Income Inequality Is Partially Caused By Women Joining the Work Force
We’ve talked about income inequality a couple of years ago; specifically touching on the role of marriage patterns and assortative mating in household income levels. We’ve also discussed the economics of assortative mating more directly – the deeply ingrained tendency of people to marry other people like themselves with similar educational backgrounds, cultural values, personalities, and career orientations.
One interesting result of this is that the women’s liberation movement in the 1960s and 1970s planted seeds of radical income inequality that are just now coming to fruition. Of course, it’s not the only cause of income inequality, but it certainly does play a meaningful role in the gap that has developed between the well-heeled and the penurious.
I thought it would be useful to revisit it using real world numbers to illustrate just how large of a gap it can cause now that women have been in the workforce for a generation or two, and are enjoying higher educational rates than men. I also wanted to highlight it, again, because it is one of the best illustrations of how various disciplines reinforce one another to create societal outcomes; a factor you must take into consideration when analyzing data if you desire to understand it. Biology, economics, sociology, psychology; it’s all telling the same story, from different perspectives. Knowing that makes it easier to understand what is happening and try to understand the underlying causes.
An Examination of Median Lifetime Earnings By Highest Educational Attainment
To understand how the women’s liberation movement is partially responsible for that widening gap between the rich and the poor, we have to look at the vast income differentials a person is likely to experience in life based on his or her educational attainment. Georgetown University has a great report on Median Lifetime Earnings by Degree (PDF) that breaks down a lot of the data and specifics.
What this chart doesn’t show, but can be found with a bit of quick research into other data sources, is that there are even wide ranges within categories. Consider a Bachelor’s Degree. While the median lifetime earnings of someone who has earned his or her Bachelor’s Degree is $2,268,000, the actual figure is going to depend on the career focus. A liberal arts major in the scientific and mathematical fields will earn between $2,600,000 and $3,000,000, while one who went into education, office support, or transportation is likely to earn only $1,400,000 to $1,800,000. For those of you interested in the specifics, here is a list of the best paying college degrees and here is a list of the worst paying college degrees.
Why does all of this matter to income inequality? For those of you who study socioeconomic data, the results will come as no surprise:
- Educated people are much more likely than the general population to get married
- Educated people are much more likely than the general population to stay married for life
- People are likely to marry someone with educational attainment equal to their own
- Marriage rates have been declining for those with lower levels of educational attainment
This creates a sort of double-whammy effect for income inequality.
- Generations ago, almost all mothers were likely to be married. Today, the Centers for Disease Control says that 46 out of every 100 births in the United States are to single mothers. A single mother is much more likely to have only a high school diploma or less.
- Generations ago, most women did not have a college degree, meaning that the overall household income for a married couple with a college-educated person in it was lower than it is today.
The mathematics of economies-of-scale are just as powerful for a household as they are a corporation. Adding the loss of marriage probability for the lower classes (there is a reason that marriage has been called the greatest anti-poverty program ever invented) and the additional lifetime earnings differential for the highly educated, you start to see how easy it is for an exponential difference in wealth accumulation and standards of living to happen. Even worse, it doesn’t stop there. People who aren’t married and / or are in the lower educational brackets are:
- More likely to smoke
- More likely to drink
- More likely to squander money on things like gambling
- More likely to be obese, which results in higher medical costs in the long-run.
It creates this sort of snowball effect. Not only is more cash spent on transactions that do not compound positively, life expectancy is also shorter, meaning there is far less time to compound in general. This matters a great deal. A high school graduate saving $10,000 a year and earning average long-term rates on blue chip common stocks would end up with $5,376,369 if he died at 60 years old. If, instead, he lived to 90, he’d leave an estate worth $95,459,381. Hence, the old joke among value investors that the greatest secret to getting rich is to “live a long time”. You don’t have to be particularly smart, just disciplined and let the passing of the seasons do the heavy lifting.
All of it matters. It’s a bunch of forces interacting together that, when they collide, lead to exponentially different outcomes. As in chemistry, adding one substance to another can lead to some explosive results. That’s the nature of the universe. Human institutions are no exception.
The Real World Numbers for Income Inequality Between Two Households
In practical numbers, this means that our single mother with only a high school degree might earn only $1,304,000 over her lifetime. Looking at a typical person in the United States, she has a higher probability than the general public of spending a good deal of that on cigarettes, beer, and lottery tickets. It’s just a fact. Yes, there are exceptions, but we’re talking about large populations and probable behaviors. Meanwhile, the married couple down the street – both of whom are now more likely to have gone to college and both of whom are more likely to be working – are going to be raising their children on lifetime earnings of $4,536,000. They are more likely to shove their cash into 401(k) plans, savings bonds, and blue chip stocks.
This is not to say there aren’t substantial problems with the tax code, as structured, in the United States, nor that assortative mating and women’s liberation are entirely responsible for the rise in income inequality (they aren’t). Rather, it is simply an acknowledgement of the numbers: Even if tax rates were exactly the same as they were generations ago, and even if technology and globalization had not conspired to decimate the lower-middle classes through automation and outsourcing, income inequality would still be much higher today than it was in the past as a result of women joining the workforce and enrolling in universities at a rate unthinkable throughout all of human history. Two doctors, lawyers, accountants, executives, or professors living under the same roof are going to accrue much greater benefits as the income from the second paycheck is almost entirely untapped, leaving it to build net worth or spend on greater luxuries.
This data confirms, indirectly, one of the findings of Dr. Thomas J. Stanley from the University of Georgia in his research that led to the bestselling books, The Millionaire Next Door, The Millionaire Mind, and Stop Acting Rich. While college graduates make up less than 25 out of 100 people in the United States, when you examine millionaires, more than 90 out of 100 of them have a college degree. The most common occupation of millionaire spouses is teaching, which itself requires a college degree. Educated people like being around other educated people. It’s hard to fall in love with someone if they can’t understand what you’re reading or discussing. Most people want equals to themselves. Education and marriage tends to correlate highly with financial success.
In a very real sense, equality in education and employment leads to income inequality among households. I don’t know anyone who thinks treating women equally was a bad thing, so this is a side effect that isn’t going away as the underlying cause isn’t going to be, nor should it be, reversed. The cold fact is that the more options people are given to live their lives, the wider the spread between the optimal and sub-optimal choices is going to grow.
What we are seeing in economics is simply reflecting what biologists and sociologists have known for a long time, which is that mating patterns in lifelong relationships often revolve around shared interests and similar backgrounds. That this basic reality now presents a perceived social problem in asset concentration levels is one of the things that keeps life interesting.
(On a sidenote, this is one of the reasons that there is a strong, vocal minority that is constantly talking about the benefits of education and the importance of making it affordable and attainable to everyone capable of doing the work. Once someone picks up the habits it instills, they are unlikely to part with them willingly, enjoying the resulting better life outcomes.)
If you want to be rich, become educated (paying a rational price for your college degree relative to its earnings potential and avoiding a lot of student loan debt), and marry someone at least as high up on the educational attainment chart as you are. Make sure they have a compatible temperament, too. Otherwise, I’ve already told you my thoughts on the best age to get married.
Update: I released this post from the private archives, where it was placed several years ago, on 05/26/2019 as part of a special project, which you can track here. In the six years since it was originally written, this trend has not only continued, but accelerated. Successful individuals are self-segregating, coupling up, then moving to concentrated geographic areas to be around others like them. The result: over the past ten years, nearly all of the economic gains have gone to the top fifty banking markets. 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.
Reader Comments (4)
Comments are presented chronologically, with replies indented beneath the comments to which they respond.
joe pierson
August 26, 2013
Isn't some of this data skewed by the fact the households are getting smaller (single mom and kid for instance), thus less income is needed to maintain an equivalent lifestyle?
Joshua Kennon
August 26, 2013
Replying to joe pierson
To some degree, but not enough to offset the economies of scale, which have a bigger influence on expenses. The big ticket costs each month for most people - rent or mortgage, a car, gas and electric - scale very nicely so that adding additional people is far cheaper than setting up a separate household. That is, whether you have one parent or two, the odds are good your rent is going to be roughly the same. Whether you have one parent or two, you still need at least one automobile.
All else equal, it is always more expensive to raise a child in a single parent household not just due to those economies of scale, but because even in a double parent household, if one of the spouses doesn't work, he or she is still contributing economic service-in-kind. For example, if you don't have to pay for daycare because one of the two parents stays home and watches the kids, that has an enormous financial benefit that doesn't show up anywhere on the income side of the equation. You also get the Adam Smith pin factory effect of specialization, in which certain tasks are assigned and completed based on skill and interest, leading to greater overall efficiency.
lokgp
August 28, 2013
I would like to add some input here as well. Sometimes I think, I should just create a blog and link everything together so that some advertising income streams get build up over the years.
I am in total agreement that women joining the workforce is the cause for income inequality. Not just on the basis observed by Joshua, but also the income inequality between men and women. And by this I meant, how women are actually getting wealthier than men. And there in lies inequality between gender.
I start with the story of a family bringing up 1 boy and 1 girl. The girl is younger sister and the boy the big brother. When these kids are growing up, the parents readily recognize that the boy's role is to grow up and get to work and earn money, and help out in the family expenses. So, they would tell the boy, graduate, and go get a job. This parent's recognition and pressure gives the boy little meaning and understanding to pursue any college degree, and he yearns to get out of high school, and work at Mc Donald's and WalMart, get some money and be happy to help out with the family's bills.
Good boy he is. All for the family. What an amazing big brother. While he was at high school, the teachers tell him to work for a scholarship and get into college. He said, " Miss Brown, thank you for being so kind to me. But, there ain't no point for me goin' to college. I ain't interest'd, and I wanna go and make some money. It is gonna rain on me. I'll do just fine in Mc Donald's. I'm gonna get that skateboard I so yearn for, gotta change its wheels and burn some rubber."
His mama looked at his younger sister, "Kylie, you ain't no good. Your big brother gonna take good care of you." Papa tells her, " Girls are so weak, they should just spend more time studying and get into college. You ain't no skills and ain't no use here. You can't carry any weigh or work too hard. Go get into college and become a teacher or desk job somewhere when you grow up." Suddenly, a girls physical weakness becomes the ticket and reason for them to get into college and graduate. And Kylie says, " My mumma sez, I am good for nothing. She tells me to go to college and get some clerk job somewhere. My big bros the best, he is working and taking good care of my family. He's the best.
Big bro went on and work some in Mc D, worked some in WalMart. Drove some cab. Some bouncer jobs. He doesn't have any college degree, and he doesn't have the ticket to get into a any professional higher paying job. He goes on to Detroit to work some job packing for its better pay there.
Little Sis Kylie goes on and graduate with a college degree, with some student loans, but big bro paid some of her meals and transport. She ends up with a job in a local bank, cashier or assistant something, just like what her mummy told her.
In another 2 years, Kylie's pay is same as the pay of his 7 years old much more senior brother.
She got married to another guy who works in the bank, or some sweet college grad customer of the bank. Both have great pay and great future, as Joshua mentioned in the post.
Part 2:
Kylie now being a great sister, introduced her college grad banking girl mates to her bro, and great news, her brother got married to one of her girl friend.
Ok, that’s wonderful, no college grad got married with a college grad girl. Good future ahead.
So, Bill, the big bro, had a beautiful wife. He saved up money for all the cool wedding and dowry and all that cools stuffs for the wedding. Of course he paid, who else? His wife paid for her own make up, wedding dress etc. And good ol’ husband gotta pay for the honeymoon hotels, tickets, meals, wedding dinner, cocktail, photgraphy, cake etc etc…. All his savings going down. Well, that’s alright, he says. I’ll just save up again. Sure,certainly.
To build this new beautfiful family of theirs, Bill gonna have to pay the downpayment for their new house, 2 bed room, that is absoultely fine. He’s gonna take a 30 years mortgage for that. He moved back from Detroit, and got another job Home Depot, being part of the Operations Seniors. His savings then has gone all the way down. And you got to have a car right, and you can’t have a shitty old car for you banking wife. Sure a Toyota is great. Why not a Civic? Affordable and great. No problem at all. Another loan for the car. And in order to apply the economy of scale as mentioned by Joshua, he’s gonna try to arrange to pick up his wife to and from work, so that they only have 1 car. 1 house. That’s money well spend isn’t it? Everything as described in “The Millionaire Next Door.”
In another 2 years, his wife is getting promoted to a higher role. Higher pay certainly, by staying put in the company, her knowledge accumulates faster, and she got a deserving higher pay. By now, her income is higher than Bill. She gets to spend all those money on shoes, dress, jewellery, and Iphone, tea with friends, another Ipad, great stuffs, vacation with her girl friends to destress from her banking job. But still, she got plenty to save up. Why? Simply because, she didn’t pay for the house, nor the car, no rent, no gasoline, no taxes which usually takes up half of a person’s pay. That’s why she gets to go on the travel with her girlfriends.
Bill is fine. A man gotta do what a man gotta do. “That’s what my pappa did. Pay all the bills. We go out for date, certainly I got to play. I know my wife appreciate that she’s got a man who can pay for all those fine dinners and movies and getaways,” Bill says. What a great gentleman.
They gonna have kids right? And with both of them working, the kids gonna need some day care. Who gonna pay for it? Papa of course.
His wife being a banking girl gets offer for some education fund for her kids, and she ask Bill to share the cost of the education fund. Fine. Bill is happy that his wife is so considerate. Bill’s wife cook during the weekends, and Bill pays for the grocery. Division of labour. Great! Such efficiency outside of a pin factory.
It is pretty clear that by 7 years of their marriage, his wife is going to have a far greater savigns, probably at least $60,000. And Bill: sure must be $5,000 in savings. Who else paid for the bills, car, housing, grocery, partial education fund. And his wife is earning 20% more than him now. No problem, Bill is going to put in some overtime to match up their pay. Less time for kids to see their daddy. “Why is daddy always working? Why can’t he just stay at home and watch Aladdin with us, mummy.” They ask. “ Daddy is one great guy, he’s out their working is ass off so that you get swith on that TV and stereo. He’ll get home soon.” Mummy says.
Alright, armed with $60,000 in savings, Marina, the wife is going to start a personal financial advisor business. She guess that with her skills, she could just get the same clients and earn those profits the banks are earning herself. Good idea. She started working alone on the business, and as her clientele grows, rope in some younger juniors into the company as consultants, and gradually scale up to 5 consultants. A good self-employed woman.
Certainly, a business income grows faster than a an employment income. Bill went on and become the manager in Home Depot. By now, with the business, Marina’s income is going to be 4 times as great as his husband. With great income, and little expenditures, her savings got bigger for her to start flower supply store. And Bill, still with the manly commitment all over him, he have his savings at $ 10,000. You can’t save a lot if you have 95% of your limited income going to bills and loans, can you? Luckily he did overtime. But who pays for the Disneyland trips?
So, he we can see small little edge here and there, compound and brought on huge differences in wealth and income. First, the college degree. Second, the societal pressure to perform as a man: wedding fees, honeymoons fees, mortgage, car, gas, kids fund, time spent to fetch his wife up and down. This causes his savings to remain small, with his limited pay, and therefore slows his progress into becoming a business owner. By then, his wife’s got a business worth $1,000,000 minimum. And Bill… well, he got a house to his name, a car to his name and 2 beautiful kids.
Like clockwork, the economy slows down. Home Depot doesn’t need any overtime guys. And Bill’s income got reduced. So did Marina’s business. But what the heck, she got lots of savings by now… $200,000 at least? As Bill’s income dwindle, he ask his wife to pay the house mortgage. Its getting heavy on him after he depleted his savings to cover the shortfall in income.
Ok, Marina takes it on. 1 month, 2 month, 3 months…. It didn’t feel right for her. That’s a lot to pay for the mortgage. “Why isn’t my man planning for hard times like this. Why did he spent so much money that I have to pay for this mortgage?”
Dates? Vacation? Bill tells his wife,”Honey, you gonna have to pay for them if you want to go.”
“Huh? What? What sort of man are you? Are you getting useless?”
It just doesn’t feel right for a woman to be paying for these stuffs. Especially paying for the man’s part. It felt awkward.”
“Bill, you are so useless. You were never like this. You should have been more dependable and spend time planning for hard times like this. How did you mis-spent all your money. Your nights out with your friends, birs gonna have to go. You better get your butt out and find some part time job. Or come over to my business and clean up the office. So I can cut off the expenses for office cleaning.” And you think a man is going to and clean up his wife’s office because she tells him so. Yeah, right.
Arguments goes on. Which family doesn’t argue about money? It is the Number 1 argument household argument after all.
So, argument is going on and on. And feeling of her wife’s disappointment over the inability of his husband is so great. “How can I be working so hard building a business, saving my money, yet my husband isn’t saving any of his? I feel so stupid and get used by him. Why can’t he be more hard working and dependable? Why can’t he achive more? Start a furniture business or something.”
Well, Bill wanted to start a furniture store, but his wife is not going to lend him any money. If any, he is going to get a loan. She can helf her out with that. But the banks look at the mortgage and car payments, shook their head, says he got too much loan on his books.
Well, argument builds up. Divorce then.
More than 50% American file for divorce anyway. That is so common.
Of course Bill wants the kids. Which father would rather give up their kids? But, sure, the court will give it to his wife. And he will have to pay alimony as well. The house will have to be sold and the proceeds split after paying back the remainder of the mortgage.
And now, we have a broken family, and a single mother. Sure, business is hard for a single mother, and Marina had to scale her business down. It is true that single mother doesn’t earn as well. A marriage is always better.
Bill suddenly felt easy. No bills to pay, no mortgage. No kids to take care of. “I am going to the rigs, there some good money at the fracking places.” Woohoo, xxxx here I come.”
So, in a summary, societal pressure, social proof, parental encouragement and influence, level of education, I got to be a man habit, nature of the job, deskjob or a heavy lifting, savings level, income disparity, economic slowdown, divorce. All have influences on income disparity between men and women.
It is not evident yet. But as time goes by, it will get clearer that women are getting ahead. Along with that, income disparity grows as well. Well, guys, you are in a hard time. No one said its going to be easy. I think men should really bring this topic and discuss with their partner because economic reality is different compared to World War 2. Women are part of the workforce now. You don’t have to hold the world on your shoulder alone. That’s why you get a partner. Well, women should accept the reality that they will have to commit their income to the family. Its better than watching your partner drown. Societal dogma needs changing. Still hoping your boy friend to buy you that Iphone or See’s Candies for Valentine? Okay, make sure you get him something of similar value for a Guy’s day or something. Reciprocity is going to be the new habit.
Kapitalust
July 24, 2015
Joshua, what would you say to someone who argued that the data available on the connection between college and increased earning power is flawed because it's not a controlled, randomized experiment?
What about people who argue that the data set is skewed because wealthier kids end up going to college, so does it become a question of are college grads wealthier because of college or are they wealthier because they were wealthy to begin with?
I've heard arguments such as: the data might have applied previously, but doesn't apply now for millennials because it's more expensive to attend college today.
Would be interested to hear your thoughts.