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VoxEU Column Poverty and Income Inequality

Couple formation and parental wealth

Couple formation plays an important role in affecting both the extent to which wealth remains concentrated from one generation to the next and in subsequently shaping wealth inequalities. This column uses administrative data from Denmark to study partner selection based on parental wealth. It finds a relatively low correlation in partners' parental wealth overall, but a high degree of homogamy at the top of the parental wealth distribution. In addition, it finds that homogamy based on parental wealth has increased steadily during the period 1980-2013. 

A hundred years ago, Max Weber noted that one of the mechanisms through which the privileged in a society tend to protect their position is by marrying amongst each other (Weber 1921). Homogamy not only serves as an indicator of social boundaries amongst different social groups, but also actively propagates inequality structures (Milanovic 2016). Today it is of particular interest again amid concerns of growing wealth inequality (Piketty 2014), as couples tend to pool their own income and wealth as well as the inherited wealth of their parents. To illustrate the importance of the latter, research for Denmark finds that bequests increase the wealth of recipients by about 36% and account for 26% of post-bequest wealth (Boserup 2014). 

Consequently, the extent to which individuals stemming from wealthy families tend to marry amongst each other may have a substantial impact on wealth inequality between households and the intergenerational transmission of wealth. The lack of suitable data has prevented scholars from empirically documenting the extent to which individuals sort into marriages and cohabiting unions based on their parents’ wealth. Two earlier studies have used survey data to show that considerable homogamy exists by parental wealth in the US (Charles et al. 2013) and by inheritances in France (Fremeaux 2014). We are the first to look at this issue using high-quality administrative data, which allows us to not only explore how the overall homogamy based on parental wealth has changed over time, but also gives new insights into partnering among the very rich. 

Rising homogamy over time

We use the Danish population registries to analyse more than 800,000 different-sex co-residing unions formed between 1987 and 2013. For inclusion in the sample, the parents of both partners had to be alive and thus have registered wealth information.  We developed three different measures of parental wealth for which we then calculated the correlations between his and her parents in newly formed couples for each year in our sample:

1) The rank of parental wealth at the point of union formation. This captures how rich parents were at the point in time the couple was formed.

2) The rank of parental wealth in the year of union formation normalised by father’s age. This corrects for the fact that younger parents tend to have relatively less wealth, but also dispose of more remaining time to accumulate wealth and can therefore leave a greater expected inheritance.

3) Parental wealth at age 18. This measure captures resources that were actively available in the household while the child was still residing in it. Information on parental wealth in the year when their offspring were aged 18 is available for a subset of individuals. 

Figure 1 shows the evolution of all three measures over time. We can see that our calculated measures of wealth homogamy in Denmark fluctuate between 0.05 and 0.2, much lower than the 0.4 correlation found for the US (Charles et al. 2013). Furthermore, the strength of parental wealth homogamy has increased substantially over the 16 years we observe for all three measures. 

Figure 1 Yearly wealth correlation of couple’s parents 

Notes: Yearly correlations between his and her parents’ wealth rank at union formation (blue), between age standardized parental wealth rank at union formation (red) and between parental wealth rank measured at age 18 (green).

Strong homogamy at the very top

We further show that the strength of homogamy varies considerably across the parental wealth distribution. Figure 2 displays how much more likely individuals with given levels of parental wealth are to form unions together relative to what one would expect under random matching. The graph clearly illustrates that homogamy is particularly strong in the top percentiles, where we can observe both a stronger avoidance of people from poorer parental wealth backgrounds as well as a stronger propensity to form unions with individuals from equally wealthy backgrounds. Since the majority of wealth is concentrated in the top decile, this strongly implies that using estimates of homogamy based on the population average will strongly underestimate the contribution of homogamy in keeping family wealth concentrated across generations.

Figure 2 Relative observed frequency of couples based on parental wealth percentile

  

Notes: The graph shows the relative observed frequency of couples based on his or her parental wealth percentile. A value of 1 is what we would expect under random matching.

Conclusion

Who partners with whom has long been a central question in the social sciences. In times of increasing wealth inequality, it is also important for understanding the transmission of wealth across generations. We find a much lower homogamy by parental wealth in Denmark than was shown for the US in previous studies. However, even if levels of parental wealth homogamy are relatively low, assortative mating based on parental wealth may be of concern. Both its substantial increase over time as well as its strongly increased concentration at the top of the wealth distribution should lead us to pay more attention to how partnering behaviour based on parental wealth shapes social boundaries and the intergenerational transmission of inequality.

References

Boserup, S H, W Kopczuk and C T Kreiner (2014), “Intergenerational Wealth Mobility: Evidence from Danish Wealth Records of Three Generations”, Working Paper, University of Copenhagen.

Charles, K K, Hurst, E and A Killewald (2013), “Marital sorting and parental wealth”, Demography 50: 51–70.

Fremeaux, N (2014), “The role of inheritance and labour income in marital choices”, Population 69: 495–530.

Milanovic, B (2016), Global Inequality: A New Approach for the Age of Globalization, Harvard University Press. 

Piketty, T (2014), Capital in the Twenty-First Century, Harvard University Press.

Schwartz, C R (2013), "Trends and variation in assortative mating: Causes and consequences", Annual Review of Sociology 39: 451–470.

Wagner, S,  D Boertien and M Gørtz (2020), “The Wealth of Parents: Trends Over Time in Assortative Mating Based on Parental Wealth”, Demography

Weber, M (1921), Wirtschaft und Gesellschaft, Mohr.

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