Who partners up? Homogamy and income inequality in New Zealand cities

This paper examines the impact of homogamy on the distribution of household income in New Zealand at the national level and across different sized cities. We focus on homogamy by age, education, hours worked, employment status, and migration status. We present a new index of homogamy that takes account of maximum potential homogamy. Our index is less sensitive to categories with small population shares than the commonly used concentration ratios. We compare the inequality impact of actual matching with that of randomized matching by means of the additional randomization method. Contrary to public perception, homogamy of the highly educated has declined relative to random matching. Nonetheless, homogamy has had an inequality-increasing impact on the distribution of income and this effect has grown over time: from around 5% of the mean log deviation (MLD) measure of income inequality in 1986 to 16% in 2013. Allowing for simulated labor supply responses reduces this effect by less than 1%. Spatially, the effect of homogamy is larger and increases more in metropolitan areas than in other urban areas. In Auckland, New Zealand's largest city (around a third of the population), homogamy accounted for a fifth of MLD inequality by 2013, up from 6% in 1986. Educational homogamy plays the biggest role in this process, but the effects of hours worked, employment status and migration status are relatively important too. Homogamy by age has little effect on income inequality. Using the Gini index as an alternative inequality measure yields similar results.