WP 27 - Female income, the ego effect and the divorce decision: Evidence from micro data

During the 1960’s and 1970’s divorce rates in the United States rose dramatically. It soon became apparent that this phenomenon was not restricted to the geographic boundaries of the United States but affected most developed countries to varying degrees. This surprising social change led to rapid growth in the number of academic investigations seeking to quantify the causes and consequences of divorce. While there are undoubtedly many factors affecting the decision to dissolve a marriage, this research concentrates on three economic arguments that have persisted through the years. All three relate to the female’s ability to generate income in the labour market. The first argues that as the female increases her ability to generate income, she becomes financially more independent thereby making divorce more likely. The second argument contends that, as female earnings become a larger share of family income, marital friction results and the likelihood of divorce increases. Finally, it has also been argued that the family unit places a high value on the ability of the married female to earn income and, therefore, strives harder to avoid divorce as the female’s ability to earn income rises. The difficulty with quantifying these arguments is the very nature of the observable outcomes. It is possible to observe the income of married females. It is also possible to observe the income of divorced females. Unfortunately, it is not possible to simultaneously observe both outcomes for an individual female. This research attempts to resolve these difficulties by using micro data from the Current Population Survey in a sample selection procedure to estimate both income contingent on divorce and income contingent on marriage. This information is then used in a final “structural” procedure to test the validity of the income arguments. The statistical results indicate that the first two arguments clearly outweigh the third.