Spousal Matching with Children, Careers and Divorce∗

We present a model in which couples match in the marriage markets and, on the basis of their relative spousal endowment levels, decide whether to have children, specialize in market production or home work and determine their intra-household allocations. After couples ’ marriage match qualities are re-vealed, better-matched couples stay married and poorly-matched couples sepa-rate. While higher household incomes raise the number of children, a narrower gender earnings gap lowers fertility among middle-income but relatively unequal couples. The propensity of divorce is a decreasing function of total household income, and when divorce produces a distance between children and at least one of the spouses, it is also decreasing in the number of children. Thus, a narrow gender earnings gap could lead to higher divorce rates through its depressing effect on fertility. In turn, higher divorce rates feed back into lower fertility and investment in children because they reduce expected marital surplus. In contrast, investment in human capital early on and anticipated levels of high investment in human capital later encourage higher levels of fertility, thereby lowering the divorce likelihood and producing a larger inter-temporal marital surplus. If childrearing at home involves costly labor force separation, fertility rates are lower and divorce rates higher primarily among the lower-income or higher inequality couples