Working paper no. 2007-13
Increases in the association between spouses’ earnings have the potential to increase economic inequality as marriages increasingly consist of two high- or two low-earning partners. This paper uses log-linear models and data from the March Current Population Survey to describe trends in the association between spouses’ earnings and estimate the contribution of these trends to changes in earnings inequality among married couples between 1967 and 2005. I find that trends in the association are not well described by changes in the correlation coefficient, a widely used measure, but are better described by a model that differentiates between earners and non-earners and incorporates measures of the shrinking economic differences between spouses. Using this model, I estimate that increases in earnings inequality would have been about 25 to 30% lower than observed in the absence of changes in the association. I further decompose this impact into three subcomponents: changes due to (1) increases in the association between spouses’ earnings among dual-earner couples; (2) declines in the negative relationship between husbands’ earnings and the odds that wives work; and (3) the increasing prevalence of dual-earner couples.