Job market paper: "How Divorce Reforms Induced Married Couples to Supply More Labor"

Abstract:  This paper studies the dynamic effects of divorce legislation on the labor supply behavior and welfare of married couples. Using U.S. household panel data, I examine the transition from the “Title-based Regime” (TBR) in the 1970s to the “Equitable Distribution Regime” (EDR) in the 1980s. Under the former regime, marital assets are split based on formal ownership rights, allowing spouses to commit ex-ante to a future asset allocation in the event of divorce. The shift to EDR, where courts more equitably divide marital assets, interacted in two ways with household uncertainty: First, because the court chooses the division of assets, households no longer can commit to a future asset allocation. Second, because the court’s decision is not fully predictable, the policy introduces a new source of uncertainty. For these reasons, EDR increased the incentives for both spouses to self-insure by working to accumulate precautionary savings during marriage. Using a staggered difference-in-differences design, I confirm empirically that both married men and women increased labor supply in response to the policy change, with the women’s increase equal to 30% of the total rise in female labor force participation over the last 70 years. To rationalize and understand the welfare implications of the empirical evidence, I develop and estimate a dynamic model of household labor supply, savings and divorce. I use the estimated model to show that the EDR may have inadvertently reduced the welfare of both spouses even while married.