To what extent do the increases in earnings inequality among individual American workers pose an issue for public policy? To answer this, we would want to know the extent to which changes in individual earnings translate into changes in income inequality in the households within which these earnings are pooled and shared.

The link between the earnings of one household member and the income consumed of each household member depends not only on the magnitude of this individual’s earnings but on whether other household members work for pay, and, if so, how many hours they work, on other sources of income, and on changing patterns of household formation and dissolution. Hence the connection between the growth in inequality of individual pay and changes in income consumed by individuals (both those who work for pay and those who do not) is complex and involves a number of interrelated factors.

Some of these links are traced out in this paper which focuses on income in husband wife families. First, we determine the extent to which changes in income inequality are attributable to changes in inequality in labor market earnings. Second, we examine changes in family earnings inequality and assess how increases in wives’ employment have affected family earnings inequality. To address this, a simple and compact accounting framework is derived that describes the movements of family earnings inequality and that may be used to discriminate between the part played by husbands’ earnings and that played by married women’s employment in understanding movements in family earnings inequality.

We then turn to earnings inequality of wives and husbands separately and ascertain how changes in earnings inequality are affected by differences in the degree to which the husbands and wives work in the labor market. Again, a simple expression is derived that links earnings inequality to the employment population ratio. This inspires the more general question: are inferences about differences and changes in earnings inequality sensitive to variations among people in their commitment to market work? Imagine the population being censored in increasing degrees by the extent of their market work: have the changes in earnings inequality for these groups in the population been the same?

In addressing these questions, the analysis will recognize that income inequality varies over the lifetime: husband-wife incomes are more unequal among older couples than among younger couples. Furthermore, the past thirty years has seen an aging of the typical husband-wife couple induced in part by the postponement of age of first marriage. In 1967-69, in almost fourteen percent of all couples, the wives were aged between 20 and 25 years; by 1998-2000, only 5.4 percent were in this category. In 1998-2000, there were almost ten percent more couples with wives aged above 36 years than there were in 1967-69. By organizing the data by years since leaving school, we differentiate between two time effects on income inequality: the increase in income inequality associated with the aging of a household and the increase in income inequality that has occurred over time even among households of the same age.

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