The Causal Effect of Growing up in a Two-Parent Household on Child’s Adult Earnings

Abstract

The children who grew up in two-parent households for their entire childhood earn more than the other children reared in non-intact parental families. The causal effect of growing up in a twoparent household on the child’s adult earnings is the hourly earnings difference between the children who grew up in intact families and their counterparts raised by parents who have ever divorced, separated, or widowed, holding relevant factors constant and accounting for endogeneity issues. I identify the causal effect by using the following specification strategies. First, I control the parental income and educational attainment, along with the child’s demographic characteristics (gender, age, race, region, and tenure), to disentangle the childhood family intactness effect from the other parental influence. Second, I take into account the unobserved clan-specific heterogeneity, such as family traditions and genetic characteristics, by fitting the clan fixed effects (FE) models. Third, I use two instrumental variables (IVs), the state divorce rate and the no-fault divorce law effectiveness, for the endogenous childhood family structure and adopt the two-stage least squares (2SLS) approach to further alleviate the omitted variable bias. The estimates are around 0.16, suggesting that the children who grew up in a twoparent household earn about 16% more in adulthood than their counterparts from non-intact families, other things equal. The effect goes through three channels. The child’s education, health, and marital behavior are the mediator variables representing the three observable channels through which childhood family intactness affects the child’s adult earnings. The effect of growing up in a two-parent family on the child’s adult earnings varies with parental income and education. The effect is larger and more significant for sons than for daughters. The heterogeneous pattern of the effect is consistent with the parental utility maximization model’s predictions. Growing up in a two-parent household not only has a positive and significant effect on the child’s adult earnings in absolute values, but it also encourages intergenerational relativeearnings improvement. An intact childhood family lowers the probability of the intergenerational relative-earnings worsening by 6.72% and increases the probability of the intergenerational relative-earnings improvement by 6.67%.