Assortative Mating and Income Dynamics of Couples

We analyze heterogeneity in within-household insurance against individual-level income risk, an important channel of partial insurance. Using tax register data on the full Danish population we, (i.) document a large amount of heterogeneity in income covariation of partners, and (ii.), relate such differences to joint characteristics of couples, including measures of assortativeness in the labor market. We further show that spousal similarity in labor market characteristics translates into increased permanent earnings risk for the couple, and a higher degree of household-level consumption responsiveness to negative income changes. Our findings are consistent with the notion that the scope of spousal insurance in response to labor income shocks of the partner is limited by the extent to which both face correlated labor market risk.