Working Paper: CEPR ID: DP2352
Authors: Raquel Fernández; Richard Rogerson
Abstract: Many social commentators have raised concerns over the possibility that increased sorting in a society can lead to greater inequality. To investigate this we construct a dynamic model of intergenerational education acquisition, fertility, and marital sorting and parameterize the steady state to match several basic empirical findings. Contrary to Kremer's (1997) finding of a basically insignificant effect of marital sorting on inequality, we find that increased marital sorting will significantly increase income inequality. Three factors are central to our findings: a negative correlation between fertility and education, a decreasing marginal effect of parental education on children's years of education, and wages that are sensitive to the relative supply of skilled workers.
Keywords: sorting; inequality; marriage; fertility
JEL Codes: D30; I20; J11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased marital sorting (J12) | Decrease in the fraction of children who become skilled (J24) |
| Decrease in the fraction of children who become skilled (J24) | Increase in income inequality (D31) |
| Increased marital sorting (J12) | Increase in income inequality (D31) |
| Increased marital sorting (J12) | Higher fertility rates in families of lower educational attainment (J13) |
| Higher fertility rates in families of lower educational attainment (J13) | Reduced educational attainment among their children (I24) |
| Decrease in educational attainment among children (I21) | Increase in income inequality (D31) |
| If unskilled wages decrease due to higher sorting (F66) | Tighter borrowing constraints for low-income families (G51) |
| Tighter borrowing constraints for low-income families (G51) | Further exacerbating wage inequality (J31) |