According to a variety of measures, economic inequality among Americans is on the rise. How much this fact, in isolation, distresses you says a lot about your outlook on the world.
A recent study suggests that the personal choices of Americans - distressed or not - do a lot to widen that gap. The culprit? A phenomenon called “positive assortative mating.”
Assortative mating is the phrase social scientists use to describe the tendency, over populations, for individuals to seek out a partner with a background and educational level similar to his or her own. This tendency is not new, or newly discovered. But Jeremy Greenwood, an economics professor at the University of Pennsylvania, recently published a paper positing a link between assortative mating and America’s increasing income disparity.
Greenwood and his colleagues used Census Bureau data from 1960 to 2005 and demonstrated that the level of assortative mating has risen over that period, as more women have earned college degrees and work outside the home. In turn, the measure of inequality the study used, a statistic called the Gini coefficient, rose - an indicator of greater income inequality. When assortative mating rates from 1960 were hypothetically applied to the 2005 data, the difference in the Gini coefficient disappeared almost entirely.
As Peter Orszag noted in Bloomberg, the study’s comparison does not fully allow for the fact that assortative mating also happened in 1960, albeit to a lesser extent; the effects of the increase in the phenomenon, however, are still quite evident. And while the Gini coefficient is only one measure of income inequality, other measures also support the premise that America’s economic spread is widening. What’s new in the data Greenwood and his peers have presented is one possible explanation for that shift.
Much of the public discussion of inequality focuses on measuring an individual’s entitlement to rewards not against that individual’s own output, but against what other people have. Apart from the logic, or lack thereof, behind the idea that we all merit roughly equal outcomes, the interesting part of Greenwood’s study is that we don’t choose equal outcomes for ourselves when left to our own devices. Our life choices directly foster inequality, though that is not usually our intent.
In 1960, there were fewer college graduates total, and many fewer college-educated women. Fewer women made up part of the work force, too. A college-educated man in 2005 simply had many more college-educated women to choose from than did his 1960 counterpart. Paul Oyer, an economist at Stanford who wrote a book on assortative mating, noted that the phenomenon also carries over into same-sex couples, who can now wed in an increasing number of states. Online dating allows people to preselect for a pool of potential romantic partners similar to themselves in key ways, potentially also playing a part in the change.
Greenwood pointed out that they reasons behind assortative mating in an individual pair vary. Some people may want a spouse from a similar background because they think such a person will understand them better; others may simply have exposure mainly to people of their own background because they meet their future spouses at school or work. Others may not want to navigate the complications that can arise when one spouse massively out-earns the other, or when one spouse is highly professionally ambitious and the other is not.
We may not like to think of choosing a spouse in terms of economics at all. Nor, to my knowledge, is anyone suggesting we try to somehow counteract assortative mating through legislation. But it is disingenuous to pretend our choice of spouse - like our choice of city or career - won’t have long-term financial ramifications. There are certainly reasons to make those choices besides economic ones, but we should not blame circumstances when the consequences of our choices eventually arrive.
Consider a professor of finance at a mid-level state university. That professor may consider himself to be the intellectual equal of a Wall Street investment banker who pulls seven or eight figures a year. The professor may feel burdened by the inequality of his own financial position but, on the other hand, there is no such thing as an investment banker with tenure - or one with posted office hours, for that matter. Choosing to become a finance professor brings certain entitlements in the form of living conditions not available to the investment banker. If the professor is right to believe he is capable of making the grade on Wall Street, then the choice to pursue an academic career is purely his own.
If, on the other hand, the professor fancies himself great investment banker material but those who hire investment bankers would disagree, his resentment actually boils down to the jealousy of a minor-leaguer who can’t understand why he is not given a shot in the big show.
People have widely varying aptitudes and interests, and they make widely varying choices. One of those choices is who to marry. These choices have consequences. All the redistributive government policy in the world is not likely to overcome the effects of what people choose for themselves.
Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book,
Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book
The High Achiever’s Guide To Wealth.
Posted by Larry M. Elkin, CPA, CFP®
photo by Happy Horizons Studio
According to a variety of measures, economic inequality among Americans is on the rise. How much this fact, in isolation, distresses you says a lot about your outlook on the world.
A recent study suggests that the personal choices of Americans - distressed or not - do a lot to widen that gap. The culprit? A phenomenon called “positive assortative mating.”
Assortative mating is the phrase social scientists use to describe the tendency, over populations, for individuals to seek out a partner with a background and educational level similar to his or her own. This tendency is not new, or newly discovered. But Jeremy Greenwood, an economics professor at the University of Pennsylvania, recently published a paper positing a link between assortative mating and America’s increasing income disparity.
Greenwood and his colleagues used Census Bureau data from 1960 to 2005 and demonstrated that the level of assortative mating has risen over that period, as more women have earned college degrees and work outside the home. In turn, the measure of inequality the study used, a statistic called the Gini coefficient, rose - an indicator of greater income inequality. When assortative mating rates from 1960 were hypothetically applied to the 2005 data, the difference in the Gini coefficient disappeared almost entirely.
As Peter Orszag noted in Bloomberg, the study’s comparison does not fully allow for the fact that assortative mating also happened in 1960, albeit to a lesser extent; the effects of the increase in the phenomenon, however, are still quite evident. And while the Gini coefficient is only one measure of income inequality, other measures also support the premise that America’s economic spread is widening. What’s new in the data Greenwood and his peers have presented is one possible explanation for that shift.
Much of the public discussion of inequality focuses on measuring an individual’s entitlement to rewards not against that individual’s own output, but against what other people have. Apart from the logic, or lack thereof, behind the idea that we all merit roughly equal outcomes, the interesting part of Greenwood’s study is that we don’t choose equal outcomes for ourselves when left to our own devices. Our life choices directly foster inequality, though that is not usually our intent.
In 1960, there were fewer college graduates total, and many fewer college-educated women. Fewer women made up part of the work force, too. A college-educated man in 2005 simply had many more college-educated women to choose from than did his 1960 counterpart. Paul Oyer, an economist at Stanford who wrote a book on assortative mating, noted that the phenomenon also carries over into same-sex couples, who can now wed in an increasing number of states. Online dating allows people to preselect for a pool of potential romantic partners similar to themselves in key ways, potentially also playing a part in the change.
Greenwood pointed out that they reasons behind assortative mating in an individual pair vary. Some people may want a spouse from a similar background because they think such a person will understand them better; others may simply have exposure mainly to people of their own background because they meet their future spouses at school or work. Others may not want to navigate the complications that can arise when one spouse massively out-earns the other, or when one spouse is highly professionally ambitious and the other is not.
We may not like to think of choosing a spouse in terms of economics at all. Nor, to my knowledge, is anyone suggesting we try to somehow counteract assortative mating through legislation. But it is disingenuous to pretend our choice of spouse - like our choice of city or career - won’t have long-term financial ramifications. There are certainly reasons to make those choices besides economic ones, but we should not blame circumstances when the consequences of our choices eventually arrive.
Consider a professor of finance at a mid-level state university. That professor may consider himself to be the intellectual equal of a Wall Street investment banker who pulls seven or eight figures a year. The professor may feel burdened by the inequality of his own financial position but, on the other hand, there is no such thing as an investment banker with tenure - or one with posted office hours, for that matter. Choosing to become a finance professor brings certain entitlements in the form of living conditions not available to the investment banker. If the professor is right to believe he is capable of making the grade on Wall Street, then the choice to pursue an academic career is purely his own.
If, on the other hand, the professor fancies himself great investment banker material but those who hire investment bankers would disagree, his resentment actually boils down to the jealousy of a minor-leaguer who can’t understand why he is not given a shot in the big show.
People have widely varying aptitudes and interests, and they make widely varying choices. One of those choices is who to marry. These choices have consequences. All the redistributive government policy in the world is not likely to overcome the effects of what people choose for themselves.
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