J Bioecon (2010) 12:43–53

DOI 10.1007/s10818-010-9079-4

Labor markets and mating markets: Using taxes

to reduce the male–female pay gap

Aloys Prinz

Published online: 25 March 2010

© Springer Science+Business Media, LLC. 2010

Abstract Recently, Frank and McKenzie (J Bioecon 8(3):269–274, 2006) pointed

out that beside discrimination, there is a further reason for a wage gap between males
and females: If females value partner wages more than males in the mating mar-
ket, this would increase the pay gap. In this paper, it is analyzed whether there exist
policies that may improve the position of females and males from a distributional point
of view without destroying the signal females want about the labor market success of
males. First-best redistribution policies require the knowledge of the male and female
wage preferences. Because this information is not available, a first-best redistribution
policy seems infeasible. As an alternative policy, a differentiated wage tax is consid-
ered which is less information demanding than a first-best policy. It is shown that a
welfare increasing wage tax scheme does exist and that an adequately chosen wage
tax scheme may decrease the gender wage gap without destroying the desired signal
of wages for labor market success.

Keywords Mate choice · Gender wage gap · Differentiated wage tax

JEL Classification D63 · H23 · J16 · J31 · J78

1 Introduction

Recently, it was argued that the gap in male–female pay—in addition to workplace
discrimination—is driven by the coupling of labor markets and mating markets (Frank
and McKenzie 2006). If females give more weight to partner wages than do males in
choosing a partner, this will have consequences for the wages to be paid in the labor

A. Prinz (B)
Institute of Public Economics, University of Muenster, Wilmergasse 6-8, 48143 Münster, Germany
e-mail: A.Prinz@wiwi.uni-muenster.de

123
44 A. Prinz

markets: male wages will be higher than female wages for the same kind of work
(Frank and McKenzie 2006, p. 270). Since there is empirical evidence for this asym-
metrical behavior between females and males in mating markets in the sense indicated
above (see in addition to the literature already quoted in Frank and McKenzie 2006;
Buss et al. 1990; Kenrick et al. 1990; Wiederman and Rice Allgeier 1992; Wiederman
1993; Buss et al. 2001), the coupling of the labor market and the mating market is a
driving force of the male–female pay gap.
In this paper, the model of Frank and McKenzie (2006) is taken as a starting point.
In the extended model presented in this paper, the objective is to preserve the signal
that females want from males with respect to their abilities to earn money, but also
to avoid a too big gender gap in wages. The paper is structured as follows: First, the
Frank–McKenzie model is briefly described. Next, the model is extended to encom-
pass inequality aversion. In the following section it is shown that there exists a joint
solution that fulfils the just mentioned requirements. However, since the joint solution
requires private information about the wage premia, subsequently a simple differenti-
ated wage tax is incorporated and analyzed. Afterwards it is asked whether the wage
tax may enhance welfare. The paper is completed with a concluding section.

2 Frank–McKenzie model

In the Frank–McKenzie model, the interaction of the labor market and mating market
is crucial for the emergence of the male–female pay gap. To understand this inter-
action, a closer look at the mating market is useful. Suppose that females value her
(potential) male partners’ success on the labor market, i.e. the wage, more than males
with respect to (potential) female partners. Both, women and men are better off with
a partner than without one (otherwise they would not try to find a partner by incurring
costs). The opportunity costs of finding no partner in the model is the own wage, Wf
and Wm , respectively. A successful match of a female and a male will occur if both
persons are better of with than without the respective (potential) partner. Therefore,
it is necessary that each partner profits of the match, i.e. the utility as a couple is to
be higher than her or his opportunity costs. To clarify this, imagine that male and
female wages (and labor-related investments) are equal at the start, despite different
mating preferences with respect to wages. In this situation, all males would want a
female partner, but the females would decline all offers. Hence, men would begin
to invest more to gain a higher wage. This strategy would be successful because of
female preferences for higher male wages. Competition on the mating market will
drive up the wage differential until all female–male partnerships are completed in
equilibrium. Therefore, males have a stronger incentive to invest in labor market suc-
cess than females. As a consequence, labor-related investments create two effects: a
higher wage and an additional benefit on the mating market. Since both markets are
competitive, the individual investment decisions of females and males are coordinated
by different wages according to the differences in preferences.
To make this description more precise, formalization is required. On this account,
Frank and McKenzie (2006) assume that there is an investment xi , i= m, f (m: males,
f: females) that increases the wages in the labor market, Wi (xi ) with W
i := d Wi /d xi >0,

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Labor markets and mating markets 45

W

i := d2 Wi /d x2i <0. With total individual resources of 1, 1−xi resources remain for
other purposes. Furthermore, let pi the “benefit obtained in the mating market through
partner preferences for wages” (Frank and McKenzie 2006, p. 270). Individual utility
is given by (Eq. 1 in Frank and McKenzie 2006, p. 270)1 :

Vi (xi ) = Wi (xi ) + pi Wi (xi ) + 1 − xi . (1)

This definition of individual utility shows the double effect of labor-related investments
quite clearly: (i) The investment increases the wage on the labor market, Wi (xi ), and
(ii) it increases the benefit on the mating market via the preference effect pi Wi (xi ).
Maximizing utility with respect to the investment xi yields the rule to invest up to
the point where marginal benefits and marginal costs of investment are equal:

Wm
(1 + pm ) = 1, W
f (1 + p f ) = 1. (2)

Given the preferences for wages, the relation of the male and female wages is deter-
mined on the labor market as:

1 1 W
1 + pf
Wm
= , W
f = ⇒ m
= . (3)
1 + pm 1 + pf Wf 1 + pm

For pm = pf the wage for females and males will be the same, implying the same
amount of labor-related investments.
Suppose now that the female preference for male wages is higher than vice versa.
An equilibrium on the mating market requires that the marginal costs and benefits
are equal. Let the marginal cost of mate competition be c. The benefit for a female
of a (slightly) higher preference for male wages is W
m because the higher preference
induces males to invest (slightly) more. Since the females compete for males with
higher wages, males realize an additional benefit on investment which is proportional
to pm . Hence, for a female with an own wage of Wf , the marginal benefit of a (slightly)
higher partner wage is given by W
m /(pm Wf ). Marginal costs equal marginal benefits
when c = W
m /(pm Wf ). Applying the same line of reasoning to males, the second
condition for an equilibrium on the mating market is given by c = W
f /(pf Wm ). Con-
sequently, the coupling of the labor market and the mating market implies equilibrium
preferences of (Frank and McKenzie 2006):

Wm
W
f
pm = , pf = . (4)
cW f cWm

1 Note that the wage function W (x ) may exhibit increasing returns to investment x despite its concavity.
i i i
Returns to investments are actually Wi (1 + pi ), pi > 0. Since by concavity Wi (λxi ) < λWi (xi ), for all
λ > 1, Wi (λxi )(1 + pi ) > λWi (xi ) if pi > λ Wi (xi )/Wi (λxi ) − 1. The increasing returns to scale of the
wage function might be due to experience in the combined labor and mating market and may emerge via
learning-by-doing.—I thank the anonymous referee for this hint.

123
46 A. Prinz

A coupling equilibrium is then given by Eqs. 3 and 4; for the relation of male and
female wages this means (Frank and McKenzie 2006):

Wm pm (1 + pm )
= . (5)
Wf p f (1 + p f )

For pm > pf , i.e. for a wage-premium on male wages due to female preferences for
male wages, the marginal wage-returns on work-related investments of females are
lower than those of males: W
f < W
m and there is a positive wage gap (Wm /Wf )
associated with a positive preference gap ([pm (1 + pm )]/[ pf (1 + pf )]).

3 Extended model: mating preferences versus inequality aversion

The extension suggested here is as follows: Assume that females prefer males with
higher wages, but there is also a certain aversion to gender wage gaps. Let the aversion
to the gender wage gap be denoted by α = 1 – ε ≥ 0 with 0 ≤ ε < 1 as the measure
of inequality aversion. For ε = 0 no inequality aversion exists. The aversion increases
with ε and for ε = 1 wage gaps would no longer be accepted. However, to allow
for signals from males to females about labor market success, ε < 1 is assumed. In
addition to that, ε is supposed to be the same for women and men. A joint welfare
function of females and males may be written as:

(xm , x f ) = W (xm ) + W (x f ) + α( pm − p f )[W (xm ) − W (x f )] + 2 − xm − x f .

(6)

According to Eq. 1, each person is interested in the own preferences and wages only;
in Eq. 6, wages and preferences of both persons as well as the inequality aversion are
taken into consideration. The formal structure of Eq. 6 shows that the signal of male
productivity is wanted, but at the same time there exists an aversion to gender wage
gaps.
A labor market equilibrium with respect to Eq. 6 requires:

1
Wm
= , (7)
1 + α( pm − p f )
1
W
f = . (8)
1 − α( pm − p f )

For W
f > 0 the range for α is restricted to α < 1/(pm − pf ) if pm > pf which
is assumed throughout the paper. Furthermore, for pm − pf > 0 it is necessary that
W
m < W
f . Therefore, α > 0 is required which implies 1 − ε > 0 and ε < 1.
To complete the analysis, note that the condition for an equilibrium on the mating
market is unchanged:

Wm
W
f
pm = , pf = . (9)
cW f cWm

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Labor markets and mating markets 47

Inserting the new values for a labor market equilibrium, i.e. Wm
= 1
1+α( pm − p f ) and
W
f= 1
1−α( pm − p f ) , the combined equilibria on both, the labor and the mating market
require:

Wm pm [1 + α( pm − p f )]
= . (10)
Wf p f [1 − α( pm − p f )]

The next question is whether the female–male wage gap implicitly defined by Eqs. 7
and 8 is smaller than that of the Frank–McKenzie model. The necessary condition for
this is given by:

pm [1 + α( pm − p f )] pm (1 + pm )
< . (11)
p f [1 − α( pm − p f )] p f (1 + p f )

Solving this inequality for α defines the range of α for which the joint solution implies
a smaller gender wage gap than the individualistic one. This is the case for α <
1/(2 + pm + pf ). Because of α = 1 − ε, there is also a restriction of the variable that
measures inequality aversion: ε > 1−1/(2 +pm +pf ) = (1+pm +pf )/ (2 +pm +pf ).
Note that this restriction of ε implies for pm > pf > 0 also ε < 1 (as required for
α > 0).
To sum up: For degrees of inequality aversion ε ∈ ((1 + pm + pf )/(2 + pm + pf ), 1)
the gender wage gap of the extended model is smaller than the wage gap of the original
Frank–McKenzie model that implies an inequality aversion of ε = 0.
Imagine now that the government would try to transform the individual solutions
into a joint one using a tax. [In a recent paper, Konrad and Lommerud (2008), ana-
lyze redistributive income taxation as a measure to improve the emotional match in
a marriage market between low-income and high-income earners. However, in this
paper emotional factors except inequality aversion are not considered.] The wages
are determined via the mating market as: Wm = W
f /(cpf ) = 1/[cpf (1 + pf )] and
Wf = W
m /(cpm ) = 1/[cpm (1 + pm )]. The tax rates θi , i = m, f to transform the
individual choices into a joint one have to be differentiated with respect to gender
according to:

1 1 1 + pf
θm = ⇒ θm = , (12)
cp f (1 + p f ) cp f [1 − α( pm − p f )] 1 − α( pm − p f )
1 1 1 + pm
θf = ⇒ θf = . (13)
cpm (1 + pm ) cpm [1 + α( pm − p f )] 1 + α( pm − p f )

This tax policy would require that the government knows the individual premium
values, pi . In the following, it is assumed that the government does not know the
premiums and can only tax wages.

123
48 A. Prinz

4 Effects of a wage tax

Note first that an inequality reducing wage tax in this model cannot be a linear tax with
a uniform tax rate for both sexes. A linear wage tax in the Frank–McKenzie model
would change the investments xi , but it would not change the combined equilibrium
condition of the labor and mating market. With a linear wage tax (t: tax rate), the
combined equilibrium condition reads:

Wm (1 − t) pm (1 + pm ) pm (1 + pm )
= = . (14)
Wf (1 − t) p f (1 + p f ) p f (1 + p f )

As a consequence, the gender wage gap would remain unchanged. Therefore, to nar-
row the gender pay gap without destroying the labor market signal the wages of males
and females are to be taxed at different rates. Let tm = t(Wm ) be the tax rate for male
wages and tf = t(Wf ) the tax rate for female wages (note that Wm = Wf implies
tm = tf ). For the following, this form of a differentiated wage tax is assumed.
At first glance, the differential taxation of female and male wages might seem rather
strange. However, suppose that there is a smooth nonlinear wage tax τ (W) which can
be characterized as follows (see Konishi 1995, p. 417, Assumptions 1 and 2): (a) The
wage tax function is twice continuously differentiable with W∈ [0, W i ]: τ

(W) = 0
and for W1 , W2 ∈ (W − γ , W + γ , ∀γ > 0 : τ

(W1 ) · τ

(W2 ) < 0); i.e. the
second derivative of τ has zero measure. (b) For W ∈ [0, W i ] the marginal tax is
strictly smaller than 1, [τ
(W) < 1], and the wage tax is strictly smaller than the
wage, [τ (W) < W]. To make the formal analysis as simple as possible, this kind
of nonlinear wage tax is approximated by different tax rates tm and tf for males and
females, respectively, with tm > tf if Wm > Wf .
Incorporating such a differentiated wage tax into the original model produces tax
revenues of T = tm Wm + tf Wf . This tax revenue is redistributed via a lump-sum
transfer to the female and male; the individual transfer is s = T/2. Individual utility
after tax and transfer is given by:

Vi (xi ) = (1 − ti )[Wi (xi ) + pi Wi (xi )] + 1 + s − xi . (15)

With this tax, the labor market equilibrium conditions change to:

1 1
Wm
= , W
f = . (16)
(1 − tm )(1 + pm ) (1 − t f )(1 + p f )

The condition for an equilibrium on the mating market remains unchanged:

Wm
W
f
pm = , pf = . (17)
cW f cWm

However, inserting the labor market equilibrium into the condition for a mating market
equilibrium, a combined equilibrium on both markets requires:

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Labor markets and mating markets 49

Wm (1 − tm ) pm (1 + pm )
= . (18)
Wf (1 − t f ) p f (1 + p f )

If pm > pf and, hence, Wm > Wf the wage tax rate for males, tm , is higher than that
for females, tf . However, there is also a restriction on the difference of the wage tax
rates. To preserve the signal function of wages, it must hold:

1 − tf 1 + pm
(1 − tm )(1 + pm ) > (1 − t f )(1 + p f ) ⇔ < . (19)
1 − tm 1 + pf

Next, the impact of the tax on the investment behavior is to be analyzed. The
starting equations for the comparative statics are from (16). Thereby it is supposed
that the individuals do not anticipate the changes in the mating market. The result is
(xi
:= ∂xi /∂ti ):

(1 + pm )[Wm

xm
(1 − tm ) − Wm
] = 0, (20)

(1 + p f )[W

f x
f (1 − t f ) − W
f ] = 0. (21)

Solving these equations for x
i yields:

Wm

xm
= , (22)
(1 − tm )Wm

W
f
x
f = . (23)
(1 − t f )W

f

Due to the assumptions above, the signs of the tax effects can be determined unam-
biguously:

xi
< 0, i = f, m. (24)

Hence, the work-related investments of females and males will decline due to the wage
tax. These effects are unambiguous because of the quasi-linearity of the utility func-
tions. A wage tax triggers under this assumption substitution effects, but no income
effects; only substitution effects matter with respect to efficiency and welfare analyses
[see to this general feature of quasi-linear utility functions Varian (1992, pp. 164 ff.)].

5 Is a differentiated wage tax welfare increasing?

Whether or not a tax enhances welfare depends inter alia on the welfare function.
In the context of this model it seems reasonable to define an unweighted utilitarian
welfare function, i.e. the sum of individual utilities represents the welfare of society.

123
50 A. Prinz

[see also the theory of the optimal linear income tax in Sheshinski (1972), Hellwig
(1986).] The welfare function is given by (T = tm Wm + tf Wf ):

 = (1 + pm )(1 − tm )Wm + (1 + p f )(1 − t f )W f + 2 − xm − x f + T. (25)

Note that an equilibrium on the mating market requires (as indicated above): pm =
W
m /cWf and pf = W
f /cWm . Inserting these expressions into the welfare function
yields:

  
Wm
W
f
= 1+ (1 − tm )Wm + 1 + (1 − t f )W f + 2 − xm − x f + T.
cW f cWm
(26)

Differentiating the welfare function with respect to tm gives:




∂
Wm Wm


= xm (1 − tm )Wm − p f (1 − t f )W f + (1 + pm )(1 − tm )Wm − 1
∂tm cW f Wm
−(1 + pm Wm ) (27)

Inserting the first-order condition (1 + pm )(1 − tm )W
m − 1 = 0 leads to:




∂ Wm W

= xm
(1 − tm )Wm − p f m (1 − t f )W f − (1 + pm Wm ). (28)
∂tm cW f Wm

Rewriting this equation by using x
m = W
m /[(1 − tm )W

m ] results:

 
∂ Wm
Wm

Wm

= (1 − tm )Wm − p f (1 − t f )W f − (1 + pm Wm )
∂tm (1 − tm )Wm

cW f Wm
(Wm
)2 (1 − t f )
= pm W m − p f W f − 1 − pm W m
Wm

W m (1 − tm )
(Wm
)2 (1 − t f )
= −p f Wf − 1 (29)
Wm

W m (1 − tm )

Differentiating the welfare function with respect to t f yields (thereby it is used that
by the first-order condition (1 + pf )(1 − tf )W
f − 1 = 0):
 
∂ W

f W
f
= x
f (1 − t f )W f − pm (1 − tm )Wm − (1 + p f W f ). (30)
∂t f cWm Wf

Applying the same procedures as in the first case, it can be written as:

∂ (W
f )2 (1 − tm )
= − pm

Wm − 1. (31)
∂t f W f W f (1 − t f )

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Labor markets and mating markets 51

To check whether a differentiated wage tax is useful, both equations are evaluated at
tax rates tm = tf = 0:

∂ (Wm
)2
= − p W − 1, (32)
∂tm tm =t f =0
f f
Wm

W m

∂ (W
f )2
= − pm Wm

− 1. (33)
∂t f tm =t f =0 Wf W f

A wage tax rate t > 0 is useful from a welfare point of view if:

∂ (W
)2
= − p f W f

m − 1 > 0, (34)
∂tm tm =t f =0 Wm W m

∂ (W
f )2
= − p W − 1 > 0. (35)
∂t f tm =t f =0
m m
W

f W f

Wm
Using that W f t =t =0 = pm (1+ pm )
p f (1+ p f ) − 1 and Wm
t = 1+ pm ,
1
W
f = 1
,
m m =0 t f =0 1+ p f
f
the conditions can be written as follows:

Wm

p 2f (1 + p f )
− < , (36)
Wm
pm (1 + pm )2
W

f p 2 (1 + pm )
−
< m . (37)
Wf p f (1 + p f )2

The left-hand side of these inequalities is the well-known Arrow–Pratt measure of

absolute risk aversion (Varian 1992, p. 178):

Wm

W

f
Rm = − , Rf = − . (38)
Wm
W
f

The Arrow–Pratt measure may be used to describe the curvature of the Wi (xi ) func-
tions (see in a different context Reichardt 2003, pp. 11 ff.). Hence, a welfare improving
differentiated wage tax is feasible if the curvature of the wage functions is not too
strong.
An unambiguous result emerges if the welfare function is written as:

 = (1 + pm )(1 − tm )Wm
+ (1 + p f )(1 − t f )W f + 2 − xm − x f + tm Wm + t f W f , (39)

123
52 A. Prinz

i.e. if tax revenue is modeled as it is composed and not as a pure income transfer. The
conditions for a welfare increasing differentiated wage tax change to:

∂ (W
)2
= − p f W f

m > 0, (40)
∂tm tm =t f =0 Wm W m
∂ (W
f )2
= − pm Wm

> 0. (41)
∂t f Wf Wf

These conditions hold true for W
m , W
f > 0; W

m , W

f < 0. Therefore a differentiated
tax is welfare increasing.
But will such a tax reduce the gender pay gap without eliminating the signal of
female preferences for male wages? As shown above in (16), a labor market equi-
librium with a differentiated wage tax requires W
m = 1/[(1 − tm )(1 + pm )], W
f =
1/[(1 − tf )(1 + pf )]. Because the wage is determined via marginal wage reactions, it
suffices to show that the difference between the marginal wages, W
f – W
m , is reduced
by the tax. Hence, the wage gap is shrinking if it is larger for t = 0 than for t > 0:

1 1 1 1
− > − . (42)
1 + pf 1 + pm (1 − t f )(1 + p f ) (1 − tm )(1 + pm )

This inequality holds true for 0 ≤ t f < tm if tm > tf (1+pm )/[(1+pf )+tf (pm −pf )].
On the other hand, the signal preserving condition for tm reads tm < [pm − pf + tf (1 +
pf )]/(1 + pm ). Since both inequalities must hold at the same time, the complete con-
dition is:
t f (1 + pm ) pm − p f + t f (1 + p f )
< tm < . (43)
(1 + p f ) + t f ( pm − p f ) 1 + pm

For showing that both conditions can hold simultaneously let t f = 0. Then the range
of admissible values for tm is: 0 < tm < (pm − p f )/(1 + pm ). Furthermore, for
pm = p f it follows that tm = t f .

6 Conclusion

In this paper, the Frank–McKenzie model of a combined labor and mating market is
extended to include a redistributive policy that reduces the gender wage gap without
destroying the signal females want about the labor market success of males. To ensure
that a reduction of the gender wage gap is desirable, an extension of the Frank–McKen-
zie model is presented. In this extended model, a redistribution policy is wanted if there
is an aversion to the gender wage gap. This aversion is measured by ε. It is shown
that for 0 < ε < 1 there is an aversion to the wage gap that can be reduced by a
redistributive policy which makes both sexes better off. However, this policy requires
the knowledge of the male and female wage preferences. Because there is no reason to
assume that this information is common knowledge, a first-best redistribution policy
seems infeasible.

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Labor markets and mating markets 53

A less information demanding policy is a differentiated wage tax. It is investigated

whether such a tax could reduce the wage gap in a way that increases welfare (which
is defined as the sum of individual utilities). First of all, it is shown that a welfare
increasing wage tax scheme does exist. Second, it is also shown that such a wage
tax scheme—adequately chosen—may decrease the gender wage gap. Therefore it is
concluded that a differentiated taxation of wages may reduce the gender wage gap
without destroying the desired signal of wages for labor market success.

Acknowledgements Comments on an earlier version of this paper by an anonymous referee are very
gratefully acknowledged. Of course, all remaining errors are mine.

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