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The Real Cost of Divorce (Hint: It's Not Welfare)

The Real Cost of Divorce (Hint: It's Not Welfare)

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Editor's Note:

Editor's Note: Elizabeth Oltmans Ananat is an assistant professor of public policy and economics at Duke's Terry Sanford Institute of Public Policy and a faculty research fellow at the National Bureau of Economic Research.

Durham, NC - A report funded by a variety of "family values" groups made splashy headlines last week: "Single Parenthood Costs Taxpayers $112 Billion."

The report lists two big reasons for these costs. One is increased welfare expenditures on poor families ($70 billion). The other is increased government spending to deal with the social problems caused by poor kids when they grow up ($42 billion).

When I first heard about the report, I thought that those numbers have to be wrong. My own research suggests that the first of those costs is essentially zero, not $70 billion. So imagine my surprise when I discovered that the report, by the Institute for American Values, claims its numbers are based heavily on research by my colleague Guy Michaels and me.

In the research we conducted that is cited by the report, we used a statistical technique called instrumental variables to isolate the causal effect of divorce on mothers' income. What we found surprised us: the average mom who divorces ends up with just as much income as an otherwise similar mom who stays married.

Why? Well, divorced moms are pretty resilient. They move in with relatives, switch from part- to full-time work and, perhaps most importantly, 70 percent remarry.

So that means there are two problems with last week's report. First, average income isn't affected, so there's roughly zero impact on tax revenues and welfare spending. Second, most of the mothers in our research end up remarried -- so if the report is right about the other costs it identifies using our estimates, those costs aren't caused by single parenthood.

Our research does find that divorce has a big impact on society -- but it's not welfare, it's inequality. When you get married young, as most of the people we studied did, you don't know much about your economic future; instead you promise to support each other "for richer or poorer." When the women we studied stayed in their first marriages, their families had a typical income of $48,108 (in 2007). The worst-off 5 percent had incomes below $18,000, and 5 percent earned more than $83,000.

By contrast, among mothers who divorced, the average was about the same, but the bottom 5 percent had incomes below $4,000, while the top 5 percent had incomes above $171,000. A full 40 percent of moms whose first marriage ends have incomes outside the $18,000 to $83,000 range into which the vast majority of intact families fall.

In other words, divorce makes you more likely to become rich or poor -- some women get great jobs, marry successful men or both; others find out their skills aren't worth much on the labor market and marry men who are also struggling. The report got to $70 billion by wrongly counting only welfare spending on the losers, ignoring the tax increases from the winners.

So does divorce cause economic problems? Not if you believe, as some do, that Americans' average income is all that matters.

But the report rightly points out that society experiences other costs from this income inequality, such as increases in criminal behavior. Cutting family income from $18,000 to $4,000 probably increases the odds that a kid grows up to be a criminal, more than raising family income from $83,000 to $171,000 keeps that behavior from occurring.

In other words, if you take a group of middle-class kids and make some poor and others rich, you increase the crime rate. That means that even though the tax effects of divorce are a wash, the criminal justice and other behavioral costs from kids probably aren't. So that $42 billion estimate might just be right after all.

Measured correctly, the cost of divorce doesn't come from welfare payments, but from increasing American inequality. Of course, many other trends -- uneven school funding and cuts to the estate tax in place of increases in the Earned Income Tax Credit, to name a couple -- are also increasing inequality in our society.

Admitting that divorce costs taxpayers money -- and costs many children their futures -- means admitting that many other inequality-increasing policies have the same hidden price tag. I'm ready to admit that, and get on with addressing all the costs and benefits, causes and consequences of rising inequality. I hope other groups interested in this problem are ready, too.

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