Does marriage pay more than cohabitation?

Empirical research has unambiguously shown that married men receive higher wages than unmarried, whereas a wage premium for cohabiters is not as evident yet. This paper aims to exploit the observed difference between the marital and the cohabiting wage premium in Germany to draw conclusions about the sources, typically explained by specialisation (e.g. husbands being more productive because their wives take over household chores) or selection (high earnings potentials being more attractive on the marriage market).

The paper analyzes the cohabiting and the marital wage premium in Germany using a shifting panel design for marriages and move‐ins from 1993 to 2004 in the German Socio‐Economic Panel. With non‐parametric matching models men who get married (treatment group I) are matched with cohabiting respectively single men (control groups) and men who move in with a partner (treatment group II) with singles.

Matching reveals that higher wages are mostly due to positive selection – into marriage as well as into cohabitation. Supplementary analysis of intra‐household time use suggests that specialization, if any, is part of the selection process from single to cohabitation to marriage.

This is the first application of non‐parametric matching in a comparative study of the marital and the cohabiting wage premium and thus provides new insights into their respective sources. It is also the first investigation of family‐status‐related wage premiums in Germany.