Compensating Differentials in the Marriage Market

Potential mates differ in what they bring to the relationship. In online dating, youth, especially for women, appears to be sought after. In a forthcoming Journal of Labor Economics article, Corine Low applies the Indifference Principle to estimate how much more income a woman must earn each year she ages to remain equally attractive. Here is the abstract.

This paper quantifies the causal negative impact of age on women’s marriage market appeal using an experiment where real online daters rate hypothetical profiles with randomly assigned ages. Truthfulness is incentivized through the experiment’s compensation: participants receive professional dating advice customized according to their ratings. The experiment shows that for every year a woman ages, she must earn $7,000 more annually to remain equally attractive to potential partners. This preference appears driven by women’s asymmetric fertility decline with age, as it is present only for men without children and who have accurate knowledge of the age-fertility trade-off.

US leads the world in single-parent households...

... and the results are statistically disastrous.  

Summary of three pieces on Economist Melissa Kearney's Research

• Freakonomics Radio: When did marriage become a luxury good?
• Related: Why Did You Marry That Person? (Replay)
• Related: Why Does the Richest Country in the World Have So Many Poor Kids? (Update)
• Related: The Fracking Boom, a Baby Boom, and the Retreat From Marriage
• NYTimes: The Explosive Rise of Single-Parent Families Is Not a Good Thing
• Children from single-parent homes have more behavioral problems, are more likely to get in trouble in school or with the law, achieve lower levels of education and tend to earn lower incomes in adulthood. Boys from homes without dads present are particularly prone to getting in trouble in school or with the law.
• Income differences are not the only driver of differences in outcomes. A second committed adult in the home can contribute considerable time and energy to taking care of children.
• We can and should do more as a society to try to compensate for these gaps in parental investments. But again, it is highly unlikely that government or community programs could ever provide children from one-parent homes with a comparable amount of the supervision, nurturing, guidance or help that children from healthy two-parent homes receive.
• That means a generation of children will grow up more likely to get in trouble and less likely to reach their potential than if they had the benefits of two parents in their homes.
• NYTimes: The One Privilege Liberals Ignore
• Families headed by single mothers are five times as likely to live in poverty as married-couple families.
• Children in single-mother homes are less likely to graduate from high school or earn a college degree. They are more likely to become single parents themselves, perpetuating the cycle.
• Almost 30 percent of American children now live with a single parent or with no parent at all. One reason for the sensitivities is large racial disparities: Single parenting is less common in white and Asian households, but only 38 percent of Black children live with married parents.

Why today's students are harder to teach

 The Chronicle of Higher Education has an answer:

... for a confluence of reasons, student attitudes have shifted. For one, what’s considered appropriate for a college professor to say and do in the classroom has changed dramatically, especially around topics of race, gender, and other forms of identity. For another, student deference to their teachers is not nearly as strong as it once was.

Students can be quick to judge a pedagogical choice as harmful, offensive, or superfluous to their education, say some professors, who question if their colleges, which they describe as having adopted a “customer is always right” philosophy, will have their backs if and when the customer is wrong.

In some circumstances, the choices or behavior criticized by students would have been “regarded as benign not very long ago,” said Angus Johnston, a historian of American student-activism who teaches at Hostos Community College of the City University of New York.

While this power shift can be “discombobulating” and “scary” for faculty members, especially older ones, he said, “that does not mean it’s a bad development.”

For example, when I teach the contractual view of marriage to MBA's, it is in a gender-neutral tone. Instead of "I gave him the best years of my life and he traded me in on a younger model," I say: 

If a couple decides to take advantage of economies of specialization, one primarily on a career and one primarily on childcare, the one specializing on childcare can be held up, should the relationship end and they have to re-enter the labor force.  To encourage these kinds of specialized investments in children, the marriage contract is designed to protect victims of hold up.  As the legal penalties for breach of the marriage contract have gotten smaller, we see less of this kind of specialization.  

NOTE:  this is correlation, consistent with evidence supporting the contractual view of marriage, but it could also be that the correlation is spurious, that times have changed, and couples want a more equal division of labor at the same time that the marriage contract has been weakened. 

First cousin marriage bans lead to higher incomes

 The theory is right out of chapter 1: voluntary transactions create wealth because they move goods and services to higher-valued uses.  In a kinship society (no first-cousin marriage bans), there are fewer people with whom to transact, and this means that income is lower.  

HT:  MarginalRevolution.com

How to choose a mate in Kansas

The Kansas State House of Representatives recently added language to a bill to include the option of covenant marriage. If the bill is passed into law, Kansas will join Arkansas, Arizona and Louisiana as the only states with covenant marriage laws

You can learn something about your potential mate if he or she wants a "traditional" rather than a "covenant" marriage:

...under the "traditional" marriage, a couple is entitled to a no-fault divorce after a six-month separation.

When a couple opts for the "covenant" marriage, they agree to waive their right to the no-fault divorce. In the event that the marriage does fall apart, only adultery, abuse, abandonment or a lengthy separation will allow a divorce to take place.

See The Contractual View of Marriage on how relationship-specific investment differentiates marriage from a series of meaningless spot market transactions.

What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.

In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.

Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.

If men stay in marriages that cost them a lot of money, that just proves they really like being married. They're getting something they value, and they're paying for it.

When I first read this 8 years ago, I thought it was funny. Now, after 19 years of marriage [originally posted in 2007], I wonder why the price is so low.

Valentines Signals

Two trends in how Americans celebrate Valentines Day seem to be at odds with each other. The National Retail Federation reports a steady decline in adults who are participating (51% in 2019 versus 63% in 2009) but a steady increase in average spending ($162 in 2019 versus $103 in 2009).

This would be consistent with high quality suitors sending a stronger signal to their romantic partners so as to further differentiate themselves from low quality suitors. It seems to be working because the drop in participation suggests that low quality suitors are dropping out of this arms race.* This is consistent with the unhinging of the market for sex from the market for marriage.


*Poor Mrs. Ward will reap only a fraction of this amount. But the quality of her suitor was revealed so long ago that there is little value in additional signals.

Get rich slowly: the power of patience

Patience makes you rich.  I tell this to my kids, my students, and anyone else who will listen.

The theory is simple.  If you have a low discount rate, it means that the future is almost as valuable as the present.  For example, a "patient" person with a discount rate of 5% is willing to invest $100 if she can earn $105 in one year, a relatively low threshold for investing.  In contrast, an "impatient" person with a discount rate of, e.g., 30% is willing to invest only in much more lucrative investments, i.e., those earning at least 30%.

The difference between the two is that the patient person will make more investments (those with a return between 5% and 30%) which will make the patient person rich.  Patient people invest more in education, smoke less, exercise, and watch their weight.  These activities all demonstrate a concern with the future, at the expense of the present.

 Here is some new evidence:

Patience boosts wealth by much more than marriage or religion. Respondents with discount rates more than one standard deviation above the average of the sample had 29% less net wealth, a loss of around $130,000. More impatient people—similarly controlling for religion, income, race, sex, optimism and education—were more likely to smoke, drink excessively, and miss out on their flu shots and medical examinations.

The title of this blog post is stolen from colleague Bill Spitz's terrific book

Engagement rings as compensation

Study of women and men about the size of engagement rings they would accept or buy for a potential mate:

• The results indicate that men would get bigger, costlier rocks if they were to be paired with an attractive woman. 

•  In their turn, women would want larger rings if their partners weren’t so good-looking. 

• Interestingly, women who thought themselves physically attractive were more likely to expect and get more expensive rings, no matter what their partners’ looks.

The size of the engagement ring looks like compensation paid by the husband to a wife for the relatively unpleasant task of marriage.  See related post, Why Men Pay to Stay Married.  

HT:  marginalrevolution.com

REPOST: Get rich slowly, the power of patience

Patience makes you rich.  I tell this to my kids, my students, and anyone else who will listen.

The theory is simple.  If you have a low discount rate, it means that the future is almost as valuable as the present.  For example, a "patient" person with a discount rate of 5% is willing to invest $100 if she can earn $105 in one year, a relatively low threshold for investing.  In contrast, an "impatient" person with a discount rate of, e.g., 30% is willing to invest only in much more lucrative investments, i.e., those earning at least 30%. 

The difference between the two is that the patient person will make more investments (those with a return between 5% and 30%) which will make the patient person rich.  Patient people invest more in education, smoke less, exercise, and watch their weight.  These activities all demonstrate a concern with the future, at the expense of the present. 

 Here is some new evidence:

Patience boosts wealth by much more than marriage or religion. Respondents with discount rates more than one standard deviation above the average of the sample had 29% less net wealth, a loss of around $130,000. More impatient people—similarly controlling for religion, income, race, sex, optimism and education—were more likely to smoke, drink excessively, and miss out on their flu shots and medical examinations.

The title of this blog post is stolen from colleague Bill Spitz's terrific book

Adverse Selection in Marriage Markets

Someone is having some fun over at "Mail Order Husbands" which appears to be a spoof on the notion of mail order brides. Perhaps adverse selection is a bit more severe among men. Ladies, here are just three of the gentlemen to select from. The others are hilarious too.

Bargaining for a Happy Spouse

Leora Frieberg and Steven Stern have a new paper on intra-household bargaining titled, "Marriage, Divorce, and Asymmetric Information." Survey data ask spouses two questions that essentially get at:

• "How happy are you in this marriage?"
• "How do you think your spouse answered this?"

They compared these answers to divorces rates five years later. Of course, they find that people unhappy in their marriages divorce more often. But also, people who are more wrong (i.e., information is more asymmetric) about their spouse also divorce more often. 

How much would you give up to avoid a divorce? When you allow that marriages involve myriad small bargains everyday (e.g,, doing dishes, picking up dirty clothes, letting him/her choose the restaurant or movie), you get even more interesting results:

Our results show that people forgo some utility in order to make their spouses better off and, in doing so, offset much of the inefficiency generated by their imperfect knowledge. Thus, we find evidence of asymmetric information and interdependent utility in marriage.

This last sentences is as close as economists come to saying that husbands and wives might just love each other.

Is religion good for you?

The question is fairly difficult to answer because nature doesn't randomly assign individuals to carry strong religious beliefs (experimental group) or to agnosticism or atheism (control group).

Jonathan Gruber (yes that guy) uses religious density as an instrument that changes religious beliefs--acting as sort of a natural experiment--that allows him to trace out of the causal effects of religion.  Here is his conclusion:

Religious density significantly increased level of religious participation, and as well to better outcomes according to several key economic indicators: higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage, and lower levels of divorce.

Bottom line:  religious beliefs have tangible benefits.

Who wants to get married in Mexico?

Leonel Luna, a Mexican legislator has proposed 2 year renewable marriage contracts to combat the high cost of divorce in Mexico:

"Almost 50% of couples in Mexico City end up in divorce," Luna says. "What we're trying to do is acknowledging reality and creating a mechanism that will allow couples to end their marriage without going through the additional pain and suffering of a legal battle."

If you cannot immediately spot two problems with this contract, you are not ready to get married:

• Problem 1:  Post-investment hold-up (who would make relationship-specific investment with a short term contract?)
• Problem 2:  Adverse selection (what do you learn about a potential spouse who wants a renewable marriage contract

REPOST: what is the cost of marriage?

Wednesday, August 22, 2007

What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.

In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.

If men stay in marriages that cost them a lot of money, that just proves they really like being married. They're getting something they value, and they're paying for it.

When I first read this 8 years ago, I thought it was funny. Now, after 19 years of marriage, I wonder why the price is so low.

For more on marriage, see these posts.

Are single parents causing inequality?

The Atlantic has an interesting story whose causal links go something like this:

Single parent households make less money.

This leads to less investment in kid's education which leads to lower levels of human capital which leads to lower income: 

The decline in marriage rates among poorer men and women robs parents of supplemental income, of work-life balance, and of time to prepare a child for school. Single-parenthood and inter-generational poverty feed each other. The marriage gap and the income gap amplify one another.

Better educated, higher-income men and women tend to marry each other which perpetuates the cycle:

The marriage inequality crisis creates a virtuous cycle at the top and a vicious one at the bottom. It pushes educated and non-educated Americans into entirely different worlds.

Quiz: why are divorce filings spiking in China?

Its the incentives, stupid:

Divorce filings shot up here and in other big cities across China this past week after rumors spread that one way to avoid the new 20 percent tax on profits from housing sales was to separate from a spouse, at least on paper.

What does this imply about the value of a marriage contract?

It is Almost Not Worth It (Almost)

First, let me extend my best wishes to Brittany Sajbel on her impending nuptials next month.

Next, let me tell her she is probably not done discovering "The Hidden Costs of Marriage." She has identified the costs of:

• Attending tastings
• Postage
• Undergarments (!)
• Makeup and hair run-throughs
• Attendant gifts, parent gifts, groom gifts, and welcome bags 
• Services, gratuities, and tax. 

But the wedding is not for another month. One thing is certain though - there will be more. Some costs are still hidden. Kinda makes one want to reconsider eloping.

Top posts of all time

Cheap commercial filler while we vacate like the rest of you.

1. Consult an economist before buying a wedding dress...
2. Adverse selection vs. moral hazard
3. The Cost of Protecting Ironing Board Makers
4. Projecting Marijuana Prices Post-Legalization
5. WARNING: this post has nothing to do with Manager...
6. Top 5 problem-solving mistakes by MBA's
7. What's the difference between "quantitative easing...
8. XKCD Money Poster
9. The contractual view of marriage

New entitlement problem: disability insurance

From the Economist:

America has a smaller fraction of prime-age men in work and in the labour force than any other G7 economy. Some 25% of men aged 25-54 with no college degree, 35% of high-school dropouts and almost 70% of black high-school dropouts are not working (see article). 

Beyond the toll to individuals, the lack of work among less-skilled men could have huge fiscal and social consequences. The cost of disability payments is some $120 billion (almost 1% of GDP) and rising fast. Male worklessness has been linked with lower marriage rates and weakening family bonds.