Oct 17, 2012

Business Cycle and Divorce

We use individual-level data to show that divorce is pro-cyclical on average, a finding robust to the inclusion of a wide range of controls. Pro-cyclical divorce is concentrated among women who married young and/or do not have a college degree (Hellerstein, Morrill, and Zou, Economic Letters, January 2013). A draft is here
The authors conclude:
. . . Our main result indicates that a one percentage point rise in the unemployment rate is associated with a 0.03 percentage point decline in the average couple’s probability of divorcing in a given year, a roughly 1.9 percent drop. The estimates are robust to including additional covariates such as the woman’s education level, race/ethnicity, age at marriage, and marriage parity. The results also are robust to the inclusion of controls for economic conditions at the time of marriage and marriage duration, and thus are not being spuriously driven by lagged differences in the quality of marriages across the business cycle. 
When disaggregating across wives’ demographic groups, the most important finding is that pro-cyclical divorce is concentrated among women with less than a college education and women who marry when young. This may seem counterintuitive at first, since these women may be most likely to experience negatives household economic shocks in recessions that could increase marital instability (see Charles and Stephens, 2004). But divorce is costly, and good economic times may relax liquidity constraints for these women, making divorce more feasible financially. Alternatively, as discussed in Hellerstein and Morrill (2011), booms may lead some women (or couples) to lower their perceptions of the quality of their marriages, leading to more divorces. More research is necessary to tease out the mechanisms for pro-cyclical divorce.

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