Living Economics

Choose Your Parents Carefully
Marital sorting can increase wage inequality and lead to lower economic growth over generations by concentrating the life-chance advantage of better educated people.

Imagine a society where every bit of your life were determined by who your parents were. Their status would determine where you went to school, whether or not you went to college, even whom you married. A system like this, of determination by social class, existed for many years under the now outlawed caste system in India. Fortunately, in America there is equality of opportunity. Here in America, who your parents are isn't nearly as important as your own merit, right?

As it turns out, even without a formal caste system, a child's chances in life are substantially influenced by who her parents are. The child of two college educated parents has an 81% chance of becoming a highly skilled worker. However, the child of two people without a college degree has only a 30% chance (Fernandez, "Sorting"). Why is this difference so stark?

There are two inter-related reasons. First, because a college education commands a 10% skill wage-premium, parents with a college education can afford to live in a higher-income neighborhood and can afford expensive college tuition for their children. Second, the quality of the education that one receives is directly correlated with the income level of the neighborhood. As low-income families tend to live in low-income neighborhoods, the children of the poor are more likely to go to a low-quality school. The inferior primary and secondary education that these children receive decreases their chances of attending college, irrespective of tuition.

This life-chance advantage would be magnified over generations if there is a tendency of marrying someone who resembles oneself in terms of education and income. Marital sorting perpetuates the educational and income advantage or disadvantage. Couples with higher education are more likely to stay married. The divorce rate for college-educated women fell from 29% to 16.5% between 1975-1979 and 1990-1994 while the divorce rate for high-school dropouts rose from 38% to 46% between 1975-1979 and 1990-1994. Many of the low-education mothers never got married in the first place. And children from higher-income families are more likely to grow up in intact families. 92% of children whose families make more than $75,000 a year live with two parents, while only 20% of children whose families make less than $15,000 a year do (The Economist).

Ultimately, a high level of marital sorting, and hence income inequality, can lead to a stagnant economy and lower per capita income. A quick glance at some of the most highly "sorted" countries is instructive. Colombia, Brazil, Mexico, and Argentina are among the leaders in marital sorting and their economies are struggling (Fernandez, "Love and Money"). Right now, the U.S. still ranks in the middle. But, its rank might well rise and its economy suffer the consequences of widening income inequality if its public school education is not improved in the near future.

References:
  • Fernandez, R. and R. Rogerson. "Sorting and Long-Run Inequality." Quarterly Journal of Economics, forthcoming
  • Fernandez, R. et al. "Love and Money: A Theoretical and Empirical Analysis of Household Sorting and Inequality." Working Paper 8580. NBER Working Paper Series. http://www.nber.org/papers/w8580.
  • Kremer, Michael. "How Much Does Sorting Increase Inequality," Quarterly Journal of Economics CXII (1997), 115-39.
  • The Economist. 5/26/2007. "The frayed knot."
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