Education, Labour Supply and Marriage

In most countries, inequality and child achievement are at the centre of public policy debate. Policies aimed at alleviating poverty or improving the opportunities of disadvantaged children often form the backbone of government welfare programmes. But such policies may fail to achieve their goals if not informed by a rigorous knowledge of what drives these outcomes.

However, poverty and underachievement are not well understood. They are the result of a complex net of decisions taken throughout the course of life by both the individual and the family. Three decisions are particularly crucial: education, labour supply and marriage. Their importance stems from the long-run effects they have for wellbeing, the outcomes of children and the distribution of resources within the family and across society as a whole. To a large extent, these effects are driven by the strong interconnections between education, labour supply and marriage over the lifetime.

For instance, education is understood to promote employment and the transmission of skills across generations. Since income and children's education are valued by families, education must be a valuable asset for marriage. Indeed, evidence shows that the education of wife and husband are strongly positively related. Spouses' education will then affect household resources and their allocation, particularly towards children. In turn, education investments are themselves determined by their likely returns in terms of employment, earnings, marriage and the distribution of household resources. Changes in any of these returns, maybe induced by a policy reform, lead to adjustments in education decisions and cause a chain response over the course of life.

The importance of some of these links has been demonstrated by past research. But they have not been investigated in a common framework capable of dealing with all their interconnections and explaining their consequences for the distribution of income or children's outcomes. We also know that changes in the tax and benefit system have a significant direct effect on some of these outcomes, but we know a lot less about their long-run effects triggered by indirect responses on forward-looking decisions like education.

In this project, we will contribute to a better understanding of the lifetime links between major decisions, their consequences for the wellbeing of spouses and children, and their implications for policy design. To this end, we will develop a model of education, labour supply, marriage and the distribution of resources within the household that explicitly deals with their lifetime links and consequences. The model will produce new systematic evidence on the nature of connections between major individual and family decisions and outcomes, their relevance for welfare policy design and their empirical significance in countries like the UK, US and Sweden.

Many aspects of a modern tax and benefit system will be explicitly included, such as progressive taxation or work-contingent benefits for families with children. The joint consideration of individual and family decisions over the course of life together with a description of the main features of a modern tax system will allow us to discuss formally the design of taxes and benefits for families for the first time. We expect the evidence produced by this research to make a significant contribution towards informing policymaking on how to balance key aspects of individual and family behaviour for the design of taxes and benefits for families.

We propose investigating the role of marriage and marriage market conditions in determining choices and wellbeing over the course of life and the role of public policy in promoting investment in children and inter- and intra-household equity. The proposal lays the plans to contribute to the understanding of individual life-cycle behaviour, children's outcomes and the impact and design of welfare policies.

During the first two years of the project, we expect most of the impact to be academic as this project represents a first incursion into the proposed research theme. However, the project is eminently one of policy interest, and we will take the important steps into policy evaluation using the new framework. We expect to have an impact on three major non-academic groups:

1. Civil servants and policy-makers working in, or closely with, the HM Revenue and Customs, the HM Treasury, the Department for Work and Pensions and the Department for Education and responsible for policy design and assessment;

2. Think-tanks (such as the Resolution Foundation, the Institute for Public Policy Research and the Centre for Social Justice), other non-governmental organisations (such as Barnardos, the Child Poverty Action Group, the Family and Parenting Institute and the Joseph Rowntree Foundation), and international organisations supporting actions in the developing world (such as the World Bank, the European Bank for Reconstruction and Development and the OECD), interested in issues related with wellbeing, inequality and children's outcomes;

3. The media and the public in general, as we address issues at the centre of public debate and bring new insightful evidence to the table.

We foresee that the first two groups will benefit earlier from: (i) a better understanding of the most relevant decisions in life; (ii) a better understanding of the roots of inequality, not only between families but also within the family: (iii) a better understanding of the mechanisms promoting the inter-generational transmission of skills and child wellbeing; (iv) a better understanding of how taxes and subsidies may affect education, labour supply, marriage and the distribution of resources within the household, as well as their consequences for family wellbeing, particularly that of children; (v) the availability of a more adequate framework for tax policy analysis; and (vi) the empirical evidence we will bring to support our findings. All these have the potential to promote a more informed discussion of policy reform and to lead to improved welfare policy making.

Most of these benefits will be realised during the third year and after the end of the project, as we finish our academic investigation into the subject, study the policy implications of our framework, disseminate our results through conferences and seminars and release the tools allowing for a wider range of policy questions to be addressed in the future.

In the longer run, we anticipate outputs from our project will bring further insights on topics firmly at the centre of the public discussion arena, such as household behaviour, inequality, children's outcomes and their interactions with public policy, particularly the transfer system. The media and the public will benefit from the deeper understanding of these topics. Hopefully, the public will also benefit from improved policy design, via the impact we have on policymakers and civil servants and on motivating further research in this still largely unexplored field.