(Changing) Marriage and Cohabitation Patterns in the US: do Divorce Laws Matter?

Cohabiting and married couples in the US exhibit dramatically different outcomes, including higher dissolution and women’s employment rates among cohabitants. These differences may reflect selection effects or behavioral responses to the distinct contract rules governing marriage and cohabitation, which shape the rights and costs of dissolving a partnership. To disentangle these mechanisms, we develop a structural life-cycle model of endogenous partnership formation and dissolution and estimate it using two new facts, obtained by exploiting the staggered introduction of unilateral divorce across the US states. First, the reform increases the likelihood of singles choosing cohabitation over marriage, suggesting that changes in the marital contract have eroded the commitment-based gains from marriage. Second, cohabitations formed post-reform last longer, indicating a shift in selection patterns. Our model suggests that contract rules account for up to 30% of the differences in the rate of dissolution, women’s employment, and risk sharing between cohabitation and marriage, implying that selection drives most of these disparities. Lastly, we analyze the effect of eliminating joint taxation, and find that the increase in women’s employment following the reform is partly explained by couples deciding to cohabit rather than to marry.