From the Simpsons episode where Milhouse’s parents get divorced:
Kirk van Houten: “Singles life is great, Homer; I can do whatever I want. Today I drank a beer in the bathroom.”
Homer Simpson: “The one down the hall.”
Kirk van Houten: “Yeah, and another great thing, you get your own bed. I sleep in a racing car, do you?”
Homer Simpson: “I sleep in a big bed with my wife.”
Kirk is not only employing someone who makes race car beds, he’s also taking up another unit of housing. Kirk van Houten is engaged in the messy business economists refer to as household formation, creating another unit of demand for housing (as well as boosting aggregate demand for things like race car beds in weak economic times). If you haven’t seen it already, there’s several arguments that a wave of household formations will start, taking pressure off the housing market and boosting overall aggregate demand. See Yglesias here, Krugman here and Karl Smith here.
As you can see here at Sober Look, “Family households have completely decoupled from the US population growth since 2008.”
You’ve also seen this in relation to divorce rates, child-birth rates, households doubling up, etc. – a big drop-off starting in 2008. But, usually due to data limitations, this analysis is almost always at the national level. I wanted to find rates at the state level, to use the range of unemployment rate growth across states to see if household-related changes tracked them, boosting the argument that the weak economy is causing these changes. Weirdly, I can’t currently find household growth at the state level for beyond 2008.
But I did find other things. From the U.S. Census’ Births, Deaths, Marriages, & Divorces data page, here’s changes in divorce rate (2009 subtracting 2005 averages) against the change in the unemployment rate by state (2009 subtracting 2005):
Significant relationship. Let me clarify this chart. As unemployment goes up (vertical axis), the divorce rate goes down (horizontal axis). We knew that the divorce rate across the country declined with the recession; the fact that it correlates with unemployment rates by state gives us more evidence that this is related to the weak economy.
Getting a divorce is an expensive and economically risky move. Equally expensive and risky is having a child. Here’s changes in birth rate from 2009 to 2005 against unemployment. It’s an even stronger relationship:
Same dynamic. (It is also true if we use “fertility rate” instead of birth rate.) If 2009 had the same birth rate as 2005, there would be an additional
2.25 million babies born 153,000 births per year. Over the course of the past several years, it is likely that there are 5-8 million babies not born as a result of this prolonged recession.
Marriage is, oddly, not correlated with unemployment increases by state. Is it because marriages are income risk-reducing instead of income risk-increasing events like divorce and having a child? Is the average cost of a wedding going down in this recession? Segmentation in who is getting married, particularly by education (Sober Look argued that here)?
In some ways this linkage makes me a bit more worried about the “recovery winter” argument happening. I read household formation as primarily a young person issue. Households are doubling up at high numbers, and there are record numbers of adult children living at home. Census blog: “All in all, 61.7 million adults, or 27.7 percent, were doubled-up in 2007, rising to 69.2 million, or 30.0 percent, in 2011. Young adults were especially hard-hit…That left 14.2 percent of young adults living in their parents’ households in March 2011, up more than two percentage points over the period.”
My previous worry was that young people will be last in line to get jobs as job growth happens, keeping a lot of potential household formers on the sidelines, thus keeping the recovery in check. I’m not sure if they are actually “last in line”, but if so there’s a problem there. Now I’m a bit more worried that household formation dynamics are being equally driven not by something that requires a bit of extra money – like being able to pay rent – but a lot more extra money. Having a child is expensive, particularly since it requires adding cost household labor hours – if household formation recovery needs to expand the birth rate to truly engage a multipler-accelerator “winter recovery”, that could be quite problematic.
(On the other hand, I can start prepping my #slatepitch: “How the Upcoming Divorce Wave Will Save the Economy.” Maybe Newt Gingrich can tell us all something about how to have a strong economy and reduce unemployment after all….)
UPDATE: The estimated number of babies not born was off in calculation; it has been fixed and changed in the post above with previous estimated struck-out in text.