Abstract
This paper examines the effect of marital sorting on earnings inequality, taking into account extensive and intensive margin labour supply choices. Using German microdata, the observed distribution of couples’ earnings is compared to a counterfactual of random matches. In West Germany, marital sorting is found to be disequalizing only after adjusting for labour supply. This means that positive sorting in earnings potential is veiled by low female participation rates. In East Germany, the impact is highly disequalizing even when earnings are taken as given, due to the fact that East German women are more attached to the labour market.
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