IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp18152.html
   My bibliography  Save this paper

The Price of Breaking Up: Wage Shocks and Household Dissolution

Author

Listed:
  • Velilla, Jorge

    (University of Zaragoza)

  • Molina, José Alberto

    (University of Zaragoza)

  • Chiappori, Pierre-André

    (Columbia University)

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.

Suggested Citation

  • Velilla, Jorge & Molina, José Alberto & Chiappori, Pierre-André, 2025. "The Price of Breaking Up: Wage Shocks and Household Dissolution," IZA Discussion Papers 18152, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp18152
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp18152.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp18152. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.