Layoffs, Divorce, and the Effect of Unemployment Insurance

By , and ·October 21, 2020
Texas A&M University, University of Oklahoma and Montana State University

The Issue:

The precipitous rise in unemployment since the onset of the COVID-19 pandemic and the persistently high level of weekly initial claims for unemployment insurance, have brought renewed attention to the broader effects of job losses and how policy could ameliorate them. Unemployment insurance plays a key role in allowing individuals and their families to meet their financial needs. But, unemployment insurance benefits may be important in other ways as well. To the extent that negative income shocks from losing employment can increase stress, impair health, and increase marital strain, for instance, more generous unemployment benefits could help mitigate these broader impacts. In particular, our research supports evidence that job losses increase the risk of divorce and we find that increasing the generosity of unemployment benefits can reduce this risk for some workers.

Layoffs increase the risk of divorce for married workers. Unemployment insurance mitigates some of the increased risk, especially for childless men.

The Facts:

  • Job loss and elevated risk of divorce. In our research, we find that both men and women face a statistically significant increase in risk of divorce following a layoff during the period 1990-2008. We examine the probability of divorce for individuals who have lost a job relative to individuals who have not lost a job using Survey of Income and Program Participation (SIPP) data from 1990 through 2008 and state-specific schedules of unemployment insurance benefits in the same time period. For those experiencing a layoff we focus on the first layoff that they experience in our data and study their outcomes from the 12 months prior to their layoff to 24 months after. Workers that experience a layoff at some point in our sample are slightly less educated, younger, more likely to be a minority, and live in states that have slightly higher unemployment insurance (UI) benefits and unemployment rates.
  • The direct effect of unemployment insurance is to provide financial support for unemployed individuals, but it has numerous knock-on effects for individuals and their families as well. There are a number of reasons why income support may affect family stability and structure for unemployed workers. Resource scarcity that comes with job loss may add to stress in a manner that strains relationships. The generosity of UI could also impact the economic benefits of being married relative to the economic benefits of being divorced because it alters the advantage of having access to the resources that a spouse brings to the household. On the other hand, the generosity of UI might also impact a person's time use: more generous benefits tend to go with longer unemployment spells, for instance. Accordingly, there are several channels through which unemployment insurance could alter the risks of negative outcomes associated with job loss, including divorce. Prior research on unemployment insurance has shown that higher UI generosity can have broader effects beyond helping families make ends meet, finding that it increases health insurance coverage and improves self-reported health and also reduces suicide rates
  • Unemployment benefits vary greatly from one state to another. Because unemployment programs vary from state to state, the amount of support workers receive, as well as how much this amount changes when benefits are expanded, is determined by the state of residence. This variation allows us to measure whether workers who live in states that have a relatively larger expansion of unemployment benefits experience lower likelihood of divorce, as well as other differences in outcomes that can be attributed to the relative generosity of unemployment benefits. (In our study we define a layoff as being currently separated from a primary job after reporting three consecutive months of employment in order to identify unemployment spells that are most likely to meet UI eligibility requirements.) 
  • Unemployment benefit generosity seems to mitigate some of the elevated divorce risk faced by laid off men — but not for women. We found that a $100 increase in maximum weekly UI benefits leads to a third of a percentage point decrease in the chance of divorce for men. Given that 3.2% of men report being divorced after job loss, this amounts to a 10% reduction in the risk of divorce for these men and their partners. For married women who are laid off, on the other hand, more generous unemployment benefits do not seem to reduce the heightened risk of divorce following their job loss. It is not clear what is driving this gender difference. A potential contributing factor is that men’s earnings are typically a larger share of household income — this implies that it may be especially important that lost income to be replaced (versus lost income when a secondary earner loses a job). It also seems likely that psychological factors play a role. Notably, prior research has documented an aversion to situations in which the wife brings in more income than her husband.
  • The effect of unemployment insurance on divorce risk differs for families with children compared to couples without children. The increase in divorce risk associated with job loss might be different for families with and without children given that decisions to divorce may be more complex for couples with children and also that the financial distress associated with layoffs may be greater when children are present. While all individuals who have been laid off have a significantly higher probability of divorce, this increased risk is highest for those without children and it is lowest for those with children under age 18. Men without children are the most likely to get divorced after losing their jobs. These findings suggest that the greatest scope for unemployment benefits to reduce divorce is for individuals without children. Indeed, we estimate that UI benefit generosity reduces divorce most among men without children (see chart). The effects are also statistically significant for individuals with children, but they are not statistically significant for individuals with children under age 18.

What this Means:

Economic shocks experienced by men and women have very different effects on families. Unlike most recent recessions, the recession caused by the COVID-19 pandemic has had a particularly negative effect on women’s employment. With both men and women experiencing lay-offs, but women experiencing them at higher rates, unemployment insurance will affect families in different ways. Our results highlight how the structure of UI benefits can have profound effects on families, beyond their economic circumstances. They also indicate that financial distress leads to divorce and that unemployment insurance benefits can play an important role in keeping couples together — especially when it is men who lose their jobs.

  • Editor's note: This post was co-written with EconoFact Research Associate Ema Klugman based on "Stable Income, Stable Family." NBER Working Paper 27753, August 2020 by Isaac Swensenⓡ, Jason Lindoⓡ, and Krishna Regmi.

  • Topics:

    Employment / Unemployment Insurance
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