By Kristie Engemann, Public Affairs Staff
You might be surprised to know that economists study who matches with whom in the marriage market. But as Paulina Restrepo-Echavarria recently discussed, the topic has important implications for the economy—for instance, when it comes to the labor market and income inequality.
Restrepo-Echavarria is a senior economist at the St. Louis Fed. One of her research interests is “search and matching,” which applies to many different markets in an economy. She spoke about her work in this area, particularly for the marriage market, during a Twitter Q&A on Sept. 30.
Her responses to five questions on the topic are below. Questions and responses have been lightly edited for clarity and length.
Restrepo-Echavarria: Search and matching is literally when you search for something and you find that something. It can be applied to many different markets.
For example, imagine that you’re searching for a new pair of shoes. You know the color of the shoes that you want. You know the style. But you don’t know exactly where you’re going to find them. You start searching for them by going to different shops and looking at shoes. When you finally find the ones that you’re interested in, you’re going to buy them. At that point, you matched with what you were searching for.
This happens over and over again in many different markets. Take the labor market. When you’re looking for a job, you look at vacancies posted by different firms. You submit your application. If you get an interview and you get accepted to the job, then you searched and you matched with the job.
It’s the same thing in the dating or the marriage market. When you want to find someone to spend your life with, you are going to start dating different people, and then when you’ve found the one, you will seriously date them or marry them.
Restrepo-Echavarria: Marriage market sorting is when you organize people by different characteristics, and you can rank them within a characteristic.
Then, you can rank people within a characteristic, and see who marries whom in terms of those characteristics. That’s going to give you a sorting pattern for a specific characteristic—say income, education, race or age.
Restrepo-Echavarria: Part of [the Federal Reserve’s] dual mandate is to achieve maximum employment.The Federal Reserve has a so-called dual mandate for monetary policy—to promote maximum employment and stable prices. It turns out that marriage market sorting affects labor market decisions because people have to decide whether or not to participate in the labor force. Only people that are part of the labor force and are actively searching for a job, and are not finding one, are considered to be unemployed.
Take, for example, someone who has a very low income and marries someone with a very high income. The [low-income] person will most likely drop out of the labor force—or they can drop out of the labor force—because they have insurance at home because their spouse earns a very high income. The opposite example is someone who marries someone with a similar income. If both of them don’t have very high incomes, then most likely both will participate in the labor force.
So, what people decide to do with their personal life in terms of who they’re marrying is going to matter for the decisions that they’re making in terms of the labor market. These decisions in the labor market are going to affect unemployment, and hence any effort that we do to try to achieve maximum employment.
We really need to understand these behaviors and how people sort in the marriage market to have a better understanding of how they’re going to behave in the labor market as well.
Restrepo-Echavarria: A lot of people are surprised that economists study these issues, but it turns out this is pretty important for the economy.
Imagine that a very high-income person marries a much lower-income person. Then that’s going to help income inequality, at least in that household. So, it turns out that marriage market sorting is very important for income inequality and social mobility as well as human capital accumulation in the future.Human capital refers to knowledge and skills obtained through education, experience and training.
Imagine that a highly educated person were to marry someone with much less education. The kids of that couple are going to be much more encouraged to have a higher education than if the lower-education person had married another lower-education person. As a result, it’s going to affect social mobility because those people who have accumulated more human capital through education are going to potentially earn a higher income.
Through sorting that is not perfectly assortative in income and education—meaning it’s not the case that a high-income person marries another high-income person or a highly educated person marries a highly educated person, but there’s some mix—then this is going to allow income inequality to go down, human capital to increase potentially more in the future, and therefore, for there to be more social mobility and less inequality overall in the economy.
Restrepo-Echavarria: If we were to extrapolate any of our theoretical results to real life, what we find is that, in principle, people should be searching more—or at least exerting more effort—to search for that ideal partner.
From the theoretical perspective, to see if the search in marriage markets is efficient, we compare the actions that an individual would take with those that a social planner would take. So basically if you had someone telling you exactly what is the best thing that you could do to find a partner versus those actions that you would take yourself.
What we find is that the effort that people would exert to find a partner is always less than the effort that the social planner would tell you that you should exert. And, so, what we see is that people’s search for love, in a way, is inefficient. People should actually exert a lot more effort to try to sort through the different partners to find the one that matches best their ideal characteristics in a person.