Marriage and Employment Participation with Wage Bargaining in Search Equilibrium.

The empirical literature addressing links between the labor and marriage markets is numerous. Despite this, the theoretical literature that explicitly links the two markets is less developed, particularly so with frictional markets. We build an equilibrium search model where married couples make joint decisions on home production and labor market participation. A worker’s bargaining position reflects their own productivity, and also the employment status and conditions of their spouse. We find that partners with very different productivities have different strategies regarding labor market participation. In symmetric couples, the partners behave symmetrically. Workers get better job offers when their spouses are employed, and in some equilibria a person may search for transitory jobs only to raise the long-term wages of their spouse. In some cases, firms unilaterally increase a worker’s wage in order to reduce turnover, by ensuring that the spouse stays at home. If they do may be a matter of multiple equilibria, depending on parameter values. All this provides an additional explanation for wage and search behavior heterogeneity of similar workers and/or couples. We show that the assumptions in Burdett-Coles (1997) do not apply for a marriage market linked to this labor market and discuss the consequences of this.