Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331716 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 18152
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Household dissolution is a key concern in family economics, with implications for individual welfare, child outcomes, income trajectories, or wealth, which ultimately impact inequality and vulnerability. This paper examines how wage dynamics relate to the stability of dual-earner households, using a collective model with limited commitment, where spouses commit to future behavior subject to individual rationality constraints, allowing for renegotiation of intrahousehold arrangements or household dissolution. We use data from the PSID over 1999-2019, and estimate how spouses' wage changes relate to divorce, accounting for observed behaviors, demographics, and unobserved heterogeneity. The results show that large negative wage changes significantly increase the likelihood of divorce, while positive changes have no effect, as the model predicts. This pattern is consistent with asymmetric intrahousehold insurance, highlighting the role of economic risk and bargaining asymmetries in shaping family dynamics, and informs policies targeting household vulnerability to income shocks.
Subjects: 
collective model
commitment
divorce
wages
PSID data
JEL: 
D12
D13
J12
J31
Document Type: 
Working Paper

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