HOW DOES EDUCATIONAL DISTRIBUTION IMPACT ON INCOME INEQUALITY AMONG FAMILIES?

Responsible researcher: Bruno Benevit

Original title: Educational Assortative Mating and Household Income Inequality

Authors: Lasse Eika, Magne Mogstad and Basit Zafar

Intervention Location: Denmark, Germany, Norway, United Kingdom, United States

Sample Size: 2,846,609 individuals

Sector: Education

Variable of Main Interest: Income inequality

Type of Intervention: Marriage selection by education

Methodology: OLS, DiNardo Decomposition

Summary

The persistence of inequalities between families is one of the topics with the greatest impact on societies today. The selection of companions with similar social characteristics can be highlighted as a mechanism for perpetuating this phenomenon, also encompassing the individuals' level of education. This article sought to identify how income inequality between families is associated with marriage selection based on the partners' education level in five countries between 1962 and 2013. Through a descriptive analysis and the use of a semiparametric decomposition method, The evidence found demonstrated that individuals from all countries select partners with a similar level of education, and that this behavior explains a considerable part of the income inequality between families.

1. Policy Problem

The wealth of household units is closely related to the socioeconomic conditions of family members. Thus, income inequality between families can be explained by the characteristics of the couple that make up the head of the family and their spouse. To the extent that partners select individuals with similar socioeconomic conditions, this behavior can explain the persistence of income inequalities between families (Eika, Mogstad and Zafar, 2019).

In this context, the selection of partners with the same level of education ( educational assortative mating ) can represent one of the vectors that induce the maintenance and expansion of income inequalities between families (household units). However, to correctly identify the effect of this behavior on income distribution over time, it is necessary to take into account aspects such as the expansion of access to higher education for both genders (Liu and Lu, 2006), and the returns arising from the education of each period (Autor, Katz and Kearney, 2008).

2. Policy Implementation Context

Over the period between 1962 and 2013, the Gini coefficient on household income among married couples increased from 33.9 to 43.2 in the United States. At the same time, the proportion of couples in which both spouses have higher education increased by 22 percentage points in the same period. In a similar period, the same behavior was observed in Germany, Denmark, Norway and the United Kingdom.

Specifically, the proportion of husbands with a university degree was 13% in 1962 and 37% in 2013, while only 7% of women had a university degree in 1962, approaching that of their husbands in 2013 when reaching the percentage of 40%. An increase in the higher education premium was also observed over this interval. Additionally, the ratio between men's and women's income also fell from 6.4 in 1962 to approximately 2.1 in 2013.

3. Assessment Details

The United States analysis was based on two data sources. The first analysis for the United States covered the period from 1962 to 2013, using the publicly available Monthly Population Survey (CPS). The CPS provides data for each year with national coverage and representative of households, allowing the identification of households and family members. The variables considered included individual demographic information (such as gender, date of birth and marital status) and socioeconomic data (including educational level and income).

The second data source involved the use of data from the United States decennial Census. The main advantage of census data is its temporal scope, allowing the study of marriage selection by education since 1940. Due to the impossibility of identifying spouses, the 1950 Census was not considered. The analysis of household income inequality for the United States considered only CPS data.

The analysis related to other countries considered several data sources with a similar structure to the CPS, containing demographic and socioeconomic data representative of individuals and households, and covering data up to 2013. For Denmark and Norway, administrative registration data with available data were used from 1980 and 1967, respectively. The data source for Germany is the German Socio-Economic Panel (SOEP), providing a panel since 1984. For the United Kingdom, data from the United Kingdom Labor Force Survey (LFS) was used with beginning in 1979.

For the main analysis, the sample was restricted to couples where at least one partner was between 26 and 60 years of age. Individuals were separated into four mutually exclusive groups according to their highest level of education: (i) incomplete secondary education, (ii) complete secondary education, (iii) incomplete higher education, and (iv) complete higher education.

4. Method

The process of marriage selection by education is defined as the tendency of people with similar characteristics to marry more often than would be expected in a random scenario. Thus, one can identify and quantify this behavior by comparing the contingency table for the educational levels of wives and husbands with a contingency table generated by random pairings between husbands and wives. In this way, parameters are calculated that allow evaluating the probability of union between partners with the same educational level, indicating whether the frequency is higher or lower than randomly expected. Positive or negative values ​​of this parameter indicate more or less frequent marriages than expected. The joint education distribution of spouses is described by these parameters and the marginal education distributions. To estimate these parameters, CPS data between 1962 and 2013 were used.

To verify the robustness of the parameters, they were re-estimated considering adjustments for age, creating three age groups, and incorporating unmarried cohabiting couples into the sample, using data from Norway. Additionally, the parameters considering race, a longer panel based on data from the decennial Censuses, data from other countries, and the field of study of higher education were also verified. Finally, the Altham index (1970) was estimated, providing a new measure for measuring marriage selection by education based on the odds ratio of the paired education groups (for each of the four education levels).

 The authors also performed regressions for the wife's years of education (outcome variable) in relation to the husband's years of education (explanatory variable), and also regressions inverting the relationship between these variables. This exercise was carried out for each year in the period from 1962 to 2013. Finally, the behavior of the coefficients associated with the explanatory variables was verified for each year of the two regressions (in relation to the education of the wife and husband).

To quantify the contribution to household income inequality of changes in returns to education, educational composition, and marriage selection by education, the decomposition method proposed by DiNardo et al. (1996) was adopted. This approach provides income distributions under counterfactual scenarios, in which the distribution of a factor is fixed in a given base year, while the other factors vary over time. To validate the results of the decomposition method results, different specifications, subsamples and countries were considered.

5. Main Results

The results found for the selection parameters by education in the United States showed the existence of positive selection at all levels of education. However, temporal trends varied according to educational level, indicating a decrease in the parameter among the most educated over the years. In 1962, individuals in the United States with a college education were almost five times more likely to marry with the same educational level compared to random selection. This ratio among couples with higher education decreased to approximately three- and two-fold in the 1980s and 2013, respectively. In the opposite direction, the selection parameter by education increased from 1.6 in 1962 to 7.2 in 2013 when considering those with incomplete secondary education. When considering the average of all parameters across all educational levels during the period between 1962 and 2013, the authors identified a gradual increase in selection by education.

Regarding the results of the robustness analyzes for the marriage selection parameter by education, all approaches indicated the consistency of the behavior and temporal trends identified for different countries, samples, specifications, and periods. Notably, the analyzes showed a more pronounced drop in the parameter among couples with higher education for the United Kingdom and Norway, in addition to indicating that the marriage selection process by education is even more pronounced when considering the type of undergraduate course: Law graduates in Norway were 73 times more likely to intermarry in 1967, declining to 26 times in 2013.

The results of the analysis on the determinants of income inequality between families indicated that marriage selection by education had an impact on income inequality when compared to the counterfactual, but with limited relevance. Increases in returns to education have emerged as the main source of rising inequality. Furthermore, changes in educational composition offset some of the increase in inequality, especially at the lower end of the household income distribution. Thus, the estimated counterfactual indicated that inequality would have fallen steadily if returns to education at the 1962 level had been maintained over the years. Again, the results were corroborated by robustness analyses.

6. Public Policy Lessons

This study sought to address the relationship between income inequality between families and marriage selection by education. First, the degree of marriage selection by education was examined over time and between different countries, estimating parameters that could explain this relationship. Second, this parameter was used to quantify the explanatory role of various factors in household income inequality through a decomposition method.

The evidence in this article demonstrated that over the years marriage selection by education increased for couples with less education and decreased for couples with a higher level of education. The results also indicated that selection by couples' education contributed to a non-negligible part of the inequality in household income in each country. The main aspect that explained inequality between families, however, was the increase in the return to education observed in the period. This evidence provides crucial information for the formulation of public policies that aim to reduce income inequality between families.

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