Income Inequality and Marriage

This study examines the extent to which changes in household formation exacerbated income inequality in the United States during the last two generations. Using a time-varying parameter model, the impact on how marriage decisions, changes in human capital, and fertility choices influence inequality are estimated. The estimation results show that marital sorting evolves over time and positively and increasingly affects the degree of income inequality and intergenerational human capital transmission induces path-dependent income distribution dynamics. This suggests that intrahousehold choices explain a substantial proportion of income distribution dynamics.