Assortative Mating and Inequality

This paper studies the evolution of assortative mating based on the permanent income (the individual-specific component of income) in the U.S., its role in the increase in family income inequality, and the factors behind this evolution. I first document a remarkable trend in the assortative mating, as measured by the permanent-income correlation of couples, across families formed around 1970 and those formed around 1990. I show that this trend accounts for almost one-third of the increase in family income inequality across these family cohorts. I then argue that the increased marriage age across these cohorts contributed to the assortative mating and thus to the rising inequality. Individuals face a large degree of uncertainty about their permanent incomes early in their careers. If they marry early, as most individuals around 1970 did, this uncertainty leads to weak marital sorting along permanent income levels. But when marriage is delayed, as around 1990, the sorting becomes stronger as individuals are more able to predict their likely future incomes. After providing reduced-form evidence on the impact of marriage age, I build and estimate a marriage model with income uncertainty, and show that the increase in marriage age can explain almost 75 percent of the increase in the assortative mating.