Marriage wage premium in a search equilibrium ☆ Roberto Bonilla ⁎, Francis Kiraly Newcastle University, Newcastle upon Tyne, UK HIGHLIGHTS • We analyse the interaction of two frictional markets (labour and marriage). • We provide a novel explanation for the existence of marriage wage premium. • We analyse an equilibrium with wage dispersion where only high earners get married. • We explore the effect of female utility outside marriage on this equilibrium. • We fully characterise all the other search equilibria. abstract article info Article history: Received 31 July 2009 Received in revised form 21 May 2013 Accepted 26 May 2013 Available online 11 July 2013 Keywords: Frictional labour markets Frictional marriage markets Marriage wage premium In this paper we propose a new theoretical explanation for the existence of male marriage wage premium, based entirely on search frictions. We analyse the interaction of frictional labour and marriage markets. We present and explore a search equilibrium characterised by wage dispersion where only high earning men get married. We also examine other equilibria where the marriage market may or may not influence labour market outcomes. © 2013 Elsevier B.V. All rights reserved. “It is a truth universally acknowledged, that a single man in possession of a good fortune must be in want of a wife.” [J. Austen: Pride and Prejudice] 1. Introduction There is widespread evidence that on average, married men earn higher wages than unmarried men — see Cohen and Haberfeld (1991), Nakosteen and Zimmer (1997); Daniel (1995) reports estimates of about 10 to 30%. This marriage wage premium persists after controlling for systematic differences in job attributes. The main objective of our paper is to provide an explanation for this phenomenon. We analyse a model of inter-linked frictional labour and marriage markets and consider the job and marital search strategies of men and women, together with wage posting by firms. We show that there exists an equilibrium in which men find it optimal to accept jobs that preclude them from marrying (as women favour high earners). This is simply a consequence of the fact that well-paid jobs might be too difficult to find. As a result, there will be single men on relatively low wages and men who can marry because they have good jobs — all these are direct consequence of search frictions only. We look at the factors that determine the existence and affect the size of this marriage wage premium. We also characterise other types of equilibria where the marriage market may or may not have an influence on labour market outcomes. The question of marriage wage premium has received a lot of attention in both the empirical and theoretical literature. Crucial- ly, all existing studies rely on productivity differences between married and unmarried men. In this paper, we explain the mar- riage wage premium without relying on any kind of heterogeneity in male productivity. In particular, we examine the interaction between the labour market and the marriage market where there are no ex-ante productivity differences due to (observable or unobservable) skills and neither is there any ex-post heteroge- neity (due to marriage). Our model captures several salient aspects of the two markets. First, both the labour market and marriage market are characterised by Labour Economics 24 (2013) 107–115 ☆ We are grateful for the valuable comments received from the Editor and two anonymous referees. Referee 1 in particular has helped us improve the paper a great deal. Of course, we are responsible for any remaining errors. ⁎ Corresponding author at: Newcastle University Business School, 5 Barrack Road, Newcastle-upon-Tyne NE1 4SE, UK. Tel.: +44 191 208 1675. E-mail addresses: Roberto.Bonilla@ncl.ac.uk (R. Bonilla), Francis.Kiraly@ncl.ac.uk (F. Kiraly). 0927-5371/$ – see front matter © 2013 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.labeco.2013.05.004 Contents lists available at ScienceDirect Labour Economics journal homepage: www.elsevier.com/locate/labeco