Cohabitation and Child Development

Abstract:

In the U.S., college-educated couples cohabit less and marry at higher rates than other couples only if they have children. What explains the higher marriage rates of these couples and what are the implications for child development? We show empirically that married women experience larger childbirth penalties, work less in the labor market, and spend more time with their children compared to cohabiting women. Subsequently, their children are more likely to obtain a college degree. To rationalize these facts, we build an overlapping generations model of marriage, cohabitation, wealth, and child development. Parents are altruistic towards their children and invest both time and money into their development. This, in turn, increases the probability that a child completes college. Married couples in the model face lower separation probabilities, yet higher utility costs upon divorce and divide assets equally when they split. In this environment, college-educated couples with children marry at higher rates for two reasons. First, marriage provides insurance against the higher human capital depreciation that college-educated women face when they invest time in children. Second, time and money investments are dynamic complements. This implies that the return from investing time is particularly high for couples that can match time investments early in life with high money investments at later stages in the child’s development.