Project Details
Projekt
Assortative Mating, Inequality and Social Mobility: The Education Channel
Subject Area
Economic Theory
Economic Policy, Applied Economics
Economic Policy, Applied Economics
Term
since 2022
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 462655750
Over the recent decades, the educational composition of couples has changed considerably. The share of married couples in the US in which both partners have a college or post-graduate degree increased from 3.2% in 1960 to 25.7% in 2017. In line with this, the fraction of couples in which both partners are high-school dropouts decreased from 42.6% to 4.0%. These patterns are driven both by changes in educational attainment as well as by shifts in marital matching patterns. Over the same time period, cross-sectional inequality and intergenerational persistence increased substantially. In this project, we aim at developing a quantitative life-cycle model with heterogeneous households to relate these trends by analyzing the consequences of increased educational assortative mating for inequality and, in particular, intergenerational persistence. Increased educational assortative mating mechanically changes income and wealth distributions of the current economically active generations, the impact of which on cross-sectional inequality seems to be small. However, beyond this direct effect increased educational assortative mating potentially has an important impact on intergenerational mobility: it facilitates investments into children’s education and inter-vivos transfer payments of education-, income-, and wealth-rich parents compared to poorer parents. It additionally affects the incentives of parents to invest into the human capital of their children. Consequently, earnings inequality among children as well as intergenerational persistence could increase. Our main objective is to quantify the role of these behavioral responses of parents for intergenerational persistence and inequality in the next generation. For this purpose, we will feed an exogenous mating process into our model and describe intergenerational linkages through human capital investments of parents into their children, as well as inter-vivos transfers. We will apply the model to study the past trend of inequality and intergenerational persistence from 1960 to 2020, and conduct a decomposition analysis to quantify the relative role of the exogenous assortative mating process vis-à-vis other changes such as the change in the college wage premium and taxes as well as divorce rates. We will further employ an extended variant of the model to investigate how skill biased technological change – modeled through an interaction of neutral technological change and capital-skill complementarities in aggregate production – will affect inequality and intergenerational persistence in our model. Skill-biased technological change will trigger changes in higher education decisions with the according feedback on assortative mating and the human capital investment decisions of parents into their children. We thereby advance an existing literature on predicting future inequality and inter-generational persistence by taking into account the dynamics of family formation and education decisions.
DFG Programme
Research Units
