Family demography and income inequality in West Germany and the United States

Income inequality has grown in many countries over the past decades. Single country studies have investigated how trends in family demography, such as rising female employment, assortative mating and single parenthood, have affected this development. But the combined effects have not been studied sufficiently, much less in a comparative perspective. We apply decomposition and counterfactual analyses to Luxembourg Income Study data from the 1990s and 2000s for West Germany and the USA. We counterfactually analyse how changes in the distribution of men’s and women’s education, employment and children across households between the 1990s and 2000s affected overall inequality (Theil index). We find that changes in family demography between the 1990s and the 2000s explain inequality growth in West Germany but not in the USA, where the effects of gendered changes in education and employment offset each other. In West Germany, changes in the distribution of household types, and particularly changes in men’s employment and education, contributed to increases in income inequality. The country differences in the relationship between changes in family demography and inequality growth reflect how the decline in men’s and the growth in women’s employment played out differently in the weakening male breadwinner context in West Germany and in the universal breadwinner context in the USA