How Much Does Sorting Increase Inequality?
NBER Working Paper No. 5566
Social commentators from William Julius Wilson to Charles Murray have argued that increased sorting of people into internally homogeneous" neighborhoods,schools, and marriages is spurring long-run inequality. Cali- bration of a formal model suggests that these fears are misplaced. In order to increase the steady-state standard deviation of education by one percent, the correlation between neighbors' education would have to double, or the correlation between spouses' education would have to increase by one-third. In fact, both correlations have declined slightly over the past few decades. Sorting has somewhat more significant effects on intergenerational mobility than on inequality."
Published: Quarterly Journal of Economics (February 1997): 15-139.