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January 16, 2007

Families and Inequality

New Census data shows that, for the first time, 51+% of women are living without a spouse. In 2000, the number was 49%, and in 1950, it was 35%. More astute demographic theorists than me can speculate about What It All Means, but the Ezra spin on the numbers is that these sorts of trends have a relatively massive impact on absolute inequality, particularly as measured by household. Cut to Brookings economist Gary Burtless:

The atomization of U.S. families has been widely discussed and intensely
debated. None of the debate has focussed on the role of household atomization in producing a major link between inequality and economic growth, however. The process of atomization is quite likely to produce more inequality. A family containing more than one potential earner has the equivalent of an insurance policy to offset the variability of the principal earner's wages. A family with only a single potential earner lacks that insurance. The result is that income (and equivalent income) is more equally distributed among married-couple families than it is in one-adult families. Presumably, families with three or four potential earners would have even better insurance than married-couple families. This may be one reason that extended families containing more than two adults are a common household arrangement in developing countries.

If a family splits up, one by-product is an increase the variance of the equivalent incomes of the resulting family units. According to the official U.S. poverty guidelines, it takes 56 percent more money to support two people living apart than it does to support the same two people if they live together. Unless actual income increases substantially at the same time a family splits up, atomization reduces the equivalent income of the typical family member. The atomization of American families – holding actual incomes constant – thus reduces the average person's equivalent income and increases the variance of equivalent income.

That last bit is important. If a household breaks up, and both wage earners made equal salaries, they will both have less than 50% of the buying power they enjoyed previously. In most cases, that's probably a good thing: We don't want couples trapped in unhappy or abusive relationships. So that's a type of inequality we may well not want to reduce, hence my argument that we need to talk about unequal political and economic power, which is a bad source of rising inequality, rather than inequality itself.

January 16, 2007 in Inequality | Permalink

Comments

Yeah - the way life has gone, my family has gone back to the route of the extended family. We live in a very upper class, suburban area, in a $700,000+ home (not sure, going by similar houses selling. We aquired it by buying a lot and building, which was much cheaper even a few years ago.)

However, we accomplished this by having 6 working adults in one house. There are also 5 kids between us. However, because we are in one house, we are able to pay 1 full-time nanny to watch them. Even paying her double the going rate, it's cheaper than daycare, and we all have more flexibility to take overtime etc. Plus, with 6 of us, if someone is sick, or something needs repaired, at least one of us can usually get the day off without repercussions. 6 adults can clean even a 4000 square foot house in an afternoon. 6 adults can take turns with the kids and not suffer burnout.

When one of us is sick, there are five of us to pick up the slack. When one of us loses income, we have a tremendous amount of backup to protect us until we get back on our feet. Because we all live together, the six of us share 3 cars. This makes transportation a hell alot cheaper. Also, because we can afford to live in a good neighborhood, close enough to walk most places, we rarely drive except to work.

This might be hard for some people, but we are blessed with all liking each other, as well as being related. And now that my sister in law has leukemia, this arrangement has turned out even better, for all of us. Because we are all here, she can truly rest, even being the mother of 3 kids. We are able to all those little things necessary to keep the house and lives going, and let her completely focus on healing. And it doesn't burn us out, because it's all right here.

If you can stand your family, I highly reccomend doing this, even though your neighbors will be pissed, especially if you move into a "posh" neighborhood.

Posted by: magikmama | Jan 16, 2007 12:25:19 PM

How many of these women are elderly widows? The biggest demographic change in recent years is the increased percentage of the population composed of the very old, and among them, women predominate. My mother, for example, lived in a traditional family for 58 years. Then my father died. Now she's a woman living without a spouse. Until you see these figures broken down by age, you can't use them to say anything about trends in family structure.

Posted by: JR | Jan 16, 2007 12:45:05 PM

I think there's a danger in trying too hard to separate out "bad sources of inequality" (although your link seems not to go to the right place, so maybe you already address this) in that yes, living apart costs more than living together (and there are non-marriage ways to address this) but the reality is that if a man and a woman have the same job, the woman will be paid less (is it 17% on average now?) and so there is some bad ineqaulity involved even here.

Posted by: Meh | Jan 16, 2007 1:52:08 PM

Why doesn't this take center stage in any discussion of increasing inequality? With all the debate about the rise in inequality being due to unfairness of some kind or other in the economic system--weak unions, high CEO compensation, etc.--it seems this demographic point alone might account for the increase in inequality instead.

Posted by: Sanpete | Jan 16, 2007 3:37:07 PM

Sanpete, it doesn't. Obviously it's hard teasing out trends from data, but first off, it's not that big an effect. Second off, income distributions haven't changed that much among the bottom 80%. It's the top 0.1%, 1%, 5% that have really exploded and caused the increases in income inequality, and this doesn't explain that.

Posted by: ptm | Jan 16, 2007 3:54:12 PM

PTM, those are good points, but I thought a main part of the complaint about inequality was that the bottom whatever percent were stagnating while the upper sliver continue to get richer. Why wouldn't this demographic explain why the bottom is stagnating?

Posted by: Sanpete | Jan 16, 2007 4:03:11 PM

ptm,

According to this Census Bureau table, the share of aggregate income received by the top 5% increased from about 17% in the late 1960s to about 22% in 2005. Why couldn't a large portion of that increase be caused by this kind of demographic change?

Posted by: Jason | Jan 16, 2007 4:14:01 PM

Ezra, the concern you’ve pinpointed here about the issue of rising inequality is much like the one I’ve had about the issue of increasing risk.

When Jacob Hacker did a stint guest-posting at Political Animal last fall, he linked to this as the piece that best describes his analysis: http://www1.hamiltonproject.org/views/papers/200609hacker.pdf

That report says the following about how he calculated the increase in the likelihood that a working-age person will experience a drop in their income of 50% or more from one year to the next:

“Probabilities are based on the time trend from a logistic regression, with all other variables set at their annual means. Variables include age, education, race, gender, income (mean of five prior years), and a series of events (such as unemployment and illness) that affect income.”

Two problems with this. First, best I can tell, the only way family structure figures in as one or more of the ‘events that affect income’ (e.g. getting divorced, having a child out of wedlock, losing a spouse). Not to minimize the technical difficulty of working with this kind of data, but it seems like that misses entirely the effect of ‘non-events’ (e.g. delaying marriage, entering or exiting an unmarried relationship) as well as any impact that the prevalence of different family structures has on the prevalence of other events. If this isn’t a solvable problem within the data, it should at least merit a detailed discussion somewhere.

Second, what I think he’s done is to take 30-odd years of data, regress all of those independent variables against the likelihood of a big drop in income, and figure out an average coefficient across the time period for each of the independent variables. To show the increase of risk across time, he’s multiplying those average coefficients (constrained to be the same value in every year) by the observed values for each independent variable in each year (which could be on increasing, decreasing, or flat trends – don’t know unless we can see the whole analysis and the underlying data). Isn't it really the change in the coefficients over time that would really tell us whether the fundamental character of the economy is changing?

I posted some questions like this while Prof. Hacker was guest-posting, and he never responded to any of them. Maybe I’m misunderstanding what he’s saying; and I certainly admire him & am glad that he’s found a way to get the media to pay attention to the issue of rising risk & inequality. But I find it hard to embrace his ideas wholeheartedly without understanding this better.

Posted by: TW | Jan 16, 2007 4:28:53 PM

Re: the exchange among ptm, sanpete and Jason about how much of the increase in inequality is explained by changes in family & household structure.

Some years back I looked at this specifically for children, who should be among the most significantly impacted by these changes. We figured that family & demographic factors explained roughly half of the increase in child poverty from the early 70s to the mid 90s - that is, if the population of kids in the 90s had looked the same as that of the population of kids in the 70s (in terms of household/family composition & race/ethnicity), their rate of poverty would still be higher; but the increase would have been about half what was actually observed.

This can be read a lot of different ways, but to me it was remarkable that family & demographic factors explained so little of the change. When you consider that there have been some important demographic changes that we didn't look at that should have reduced poverty (e.g. fewer kids per household, more delayed childbearing, increasing educational attainment by parents) it makes the purely economic causes of increasing child poverty look really potent. And that in an analysis that compared pretty good overall economic performance in the mid 90s to not-so-hot performance in the mid 70s.

So yeah, family & household structure is important, and close examination of that can change your understanding of what segments of society have been suffering or benefitting more from inequality than others (e.g. younger male workers as a group are much worse off than their peers a generation or two ago; and at least until recently older married couples (DINKs) have fared very well). But household factors don't explain away the increase in inquality. It's real, it cuts across the economic spectrum from top to bottom, and the rate at which it's increasing seems have accelerated since the mini-recession of 2001.

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Posted by: al | Jan 16, 2007 5:04:34 PM

But household factors don't explain away the increase in inquality.

If some of the increase in inequality is caused by demographic changes, then they certainly "explain away" some of it. No one seems to be denying that there is such an effect. The debate seems to be over how large it is.

It's real, it cuts across the economic spectrum from top to bottom, and the rate at which it's increasing seems have accelerated since the mini-recession of 2001.

Based on what? According to the Census Bureau, the rate of increase in income inequality, as measured by the Gini ratio and shares of aggregate income, seems to have slowed significantly since 2001 (or at least, from 2001 to 2005, the latest year for which it reports income data), compared to the corresponding period prior to 2001 (see here and here)

Posted by: Jason | Jan 16, 2007 5:37:14 PM

Interesting, TW. 50% would be quite a bit, when trying to decide what policies ought to be considered. Not that this would be an easy factor to deal with by means of new policies.

Posted by: Sanpete | Jan 16, 2007 7:25:49 PM

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Posted by: judy | Sep 26, 2007 4:57:26 AM

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