1 The Effect of Benefits on Single Motherhood in Europe Libertad González Universitat Pompeu Fabra May 2006

2 Summary I estimate the effect of benefits available to single mother households on the incidence of single mothers in Europe. I use ECHP data for 14 countries from 1994 through I try to establish causality by introducing country fixed- effects and year effects that vary by country or group of countries. I find that there is a small but significant positive association between benefit levels and the incidence of both out-of-wedlock childbearing and divorce among married mothers.

3 Contribution The effect of benefits on single motherhood has been studied before only in the context of a single country, mostly the US and the UK. This is the first paper to analyze the impact of benefits on the incidence of female-headed households in Europe. The novelty of the approach comes from integrating different countries into a common framework. –Deriving identification from changes in benefits over time and how they are followed by changes in the incidence of single mothers. –Accounting for unobserved variables at the country level and unobserved changes over time.

4 Outline 1.Motivation 2.Previous literature 3.Data and methodology 4.Results 5.Conclusion

5 Motivation Dramatic increase in the prevalence of single mother families in some Western countries (US, UK) during the past 4 decades: –From 8% of all families with children in 1960 to 24% in 2002 in the US. Questions raised: –What can explain these striking changes in family structure? –What are the consequences on the well-being of women and children?

6 Motivation (ii) Large literature on the effects of economic variables on single motherhood trends in the US. What about other countries? –Substantial cross-country variation in the prevalence of single mothers and its evolution over time. Do economic variables play any role in explaining this cross-country variation? –Public assistance. –Labor market conditions. –Supply of marriageable men.

7 Number of Single Mothers as % of All Women,

8 Outline 1.Motivation 2.Previous literature 3.Data and methodology 4.Results 5.Conclusion

9 Theoretical Approach Becker’s work on the effect of economic variables on fertility and partnership decisions. Assuming that these decisions are affected by the expected costs and benefits of the different choices available to the individual. The theory unambiguously predicts that higher benefits available to single mothers would increase the incidence of single motherhood.

10 Literature on the Prevalence of Single Mothers in the US Usual empirical strategy: –OLS (Moffitt 2000), linear probability model (Hoynes 1997), Probit model (Moffit 1994, Blau et al. 2004). –Time, state, MSA, and/or individual fixed effects.

11 Effect of Benefits Large literature on marriage and fertility effects of welfare incentives for the US: Hoynes (1997, JPubE), Neal (2004, JHR), Rosenzweig (1999, JPE), Moffitt (1994, JHR; 2000, AER) Blau, Kahn and Waldfogel (2004, JHR) Mixed results.

12 Main Identification Problem It is hard to account for unobserved variables that may be correlated with both benefit levels and with the incidence of single mothers. Such as social norms that may vary across geographical regions and over time.

13 Outline 1.Motivation 2.Previous literature 3.Data and methodology 4.Results 5.Conclusion

14 Data and Methodology I use data from the European Community Household Panel, for 14 countries, with yearly observations from 1994 through I define a single mother as an unmarried woman, not cohabiting with a partner, who lives with her dependent children, at least one younger than 18. Age cut: 18 to 35.

15 Sample Size I also define single heads as single mothers who live by themselves with their children (not in co- residence with other relatives). The sample includes all women aged 18 to 35. –Sample size is 172,437. The number os single mothers in the sample is 6,580 (3.8%), out of which 4,250 are single heads (2.5%).

16 Econometric Specification Logit model for the determinants of single motherhood/headship (Y) for a woman i in country c and year t. X is a vector of individual characteristics (age, education). Z is a vector of country-specific factors. Country and year dummies.

17 Benefit Measure The measure of “benefits” includes both social assistance payments and family- related allowances. I measure the generosity of benefits in a given country and year as the predicted benefit level received by a “typical” single mother household.

18 Welfare Regimes Anglo-Saxon countries (UK, Ireland). Nordic countries (Denmark, Finland). Central-European countries (Austria, Germany, France). Benelux countries (Belgium, Luxembourg, The Netherlands). Southern European countries (Greece, Italy, Portugal, Spain).

19 Benefit Measure (ii) I estimate the following regression by country for the sample of single mothers: Then I use the results to impute predicted benefits for the “typical” single mother (with 2 children, working 20 hours a week):

20 Predicted Benefits Received by Single Heads

21 Labor and Marriage Market Controls I include two reduced-form controls for labor and marriage market conditions at the country level: –Male unemployment rates. –Adult male (ages 25 to 54) median hourly wage.

22 Descriptive Statistics

23 Single Heads as a % of All Women 18 to 35

24 Outline 1.Motivation 2.Previous literature 3.Data and methodology 4.Results 5.Conclusion

25 Coefficients Control Variables

26 Benefits Coefficients

27 Time Effects by Country/Group

28 Summary of Results In the cross-sectional analysis, we can see that the countries with higher benefit levels are also those with higher incidence of single mothers. Once we introduce year and country dummies, the effects become smaller but remain significant in some specifications (both for single mothers and heads). The coefficients imply that a 1,000 euros increase in benefits would result in a 2% increase in the incidence of single mothers.

29 Additional Specifications and Robustness Checks Different age cuts for women. Only for low-educated women. Interaction between country and the individual- level controls. Alternative measurement of benefits. Separate regressions for out-of-wedlock childbearing and divorce. Individual fixed-effects.

30 Outline 1.Motivation 2.Previous literature 3.Data and methodology 4.Results 5.Conclusion

31 Conclusions The paper estimates the effect of benefit levels on single motherhood in Europe. Using data from the ECHP for 14 countries, for the period I estimate reduced-form logit regressions where the likelihood of a young woman being a single mother (head) is a function of her individual characteristics, labor and marriage market conditions, and benefit levels.

32 Conclusions (ii) Country fixed-effects account for unmeasured (social, economic) factors at the country level that may affect both benefits and the prevalence of single mothers. Year dummies account for unmeasured factors that evolve over time in all countries. I also interact the year effects with dummies for individual or grouped countries, in order to account for changes in unobserved variables at the country level that may cause changes in both benefits and single motherhood.

33 Conclusions (iii) I find a positive and significant (but small) association between benefits received by single mothers and the incidence of these families. An increase in benefits of 1,000 euros a year would result in about a 2% increase in the prevalence of single mothers. The results provide some evidence that fertility, partnership and co-residence decisions are affected by economic incentives.

34 Some Caveats Better measures of labor and marriage market conditions. The reduced-form specification limits the interpretation of the results. –Overall generosity vs. targeting of the welfare system. –Different incentives for out-of-wedlock childbearing vs. separation or divorce.

35 Questions, comments?