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Tuesday, April 15, 2008

"The Economic Impact of Marriage and Divorce"

Kathy G. has a nice discussion of some of research on the impact of marriage and divorce on economic outcomes:

The economic impact of marriage and divorce: research vs. researchiness, by By Kathy G.: In an earlier post of mine, I took Slate's Emily Yoffe to task for her ill-informed and intellectually dishonest characterization of the research about the impact of single motherhood on children. Over at the Freakonomics blog, economist Justin Wolfers looks at two new studies that concern a similar subject: the economic impact of marriage and divorce. Viewing these studies side by side is highly edifying. Call the the pair of them the Goofus and Gallant of divorce research. The Do-Bee and the Don't-Bee. Or what you will.

One of the studies is a scholarly paper in a peer-reviewed journal which seeks to disentangle the question of whether, in Wolfers' words, "divorce causes lower income, or whether lower income (or its correlates) cause divorce." The authors, Elizabeth Ananat and Guy Michaels, attack the problem of determining the direction of the causality by using what is called an instrumental variables approach. ...

The paper Wolfers looks at wants to measure the impact of divorce on income. To do an IV analysis, the researchers needed to find a factor that is correlated with divorce, but is not correlated with other unmeasured factors that may also have a causal impact on income (such as, for example, a person's health status). The IV they settle on is the sex of the first-born child. Research strongly suggests that if the first-born child is female, a couple is more likely to divorce, all other factors held constant. Therefore, the sex of the first -born seems to be a good IV, because while it does impact the likelihood of divorce it does not seem to be related to unmeasured factors that may have an impact on income.

What is the upshot of their study? The authors find that divorce "has little effect on mean income." ... This goes against the conventional wisdom but it is in keeping with other recent research on the topic. As the authors point out, "the negative correlation between mean income and divorce appears to be driven by selection." In other words, it's likely that there's some unobserved factor that both causes people to get divorced and causes their income to decrease after divorce.

In his post, Wolfers also mentions a new study released by the Institute for American Values and other conservative groups. This report purports to show that divorce and single motherhood costs American taxpayers some $112 billion per year. Only, it really doesn't. As Wolfers writes, the researchers "counted costs and ignored benefits":

The Ananat-Michaels result is that divorce seems to help the finances of about as many women as it hurts, and those who gain, may gain more than those who lose. But this report counts up the costs to the taxpayer from the women who lose income, but refuses to count even a single dollar of the rise in taxes linked to those who gain income. ...

Well not counting the benefits, that was pretty dumb. But wait, it gets worse:

Amazingly, the advocates put together “fiscal” costs of divorce without even understanding the tax code. The U.S. tax system is structured so that when poor single mothers marry men with higher incomes, in most cases, the total tax paid by husband and wife would fall. Yet this isn’t counted.

Those poor single women aren’t robbing us of tax revenue, they are actually paying more than if they were married! (Yes, the tax code does include a marriage penalty for some couples who are both high earners, but for most couples, the U.S. gives you a tax break for getting married.)

D'oh!

The authors of the report make one other whopper of a mistake, they "fundamentally miss what marriage is about":

Many of the gains from marriage that they count are gains mainly from forcing poor single women to live with others, thereby realizing economies of scale. If there is a fiscal case to be made for encouraging such behavior, the same fiscal case suggests we should encourage them to live with just about anyone — a same-sex lover, a polygamous family, or even with good friends. Yet for some reason, the advocates seem reluctant to extend their argument to its natural conclusion.

This reminds me of Echidne's excellent snark: "If two parents are better than one parent, how about ten parents per family?"

Wolfers concludes:

Perhaps the fact that many women are willing to face the prospect of poverty to get out of their marriages tells us that, beyond fiscal implications, there are other, more important, costs and benefits of marriage and divorce that also need to be counted.

Indeed.

    Posted by on Tuesday, April 15, 2008 at 02:15 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (14)

          

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