As our nation continues to struggle to find an economic and political identity, one thing remains clear: Income inequality continues to be a hot-button issue routinely propelled to the forefront of policy discourse.
Though evidence continues to support the view that over time in the U.S. the rich are getting richer while the poor are getting poorer, the determinants of this trend are less clear.
Investigating this topic, a group of international economists have uncovered a surprising twist in the latest contribution to the vast research literature: The increasing degree of income equality in the U.S. is connected to an increasing majority of couples with similar educational attainment getting married.
Put simply, those with better educational credentials are marrying others with better educational credentials and vice-versa.
The research team, headed by Jeremy Greenwood of the University of Pennsylvania, explains this finding, published by the National Bureau of Economic Research, as yet another example of assortative matching whereby individuals marry others on the basis of similar characteristics.
One factor lurking behind the results, asserts the team, is the observed increase in labor force participation by women over the decades.
That individuals marry others with common traits is not a novel finding, but that it occurs within income brackets and that this occurrence is becoming increasingly more pervasive over time is.
The study relies on a widely used metric measuring the magnitude of income inequality, termed the Gini coefficient. The metric ranges from zero to one with zero denoting perfect income equality across individuals while one denotes perfect income disparity.
Specifically, using data from the U.S. Census for the period 1960 though 2005, the authors conclude that the Gini coefficient increased from .34 to .43 over the period and that virtually all of the increases can be attributed to the assortative matching of household incomes.
Put differently, the authors note, “…in 1960, a husband and wife ... with a high school education would earn about 103 percent of the average household income. But in 2005, that same couple would earn only about 83 percent of the average. At the other end of the education spectrum, a couple in which both partners had done post-graduate work earned about 176 percent of the mean household income in 1960 but a whopping 219 percent in 2005.”
This is a striking finding and sheds light on the determinants of rising income disparity. And it raises other important questions. As of 2011, the U.S. had the fourth highest Gini coefficient out of 34 of the world’s most industrialized nations known as the Organization for Economic Cooperation and Development.
But if the U.S. has such a high income gap across the population, why has there not been such upheaval from the approximate 47 million people who technically live below the poverty line in the U.S. or from the millions more considered lower middle class who have found their share of national income decreasing over recent decades?
This study provides some clues, but The Economist identifies what I think is just as interesting an explanation: Although the range of income distributions is growing, the perceived disadvantage of overall lifestyle and wellbeing is not, or at least not growing as fast or by as much. The Economist cites a poignant example.
Consider a couple with one child living near the poverty line of roughly $18,000 in annual income owning a lower end refrigerator costing $500. Now consider a couple with one child earning greater than $500,000 per year who own a very high-end stainless steel refrigerator. The conjecture is that the difference between the derived benefit from refrigerators across households is less than the income disparity.
The concepts mentioned above are very much at play in pertinent policy topics such as corporate income taxes, investment versus labor income tax rates and minimum wage considerations.
One thing this recent study affirms is the ubiquitous return to human capital and higher education, issues at the federal, state and local levels that are not getting the attention they deserve.
Nicholas J. Mangee is an assistant professor of economics at Armstrong Atlantic State University and can be reached at Nicholas.mangee@armstrong.edu.