Giedrius Blazys

This is from my research proposal writen a few years ago.

Over the last couple of decades developed countries and especially USA and UK experienced a dramatic increase in earnings inequality. Not only income gap between more educated versus unskilled workers increased, but earnings became more unequal among people with similar productive characteristics in the same industry and the same occupation. The increase in overall income inequality (when rich are getting richer while poor are sinking into poverty) is well documented and it is generally explained by changes in demand and supply sides of labor market as well as changes in labor market institutions (LMI) (Katz and Autor, 1999).

The common belief is that computers and technology are substitutes with unskilled labor and complements with skilled labor force. Therefore, innovations and the spread of technology leads to increase in demand for more educated workers while demand for unskilled labor should decline (Card and DiNardo, 2002). This is a skill-biased technological change explanation. Secondly, globalization and associated increase in trade and outsourcing might have driven wages of unskilled labor down. Thirdly, increase in immigration of unskilled labor force, increase in crime rates, and drug habits should drive the wages of already low paid workers down. Finally, changes in LMI, and in particular, decrease in real minimum wage, de-unionization, and liberation in wage setting practices are also expected to drive income inequality up (Katz and Autor, 1999).

Moreover, income inequality among families was further signified by considerable changes in family patterns, where the share of single parent families and families with both parents working increased substantially: as both working parents pool their income, they stand much higher in terms of available resources than single parent households or families where both persons are unemployed. Since a choice to work or even work hard is to a high degree voluntary, changes in provided market work effort, and resulting rise in income inequality, must be related to individual decisions to form or dissolve family and to have children among other important family decisions.

So what happened with the conception of traditional family and traditional time allocation within the family? Traditional division of labor within the household is viewed as the one, where husband specializes in market work, while wife specializes in home production. It must be the case, that returns to marriage decreased, and returns to specialization within marriage should have decreased. Among the leading explanations are the technological changes (increase in home productivity liberated some time to be devoted to leisure or marketable activities), change in divorce laws (women may have increased their investments in marketable human capital for insurance against divorce), improved long term family planning due to contraception (the invention of the pill), and other changes in marriage market conditions.

It seems to me that forces, which change family decision making and time allocation, are also driving the growth in household income inequality, since opportunities and cost are changing differently for people with different income (productivity) and family status. More able, higher wage individuals are more likely to adapt to changing environment and utilize new technologies successfully, so they are the ones who accelerate further in their lives.