Controversy over the combination and inequality of resources

The phenomenon is its extent and its sustainability: a small portion of the population owns a significant portion of a country’s wealth, and the amount of wealth inequality rarely varies from one year to the next. To give an extreme example of wealth concentration, suppose a wealthy American can seize a resident (Elon Musk) and redistribute his wealth among the poorest two million American families. This ‘Robin Hood’ policy will be enough to take these families to the middle class1

A quick look at the literature

Enough research has been devoted to understanding the reasons for the huge concentration of resources at the top (see Benhabib and Bissin 2019 for a recent review) and why these inequalities persist over time – even over the centuries (Baron and Mossetti 2016). To rationalize that continuous wealth inequality, one needs at least three elements:

  1. Systemic inequality in exchange for wealth, where people are constantly differing in how much capital they are able to earn from their wealth;
  2. Some intergenerational correlation between wealth and possibly its income; And
  3. Pick something rich when building a family.

In a previous work with Andreas Fagereng (Fagereng et al. 2020), we examined population data from Norway and found that the first two features had greater empirical support. Our searches have been confirmed for a few more countries.

In the new work (Fagereng et al. 2022), we focus on the role of ‘assortative mating’. The combination has been overlooked in the literature, only the children of wealthy parents have been used to show a tendency to marry children of similarly wealthy parents. There are two important issues that have not been answered in the literature. First, do people really get married based on their parents’ wealth, or are personal wealth relevant (or more)? Second, do people match not only on the basis of level but also on the rate of growth of their wealth (i.e. on the return of wealth)? Since, in all societies, marriage (and in a broad sense, intercourse) is the main institution of family formation, two questions help us to understand the difference. What we usually measure is inequality within the family, and it is mediated by the integration process. If people rely on their wealth in marriage, rich women marry rich men, increasing the density of wealth.

If people with high ability to generate returns marry the same kind of spouse, the couple’s wealth may increase faster than their low-income wealth during their lifetime, which can lead to increasing levels of wealth deviation – and thus greater inequality – as couples go through their lives. .

Our Contribution: Whose Resources?

In our recent work, we have highlighted a number of innovative facts about the merging process with the two dimensions of wealth and return on wealth, and shed new light on how marital choice affects wealth inequality at the time of marriage and in the couple’s life cycle. . We use Norway’s demographic data, which is unique (and unique) so that one can look back at the wealth of the entire population before and after marriage and the wealth of each person in the couple before and after marriage.

Our data from the previous literature confirm that marriages are divided on wealth. However, since we can match individuals to their parents and observe parental assets, we can also study whether people sort by their own assets or those of their parents’ assets. Unlike previous literature (e.g. Charles et al. 2013), we see that the issues are not the parents’ assets but the husband / wife’s own pre-marital assets: once the latter is calculated, it does not play a significant role in explaining the combination of parental assets. The mating is significant based on one’s own assets, and its strengths are documented in Figure 1, which shows a ‘hit map’ plotting the number of marriages observed for each combination of the bride’s pre-marital property ventilation and the groom’s pre-marital property ventilation. .

Figure 1 The heat map of the mixer mix on the asset

On the map, the dark areas correspond to the lower frequencies. Clearly, more marriages are observed along the left-to-right diagonal, consistent with consistent mating. Sorting on one’s own wealth is different from picking on income or education. The hit map contains exactly the same assets if we look at husbands or couples with the same level of education that come from a similar share of income distribution.

Picking on asset return

The implication of choosing over one’s own wealth is that wealth inequality in marriage is spread by the matching process in the marriage market. Individuals also seem to sort out personal returns on their assets: Men who earn more than their pre-marital income on their assets are more likely to meet women with higher returns. This is again documented with a heat map (Figure 2). Furthermore, returns are quantitatively as powerful as sorting on selected assets. And more importantly, it is not a reflection of picking on resources.

Figure 2 Combination heat map for return to resource

This is important to emphasize because an important feature of the data is that rich people tend to have higher returns – a so-called scale dependency effect (Gabaix et al. 2016) – which means that rich people achieve higher returns even though they have the same financial status as the less wealthy. Sophistication or risk tolerance. As Figure 3 shows, the shape of the heat map is unaffected if we focus on selecting the return between the spouses in the top quarter of the pre-marital assets.

Figure 3 The hit map of the return of conditional assets

Who manages the family property?

How does picking on returns affect the evolution of a couple’s wealth after marriage? In contrast to sorting out assets – the effect of which is easy to guess since marriage only adds to the wealth that each spouse brings to the family – the effect of matching returns depends on, after marriage, who manages the family assets. For example, a possible situation is where two spouses share the responsibility of managing their pooled assets equally, so that the return of family wealth is approximately equal to the weighted average of each wife’s return. After marriage, family wealth will develop at this rate.

An alternative situation is one of complete specialization, where the financial management of the family assets is given to the spouse with maximum power to generate returns. In this case, the family wealth will grow faster than the husband / wife sharing the responsibility of asset management (when the return is properly selected, the ‘household money management rules’ are irrelevant).

Comparing individual returns before marriage and family returns after marriage allows us to infer the ‘rules of management’. We find that the spouse with the highest return on premarital property carries 80% of the decision power, while the other spouse accounts for the remaining 20%. However, this result masks interesting forms of variation. First, men order slightly more weight than is confirmed by their pre-marital return, probably a reflection of gender norms.

Moreover, among wealthy families – who are classified at the top of the distribution of wealth – the ‘rule of management’ is one of complete specialization: the wife seems to be in full charge of managing the family’s wealth with the highest pre-marital return. This means that by effectively eliminating the return to the average by sharing financial responsibilities, the wealth of the rich family increases more rapidly over time, increasing the density of wealth. Instead, it suggests an approach that builds perseverance in asset centralization, allocating decision-making power between spouses: when the stakes are high – that is, among the very rich – the motivation is stronger to give the spouse more discretion with more power to manage. Goes. Family assets. Equal to all the rest, this complete specialization strengthens the concentration of resources at the top of the distribution.

Combined dynamics and inequality

Our evidence for consistent mating is relevant to the debate around the causes of both extreme wealth concentration as well as its evolution over time – an issue that has attracted considerable attention in recent years. Analytically, it is easy to show that in societies where marriages are conducted on the basis of wealth, the concentration of wealth is higher at the time of marriage; With the diversity of returns, they grow more unevenly during the life cycle of the marriage, and the dynamic effects are extended by consistent mating on return.

Concerning the dynamics of asset density, as the type of mating and wealth management system is highly likely to evolve over time (such as social norms and relative gender skills change), mating mating and wealth management allocation rules may vary over time and still over time. Unexplained causes of change in wealth inequality. Figure 4, Panel A, documents a significant decline in the combination of assets over time in Norway (from about 0.23 to about 0.14). The evolution and documentation of the time of genital coagulation for assets in panel B marriage shows that it has also decreased. Although crude, the connection between panels A and B indicators indicates the potential importance of assemblages for the evolution of time of asset inequality.

Figure 4 The dynamics of assimilation and asset inequality

References

Baron, G., & S. Mossetti (2016), “Very Long-Term Intergenerational Mobility: Florence 1427–2011”, Bank of Italy Working Paper No. 1060.

Benhabib, J, and A Bisin (2019), “Skewed wealth distributions: theory and empirics”, Journal of Economic Literature 56 (4): 1261-91.

Charles, KK, E. Hearst and A. Killewald (2013), “Marital Arrangements and Parental Assets”, Population 50 (1): 51-70.

Fagereng, A, L Guiso, D Malacrino and L Pistaferri (2020), “Perseverance in exchange for contentment and wealth”, Econometrics 88 (1): 115-70.

Fagereng, A, L Guiso and L Pistaferri (2022), “Assortive mating and resource inequality”, CEPR Paper 17148.

Gabaix, X, JM Lasry, PL Lions and B Moll (2016), “The dynamics of inequality”, Econometrics 84 (6): 2071-111.

Endnote

1 Elon Musk’s net worth is estimated at $ 237 billion (“the world’s real-time billionaire”, Forbes). According to the 2019 Consumer Finance survey, the average wealth of American households is $ 122,000. If the poorest families had zero wealth, an equal distribution of Elon Musk’s wealth among them could bring 1.94 million families into the middle.

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