Love and Money: Intergenerational Mobility and Marital Matching on Parental Income

This paper makes use of matched tax-return data for daughters, their parents, their partners and their partners' parents to investigate the interactions between intergenerational mobility and marital matching for young couples in Canada. We show how assortative mating contributes to intergenerational household income persistence. The strength of the association between sons-in-law's income and women's parental income means that the intergenerational link between household incomes is stronger than that found for daughters' own incomes alone. This is also the case when viewed from the other side, so that daughters' and their partners' earnings are related to partners' parental income. These results indicate that assortative matching magnifies individual-level intergenerational persistence. In the second part of the paper we consider assortative mating by parental income. We find that daughter's parental income has an elasticity of almost 0.2 with respect to her partner's parental income. This association is of approximately the same magnitude as the intergenerational link between parents' and children's incomes. We investigate variations in the correlation between the parental incomes across several measured dimensions; cohabiting couples have lower correlations, as do those who form partnerships early, those who live in rural areas and most interestingly, those who later divorce. We interpret this last result as evidence that, on average, couples with parental incomes that are more similar enjoy a more stable match.