Income Inequality Is Caused By Single Parent Households and Assortative Mating Habits Just as Much as Technology

I know I’ve argued that the data leads me to believe that the primary driver of income inequality (the gap between the rich and the poor) is the increase productivity gains caused by technology. A few generations ago, if you needed 10,000 files organized and sorted, you’d need a pool of secretaries to do it. Today, a single programmer could write a quick script during a lunch break and have it done by the time he finishes his or her sandwich. The fact that America’s manufacturing base is still just as healthy as it was in the 1960s adjusted for inflation is powerful evidence. What has changed is that manufacturing now requires far fewer employees to produce that same profit. Those jobs are never returning because they weren’t so much outsourced as they were digitized.  Instead, the money flows to a handful of highly skilled workers and capital (the people who risk money to invest in a project).

I was thrilled President Obama pointed this out in the State of the Union speech when he explained that over the next ten years, nearly half of all new jobs will require education that goes beyond a high school degree. And yet, as many as a quarter of our students aren’t even finishing high school.

Nevertheless, there is a powerful competing, or at least complementary, theory that I think deserves just as much consideration and I think also plays, and is destined to play an even greater, role in rising income inequality. The theory is this: Income inequality is caused by the breakdown of families and, specifically, married households, as well as so-called “assortative mating” patterns that have developed from women entering the workforce.  Namely, the wealthy, educated, and successful are getting married and staying married at high rates whereas the undereducated poor and working classes are having children out of wedlock at rates once believed unthinkable.

Income Inequality Is Caused by Single Parents and Rich Female Workers Getting Married Now That Women Have Workforce Equality

Let’s examine each part individually:

• Household sizes are shrinking as the average person gets married much later in life, single mother pregnancies become the norm with out-of-wedlock pregnancies ranging between 17% for Asian Americans and 72% for African Americans, and no-fault divorce making separation easier. Since income inequality is based upon household resources, a family where each spouse earns $30,000 would count as a unit earning $60,000. The next day, if they split up, they would count as two households earning $30,000 and drive up the income inequality figures.  Just as a company like Wal-Mart enjoys greater economies of scale by generating more revenue over a fixed cost base, so, too, does a household.  Non-married households are simply not economically as efficient.
• Assortative matting, the habit of individuals to fall in love, mate, settle down with, and marry people like themselves, has resulted in high achievers and earners marrying each other. In the 1950s, you didn’t find many six-figure female doctors or lawyers, whereas today they are far more common. These higher achieving women are likely to marry high achieving men or women, resulting in their household incomes skyrocketing. Consider the case of a married couple, both of whom are heart surgeons earning $350,000 per year, or $700,000 combined.*

An Example of How Income Inequality Can Be Measured Almost Anyway You Want In an Economy Based Upon Marriage Patterns

To explain how income inequality is directly influenced by demographic considerations imagine that we have an economy consisting of only four (4) people:

• James Smith, Heart Surgeon, $350,000 income per year
• Laura Franks, Heart Surgeon, $350,000 income per year
• Chris Washington, Janitor, $25,000 income per year
• Elizabeth Thompson, Teacher, $40,000 income per year

In this economy, income inequality for all four households is 14-1. The richest households earn $14 for every $1 earned by the poorest household.

What if James and Laura get married? Their combined household income increases to $700,000. Instantly, income inequality in our economy has doubled! Specifically, income inequality has skyrocketed to 28-1 because the Smith-Franks household is earning $700,000 per year and the Washington household is earning only $25,000 per year.

Now, politicians would be railing and television pundits screaming about “the drastic rise in income inequality!” caused and perhaps even try to increase James and Laura’s taxes to redistribute a portion of them to Chris and Elizabeth. But nothing has changed except James and Laura got married and Chris and Elizabeth are single.

What if Chris and Elizabeth did get married? Their combined household income would increase to $60,000. Income inequality would instantly collapse from 28-1 to 11.67-1, a reduction of 58.32%. Chris and Elizabeth can share expenses, leaving more disposable income to spend on gadgets and lifestyle upgrades.

Or, even better … what if James married Elizabeth and Laura married Chris? The first household would earn $375,000 per year and the second household would earn $390,000 per year, making income inequality virtually non-existent.

The point is, income inequality can be just as influenced by marriage / mating / cohabitation patterns as they can be by technology. With more and more single parent households, the income inequality figure is destined to increase as the gap between married couples and single households becomes more common. Blaming the Bush, Reagan, Obama, or Clinton economic policies is simply not based upon factual data or rational thinking. But that doesn’t win votes so career politicians will continue to push sound bites that agitate their base to turn out for elections.

More Information About Income Inequality

You may want to read this research paper on income inequality [Adobe PDF], as well as check out the work of Daly and Valletta (2006) to learn how the rise in single parent households is causing income inequality to expand.  You may also want to read Cancian and Reed (1999), Hyslop (2002), and Shwartz (2010), which indicate that assortative mating patterns (marriage) are driving income inequality.

*Update: On 05/29/2019, I released this post from the private archives as part of a special project to restore old essays and articles that I felt had some historical, educational, academic, and/.or entertainment value.  Years after I originally wrote this, I penned a related piece called Income Inequality Is Partially Caused by Women Joining the Work Force, in which I explored the fact that greater individual freedoms, and the propensity for successful people to want to be with others like themselves, were causing these economic forces to accelerate.  This should have come as a surprise to no one – of course a smart woman is going to want to marry another smart woman or smart man.  Of course a smart man is going to want to marry another smart man or smart woman.  This should be plainly obvious.  People like having shared interests and feeling like the person with whom they are spending their life can relate to them on an emotional, intellectual, and spiritual level.  What other outcome should a rational person expect?

As I noted in an update note to that latter post at the time it was released from the private archives, successful individuals are continuing to couple up, then self-segregate including by choosing to move their newly-formed families to concentrated geographic areas where they can be around others who are similar.  The result: over the past ten years, nearly all of the economic gains have gone to the top fifty banking markets.  Rural areas are exporting their best and brightest with frightening efficiency.  Meanwhile, additional trends have begun to develop within the marriage figures themselves as individual freedoms and equality expanded.  In August 2016, the Department of the Treasury, through the Office of Tax Analysis, released Working Paper 108, entitled Joint Filing by Same-Sex Couples after Windsor: Characteristics of Married Tax Filers in 2013 and 2014 [PDF].  Note that this followed the Supreme Court Windsor decision saying the Federal Government must recognize lawful marriages of same-sex couples but before the landmark Obergefell decision that required every state to perform such marriages and offer them on the same terms as opposite-sex marriage so the full effect had not even begun to hit, yet, and won’t be measurable for several years.  That working paper found that on their 2013 tax filings, married opposite-sex couples earned $107,970, a number far above the typical American household.  Married female-female couples earned even more at $124,760.  Married male-male couples earned an astonishing $165,540.

Economies of scale matter.  Any system that leads to greater individual freedom of choice is going to lead to greater inequality.  This inequality has also been exacerbated by changes in interest rates; something that plays a far more powerful role than most people realize.  A reasonable person might logically conclude that inequality is here to stay unless family formation and incentives are addressed.  Even then, it might have risen to a naturally higher baseline than was the case in the past as a result of these greater individual freedoms and the resulting economies of scale.  Politicians and policymakers refuse to address this for fear of hurting people’s feelings so it gets worse.  Sometimes, fixing a problem requires feeling bad for awhile.  That’s life.  Unfortunately, rather than attack the root causes, the few politicians who are worried about the situation offer flawed band-aids for the symptoms.  Many of these proposals, most of which amount to little more than redistribution schemes in one disguise or another, are likely to make the problem worse due to second-order and third-order effects.

You might also want to read my thoughts on a book called The Sum of Small Things: A Theory of the Aspirational Class, which explored how successful couples are behaving in ways that reinforce their success, creating upward compounding cycles that make it almost impossible for those left behind to catch up to them.

The world, it seems, is being taken over by power couples.  In a system that rewards good decisions, two people working together over 50+ years and compounding their advantages can utterly dominate most of society when it comes to nearly every metric of a life well-lived.