- Employers could discriminate in favor of married men, or
- the unobservable characteristics that make men more productive in the labor market also make them more attractive in the marriage market.
- wij = βMij + γXij + μij + fj + uij (1).
- M: married, X: other variables, μ: individual fixed effect, f: family fixed effect, u: error term
- For OLS, the residual is equal to μij + fj + uij (1).
Using OLS, the authors find that married men earn a 19% wage premium over non married men. However, this specification does not solve the selection problem. If it is true that unobservable factors affect wages and marriage eligibility, then the marriage dummy variable will be correlated with the residual and β may be biased upwards.
- w1j= βM1j + γX1j + μ1j + fj + u1j (2)
- w2j = βM2j + γX2j + μ2j + fj + u2j (3)
Since twins are in the same family, we know that fj in both equation is the same. Further, we assume that the genetically determined, individual specific earnings endowment is the same across twins (i.e., μ1j = μ2j). Thus we can difference out the two equations so that we are left with:
- w1j – w2j = β(M1j – M2j) + γ (X1j – X2j) + (u1j – u2j) (4)
- Antonovics, K. and Town, R. “Are All the Good Men Married: Uncovering the Sources of the Marital Wage Premium” American Economic Review, May, 94(2), 2004, 317-321.