High Income Households Don’t Just Earn More, They Work More

From Mark Perry, here is an interesting graphic on what factors underlie household income inequality.

It’s not just that higher income households have higher income earners, although that’s part of it, too. They also have more workers per household than lower income households. That’s not surprising, really, since so many lower income households are headed by single parents, which is also shown in the graph. (The increase in single parent households, by the way, is one of the causes of stagnating household incomes.) But it highlights the problem with a comment I frequently hear, which is that a single parent can’t run a household on minimum wage. Of course s/he can’t. So maybe the wise thing to do is to not try, but collaborate with another single-parent to have a multi-wage, instead of single-wage, household? (The answer: Because when you do that you’re Southern California Latinos and the gringos will pass laws limiting how many people can live in the household.)

Note also the education effect. Even if college education is primarily about signaling, rather than learning, it still tends to pay off.

So what’s the secret to doing well financially? Get an education, get married, and stay married. Hopefully the marriage is utility-enhancing in itself, too, so you don’t have to calculate the opportunity costs of material well-being vs. psychic well-being.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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3 Responses to High Income Households Don’t Just Earn More, They Work More

  1. Troublesome Frog says:

    I think that your analysis on this one is pretty solid, but the article you linked to is totally misreading the situation. The income inequality that the OWS people are so ticked off about is not the inequality between the first and fifth quintiles. That’s perfectly reasonable and can be accounted for by fairly simple variables. I’d like to see table with the top 1% broken out. Those statistics would tell the story.

    I’ve said for a long time that income inequality doesn’t bother me much. However, I am starting to seriously worry about the inequality in how we divide up our economic growth. The trends are alarming, and I can’t say I’m surprised that we’re seeing protests.

  2. BSK says:

    I think it is less about married vs single and more about married with kids vs single with kids.

    I just got married, but have lived with my wife for 3+ years now. She makes more than me; always has and probably always will (she works in nursing and I am a teacher). Yet, somehow, I was in better individual financial shape single than I am with her. Overall, we have more money. But my couple expenses are more than 2x as much as my single expenses were. Now, there are a variety of reasons for that. And, if we were to remain childless, that would probably change, since we would eventually go out less and such.

    So, if I was single and lived alone (as I did before we moved in), I’d probably have more in savings and be in better overall financial health (though we are doing very well right now, no complaints). Of course, there would be other costs and I would not trade my situation now for what I had back then.

    Now, if there was a kid in the mix? Whole ‘nother bag. So, really, if you are going to have kids, be financially prepared to do so, either as a single parent or as dual parents (even if separated). Kids are extremely expensive, far more than people ever realize. And they often limit the work options, especially for low-income people. For many families, it ends up being cheaper to not work than to work. Obviously, a lot of the kids these families have are unplanned which is why better education, better access to contraception, better access to abortion (GASP!), etc. are so important. And, unfortunately, are rarely considered because the effects of such policies take more than typical politician’s term to be realized.

  3. Jeremy Sell says:

    I hold a Bachelor’s degree, have been married for six years, and live in a household with two full-time workers. Seems like the only thing between me and wealth is my 35th birthday, which is less than two months away. I can hardly wait. >:D

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