By Aparna Mathur Forbes Magazine 30 Oct 2015
It is often hard to understand exactly what drives economic growth. By definition, economic growth is the amalgamation of labor, capital and technological change. As individuals, we understand that we contribute to this process in our daily lives through our decisions to work, save, consume and invest. Yet it is often difficult to foresee how these choices yield the larger, macroeconomic process of economic development and growth.
In his recent paper, economist Robert Gordon, documents the long history of U.S. economic growth, linking periods of slow and rapid growth to three industrial revolutions: steam and railroads; electricity and the internal combustion engine; and the recent advent of computers, the internet and mobile phones. He claims, however, that even if we continue to innovate rapidly, economic growth may be weak and lower than the average growth between 1860 and 2007. Technological change will not be enough to offset the pullback from the “headwinds” of rising income inequality, falling labor force participation rates, lack of widespread education and changing demographic structures.
Therefore, looking deeper into socioeconomic factors rather than just the technological aspects of economic growth is critical. Exploring the family foundations and the role of changing family structures in influencing these headwinds is key to fostering sustainable growth.
The Link Between Family and Growth
Why do family structures matter for growth? In an earlier study, Bradford Wilcox and Robert Lerman showed that the decline in traditional two-parent married families is associated with rising income inequality, lower median incomes and lower labor force participation rates. Looking at data from 1980 to 2012, they found that among married parent families, the median family income rose 30%, while for unmarried parents, family incomes rose only 14% over the same period. In addition, their work also suggested that this retreat from marriage is correlated with lower labor force participation rates for men.
Higher levels of marriage are strongly correlated with more state GDP per capita, greater levels of upward economic mobility, lower levels of child poverty, and higher median family incomes. In comparing states in the top quintile of married parent families with those in the bottom quintile, they find that being in the top quintile is associated with a $1,451 higher per capita GDP, 10.5% greater upward income mobility for children from low income families and a 13.2% decline in the child poverty rate.
These results are not altogether surprising. Other research has shown that changing demographic structures, such as an increase in the share of single mother families, is associated with higher rates of poverty, particularly for children. Moreover, growing up with both parents is associated with a 15 percentage point lower probability of dropping out of high school. Raj Chetty and his colleagues show that family structure plays a large role in economic mobility, and communities with a larger share of single mothers are less upwardly mobile than those with a smaller share of single mother households.
The Effects of Stronger Family Ties
Family stability can affect economic growth in other, not-so-obvious ways as well. In “Power of the Family,” economists Alberto Alesina and Paola Giuliano analyze the effect of strong family ties on economic outcomes using cross-country data. They find that with stronger family ties, the labor force participation of women is lower and there is more home production rather than reliance on the market. Moreover, women are less likely to go to college and are therefore less educated. These effects would, on average, reduce economic output and growth, since home production is not included in statistical calculations of GDP. Overall, however, the paper reports that families with stronger ties are likely to report higher levels of happiness and satisfaction with their lives, suggesting that income, may tell only part of the story.
These findings are corroborated by the Wilcox et al. study which shows that in the U.S., married mothers are less likely to be in the labor force than their counterparts. However, on average, it appears that the gains associated with married parenthood when it comes to men’s labor force participation, work hours and income exceed the losses in women’s labor force participation, work hours and income.
What Can Policy Achieve?
From a policy perspective, a question often asked is whether it is important to encourage marriages since married parent families clearly have better outcomes? Married parent families tend to have higher incomes than single parent families, which implies that they have access to better schools, better neighborhoods and better job opportunities. They are also more likely to commit more time and resources to raising their children. Therefore these advantages persist not only across the parents’ own lifetimes but are transferred across generations. Single parents, particularly single mothers, are more likely to live in poverty, less likely to be able to devote time and resources to their children, and therefore more likely to allow the persistence of poverty across generations.
Another likely successful intervention may be to expand the Earned Income Tax Credit to boost incomes for low-income households so that they have more resources to spend on their children. If these changes result in higher labor force participation rates, higher incomes, higher education investments and lower persistence of poverty across generations, we may come closer to sustaining high rates of economic growth, even if we fail to achieve what data suggests may be the ideal: the stable, two-parent family.
Original article here