The Second Paycheck to Keep up with the Joneses: Relative Income Concerns and Labor Market Decisions of Married Women

Yongjin Park, Connecticut College

Is relative income effect strong enough to affect the labor supply of spouses? We provide a simple model and empirical evidence that labor supply decisions of married women are influenced by relative as well as absolute income of their husbands. Married women are more likely to be in labor force when their husbands’ relative income is low. Results are robust across various measures of relative income and settings and the size of the effect is economically meaningful. We also show that income inequality among husbands in age-regional cross sections can be a predictor of their wives’ labor supply.