The impact of job loss on family dissolution

1
The impact of job loss on family dissolution
Silvia Mendolia, Denise Doiron School of
Economics, University of New South Wales
Introduction
Data and Method
Analysis

• Objectives
• To examine the impact of job loss on the
  probability of divorce.
• To further our understanding of possible
  transmission channels
• Financial stress from the negative income shock
  both on immediate and future expected income.
• Psychological shocks.
• Additional information on individual traits and
  downward revision of expectations on future value
  of match. (This effect does not apply in the case
  of exogenous job losses).
• Policy implications
• Policies aimed at reducing the earnings shock
  from job losses may alleviate the first 2 impacts
  but they will be less effective if the latter
  effect is the main one.

• Data
• Family history data from the BHPS, a combination
  of retrospective histories and panel information.
• Sample Couples in which men are aged between
  16-65 (7,500 couples).

• Results
• Job losses affect family dissolution through more
  than one channel a negative income shock imposes
  stress on the relationship (redundancies) and new
  information is revealed regarding the value of
  the match (dismissals).
• Note Standard error in parentheses. Sample size
  40,662 observations. significant at 10
  significant at 5 significant at 1. The
  baseline hazard linearly depends on years of
  marriage in this specification of the model.
  Similar results are found with other
  specifications. Coefficients are transformed to
  relative risk format. Standard errors are
  similarly transformed.
• The longer the partners have been together, the
  smaller the divorce probability the hazard rate
  decreases over time.
• Household non labour income decreases the
  probability of family dissolution.
• The probability of divorce increases with the
  number of dependent children in the household.
• Differences in age between partners (gt8 years)
  increase the probability of divorce.

• Variables
• Involuntary job losses are separated by type
• Redundancies are used as measures of exogenous
  job loss and capture psychological and negative
  earning shocks.
• Dismissals are likely to be endogenous due to
  common omitted variables. The impact of
  dismissals will capture effects from the negative
  earnings shocks and possibly a signaling impact.
• Temporary job endings may have some signaling
  effect due to the marginal labour market
  attachment usually associated with these jobs and
  to the fact that the employment contract was not
  renewed.
• To minimize the likelihood of measurement error
  we also separate redundancies by industry and
  consider only those in declining employment as
  exogenous.

Exp. Coeff.
Dismissal 3.09 (1.11)
Redundancy 1.48 (0.35)
Temporary job ended 2.09 (0.60)
Household income 0.82 (0.09)
Number of children 1.14 (0.05)
Difference in education level 0.98 (0.11)
Difference in age gt 8 years 1.33 (0.20)

• Literature
• Most of the previous literature focuses on the
  costs of job loss in terms of future employment
  probabilities and lost earnings.
• In these papers, family composition is ignored or
  treated as exogenous.
• A few studies have looked at the impact of job
  loss on divorce. (Kraft, 2001, Charles and
  Stephens, 2004 and Eliason, 2004). To date
  results on the presence of such effects are
  inconsistent.

• Estimation method
• Discrete time proportional hazards models
• hij 1-exp-expXijß ?j i1,..N, j1,.Ti
• h is the hazard rate the probability of divorce
  at duration j conditional on the marriage having
  survived until j-1.
• X includes job losses, education levels, income,
  number of children and other exogenous
  characteristics.
• ?j is the baseline hazard which may depend on
  the duration j. Various specifications of ?j are
  estimated .
• Specifications of h containing unobserved
  time-invariant individual-specific effects
  (modeled as Gamma distributed) are also
  estimated. Flow and stock samples of marriages
  are treated separately to check for selection
  effects.

• Economic models of divorce
• Mostly derived from the pioneering work of Becker
  (1973, 1974).
• The family is an expected utility maximizing
  unit.
• Two general causes for separation
• Meeting of a new partner with expected joint
  utility greater than the current match.
• Surprises may change initial expectations about
  the partners characteristics or alter the value
  of the partnership.

• Conclusion and extensions
• Job loss may affect marital stability through
  multiple channels.
• Further results include the analysis of
• Long term unemployment and repeated job loss
• Income groups
• Interactions between job loss and age of children