Assortative Mating and Income Dynamics of Couples

We use administrative data on the full Danish population to analyze the relationship between assortative mating and joint dynamics of spouses. This allows us to explore to which extent individual level income risk translates into income risk at the household level and how the success of spouses to provide insurance depends on characteristics of both spouses. If spouses have similar labor market characteristics this translates into correlated incomes, which reduces the scope of insurance. We consider assortative mating along various dimensions, in particular education and career. We then develop and estimate a structural quantitative model, which we use to explore how individuals react to changes in the degree of correlated risks, how the success of within-household insurance against individual labor income risk depends on the degree of sorting, and finally, how changes in the tax and transfer system affect joint income dynamics.