Changing Family Behavior and the U.S. Income Distribution

Abstract

The trend toward increasing family income inequality in the U.S. over the past several decades is well documented. Among possible explanations for this increase are rising inequality in individual earnings, changes in family labor supply decisions, and changes in family structure and living arrangements. We analyze the contribution of the latter two factors to rising family income inequality during the 1980s using conditionally weighted density estimation, a semiparametric decomposition technique recently pioneered and applied to assess the causes of rising earnings inequality (DiNardo, Fortin, and Lemieux 1996). This technique enables estimation of the impact of the modeled factors on the complete distribution of income. We use data from the March Current Population Surveys for the years 1980 and 1990, which yield family income information for the years 1979 and 1989. The primary effect of both changing family structure and changes in wives' labor force participation was on the midpoint of the family income distribution. The effect of changing family structure on rising inequality was small over this period, primarily because the net change in family structure was small. However, the increase in wives' labor force participation explains about 10 to 25 percent of the increase in family income inequality.