Essay on labour market inequality and family labour supply

This dissertation, advised by Professor David Card, is motivated by recent literature concerning increasing inequality in individuals' labour market outcomes during the 1980s, and extends the analysis to consider how these outcomes are correlated within families.;One potential shortcoming of the analysis in chapter two is that it is restricted to couples, each of whom has a strong attachment to the labour market. There is a belief in some areas that female labour supply is significantly responsive at the participation, rather than the hours, margin. Chapter three addresses this issue. In particular, it is concerned with modelling the intertemporal labour-force participation decisions of married women, and how these are related to permanent and transitory components of their husbands' earnings, and fertility factors. Chapter three is also concerned with modelling issues associated with the dynamics of intertemporal participation decisions. The results imply that the participation decision of married women is negatively correlated both with their husbands' permanent and current earnings, and the response to permanent earnings is approximately twice as strong as the effect of current earnings. The results also conclude there is significant persistence in participation outcomes which is due to both unobserved heterogeneity and state dependence.;Chapter two is concerned with the transmission of individual wage inequality into family income inequality, a more conventional measure of welfare. First, a framework is developed for modelling the joint distribution of spouses' wages and earnings over a relatively long (7 year) period, which includes both behavioural, labour supply, and non-behavioural components of variation. This framework compares behavioural and non-behavioural models' variance decompositions of individual and family earnings to identify the behavioural contributions to the observed inequality. The analysis shows that the compensatory effect implied by a behavioural labour supply model is small, at least for couples who are both continuously attached to the labour market. In fact, the results show that the transitory components of earnings variation of husbands and wives are approximately orthogonal. This implies that wives do not respond to changes in their husbands labour market outcomes, although the permanent components of husbands and wives wages and earnings are highly correlated.