Different Union, Different Rules: Implications for Consumption, Labor Supply, Fertility and Welfare of Household Members

• Applicant: Dr. Zainab Iftikhar
• Subject Area: Economic Theory ; Economic Policy, Applied Economics
• Term: since 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 462655750

Cohabitation is emerging as an alternative form of family union and birth rates out of wedlock have soared in many countries, although fertility rates remain higher in marriage. Cohabitation is distinct from marriage as it is associated with lower levels of commitment and different financial and legal constraints. These differences suggest that incentives for joint decisions may differ by the type of family union, with implications for household members. For example, differences in legal and financial circumstances lead to variation in the labor supply arrangements of the family, such that married women are more likely to fully specialize in home production as opposed to cohabitating women who face a higher risk of union dissolution and worse post-breakup financial outcomes. Similarly, the fertility behavior may differ due to differences in the level of commitment to the partnership. The consequences of the form of the family union take an impact on the rest of the economy by shaping demographic trends and by affecting aggregate outcomes such as human capital, poverty, labor supply and the effectiveness of policy reforms. Despite these connections, the economics literature ignores cohabitation and focuses solely on marriage as the pertinent form of union. The objective of this research project is to first, understand the choice of union and characterize the time and financial resource sharing among household members in each type of partnership. Second, we want to analyze the implications of the differences in the type of union for the fertility, time and monetary investments in children and female labor supply. Third, we will study the effectiveness of policy reforms aimed at reducing child poverty and increasing female labor supply in the two types of unions. For this purpose, we will first conduct empirical analyses using PSID data. We will collect evidence on the heterogeneity between cohabitating and married individuals in terms of personal characteristics of partners such as education, age etc., and household outcomes such as income sharing between partners, fertility, labor supply, union dissolution rates. Next, we will develop a collective model of households with endogenous union formation. Once the union is established, the household decides on consumption, fertility, time and monetary investments in children and labor supply. The structural parameters of the model will be estimated using data moments from our empirical analyses. The model will be used to evaluate the effects of child allowance policies on reducing child poverty and policies encouraging female labor supply in the two types of family unions.

• DFG Programme: Research Units
• Subproject of: FOR 5399: Macroeconomic Implications of Intra-Household Decision Making
• International Connection: Belgium
• Cooperation Partner: Dr. Paula Gobbi