For richer or for poorer . . .

By Jeffrey Steele
Graduate School of Business

Over the past 30 years, American men on the whole have experienced both declines in employment and lackluster earnings growth. During the same period, their wives have entered the job market as never before and have scored substantial gains in wages and earnings. At first glance, the two trends appear related. In other words, some might hazard a guess that women are working more because their husbands are earning less, or that husbands are working less because their wives are bringing home more of the income.

Not so, says Kevin Murphy, the George Pratt Schultz Professor in the Graduate School of Business. In his recent study entitled "Wage Inequality and Family Labor Supply," which he conducted with the University of Houston's Chinhui Juhn, Murphy reports that the apparent relationship between the two phenomena takes a back seat to a wholly different labor market reality.

"The central thrust in what we're arguing is that there's been an enormous increase in married women in the labor market," Murphy said. "Many people have thought that this is because their husbands' earnings are stagnant. In fact, the largest increase in earnings has been among the wives of middle- and high-income men."

As Murphy notes, examining differing levels of men's income -- rather than wages and earnings in the aggregate -- tends to negate the theory that the two trends are strongly related. The evidence is compelling when data extending back more than 30 years is examined. "The very groups of men who are earning the least compared with three decades ago are men from the lowest income levels, and their wives have shown the least increase in labor participation," said Murphy. "In the case of these low-income men, their wives' increases just compensate for the shortfall in their earnings. By contrast, the earnings of the highest income men from 30 years ago have gone up, and their wives' incomes have just added to that."

Comparing earnings advances in the 1960s with those of the 1970s and 1980s lends additional weight to the argument. In the 1960s, when their husbands' earnings grew 42 percent, wives of low-wage men enjoyed their fastest employment growth. But during the following two decades, while their husbands' earnings plummeted, the entry into the labor market for these same women slowed substantially. Over the same period, wives of high-wage men were benefiting from sharply increased market opportunities.

What this suggests, said Murphy, is that increased market opportunities for women -- particularly highly skilled women -- are likely to be more responsible for the growth of female employment in the 1970s and 1980s than shortfalls in husbands' earnings.

Equally important, the trend amplifies the enormous rise in labor inequality between the highest- and the lowest-earning men over the years from 1969 to 1989. As Murphy said, "One of the dominant features of the '70s and '80s was increasing labor inequality. You might expect lower-income wives to have earned more than middle- and higher-income wives to make up for that. But we really didn't see that." Murphy's report notes that while real wages of men in the top wage range increased by 15 percent over that period, real wages of men in the bottom wage range declined by 29 percent. When both wages and employment rates are considered, the real annual earnings for men in the bottom range declined about 35 percent.

During the same period, employment rates increased among all women, but increased the most among wives of men not from the lowest ranges, but from the middle and top wage ranges. The result was a dramatic shift between 1969 and 1989 in women's likelihood to work. In 1969, the higher the husband's wage, the less likely his wife was to hold a job. By 1989, wives of men in the middle of the wage spectrum were the ones working the most. While it has traditionally been thought that married women with children were less likely to work than those without children, here again the reports' findings seemed to stand conventional wisdom on its head.

In fact, the report demonstrated that having children to raise did little to slow women's gains in the labor market. "The increase in [labor] participation of women with children was as large or larger than the increase of women without children," noted Murphy. "Change in fertility was not the biggest factor."

Murphy and Juhn next examined to what extent the fall in male employment could be linked to the rise in wives' earnings. Conversely, they also attempted to determine to what extent the growth in wives' employment could be linked to poor economic performance of their husbands. In both cases, the answer was the same: the performance of their spouses in the labor market did not greatly impact the losses and gains of married men and women respectively.

The answers to these questions are pretty symmetrical," observes Murphy. "Far and away, the decline in opportunities for lower-wage men outweighed [in importance] the growth in their wives' earnings. And the reasons women were working more had a lot more to do with greater opportunities for them.

"Seventy to 80 percent of the change has to do with labor opportunities -- factors directly impacting their participation behavior, not that of their spouses. Only about 20 to 30 percent of the change could be attributable to changes in spouses' earnings."

Taken together, the findings have substantiated the long-held belief that high-wage men have traditionally tended to marry high-wage women. "That's always been true," Murphy said. "But it used to be relatively flat. In other words, [because they worked fewer hours] the spouses of the high-wage men used to earn as much as spouses of low-wage men.

"But there's been substantial increase in participation of high-wage women married to high-wage men. So what used to be true in wages now comes through in earnings. It's evolved into the fact that high-earnings men tend to marry high-earnings women."

Murphy, a University faculty member since 1986, was awarded the 1997 American Economic Association's John Bates Clark Medal for his ground-breaking work on wage inequality, labor trends and income distribution. Among other discoveries, Murphy found that a major cause of the rising inequality in pay between blue- and white-collar workers has been the growing demand for skilled labor, as opposed to the rise in supply or decline in demand for unskilled labor.