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The Effect of Unpredicted Changes in Income on the Probability of Divorce

November 27, 2012

The Effect of Unpredicted Changes in Income on the Probability of Divorce (PDF)

Source: University of California, Santa Barbara (Milosch, Economics)

This paper contributes to the literature on the economic determinants of marital stability. Surprises that reduce expected marital surplus, such as shocks to permanent income, are among the possible causes of divorce (Becker et al. (1977); Weiss and Willis (1997)). Measures of predicted permanent income are constructed for NLSY79 respondents and their spouses for each year of the marriage, and the effects of cumulative deviations from predicted permanent income at the time of marriage on divorce are estimated. I find that unpredicted decreases in predicted permanent income of the husband increase the probability of divorce. The results are robust to a number of methods and sub-samples, however some interesting patterns emerge across ethnic groups and education levels. Unpredicted decreases in predicted permanent income for the wife have no direct effect on divorce, unless they occur from a switch into unemployment. Characteristics of couples who experience large income shocks are examined. The empirical findings are compared to predictions of several types of marriage models.

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