Family matters: The contribution of households’ educational and employment composition to income inequality

Abstract

The rise in inequality in most industrial countries has drawn attention to the social and economic processes underlying it. This study examines how changing educational attainment and employment patterns of women (mainly) are impacting households’ income distribution, with Israel as a case study. The level of income inequality in Israel, which is one of the highest in the Western world, has risen significantly in recent decades, along with a rise in education and labor force participation, especially among women. Using counterfactual analysis of the Theil index between the years 1983 and 2008, our findings show that the share of highly educated households has soared, together with a rise in the share of fulltime dual-earner households. There has also been an increase in the share of doubly fortunate households: both highly educated and fulltime dual-earner. All these changes have contributed to the rise in income inequality. The study emphasizes the importance of the joint change in educational attainment and participation level as an important mechanism behind the rise in income inequality.