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Chapter 8 Economic Conditions and Children’s Living Arrangements Rebecca A. London and Robert W. Fairlie H ousehold and family living arrangements have become increasingly visible in public policy discussions, especially with the passage of the landmark Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).1 The legislation—a response to a trend of rising rates of childbirth outside of marriage—emphasizes the reinforcement of marriage as the preferred arrangement for families with children. PRWORA also attempts to influence children’s living arrangements in another way—by mandating multigenerational households for teen parents who have not completed high school. Although the population of teen parents receiving welfare is small, the focus on their living arrangements signals policymakers’ interest in shaping living arrangements beyond marriage. The law’s primary focus on marriage was partly motivated by the disconcerting finding that children who grow up with a single parent fare worse later in life than those growing up with married parents (McLanahan and Sandefur 1994). Even after controlling for income and other intervening factors, children living with single parents have worse educational and family formation outcomes than those living with two parents or with stepparents. Children of divorced parents similarly fare worse than those in intact families on these and other measures (Amato 2000; Seltzer 1994). Demographic shifts in living arrangements have led to fewer children living with married parents over time. For instance, between 1985 and 2000, children became less likely to live with married parents and more likely to live instead with a single mother, particularly one who cohabited with an unmarried partner (who might or might not be the child’s biological father) (Dupree and Primus 2001). These trends were especially strong for poor children. A similar trend occurred for adult living arrangements, which showed increases in cohabitation over this same time period (Bumpass and Lu 2000; London 1998). / 233 Working and Poor The shifts in societal and personal beliefs regarding marriage, divorce, and cohabitation that have occurred since the 1960s are a prime reason for demographic trends away from marriage. Less traditional views have taken root, and as a result the stigma associated with divorce and cohabitation has decreased over time. In particular, sexual intimacy, childbearing, and child rearing have become increasingly acceptable outside of marriage (Thornton and YoungDeMarco 2001). Another documented reason for shifts in family living arrangements is the imposition of welfare waiver programs in the 1990s, culminating in 1996 with PRWORA (Acs and Nelson 2004; Bitler, Gelbach, and Hoynes 2006; Schoeni and Blank 2000). In general, findings from these studies indicate that welfare reforms have had results consistent with the goal of increasing two-parent or married families, at least for some subgroups. The effects are mostly small, owing in part to the short time period in which these reforms were implemented. Fluctuations in the economy represent a third and unexplored potential cause of movements in the distribution of living arrangements over time. There are several reasons to expect economic conditions to affect the distribution of living arrangements. First, the financial pressure placed on families by economic recessions might lead to doubling up through marriage, cohabitation, or living with other unrelated or related adults or families. At the same time, there may be an offsetting effect: job loss may create financial hardship, resulting in increased rates of marital dissolution. Assuming that parents tend to prefer living independently over living in shared nonmarital arrangements, one would expect economic expansions to lead to more independent arrangements. Finally, economic conditions may affect the attractiveness of potential partners. Previous research finds evidence that men’s economic status affects union formation for both African Americans and whites (for a review, see Fein et al. 2003). In this chapter, we explore the role that economic conditions play in determining the distribution of children’s living arrangements. We use data from the 1979 to 2004 annual demographic files of the Current Population Survey (CPS) and the 1986 to 2001 panels of the Survey of Income and Program Participation (SIPP). The long time period and large sample sizes of the CPS allow us to examine the relationship between economic conditions and living arrangements over the past twenty-five years and for several subgroups of children. The SIPP’s longitudinal panels allow us to examine the effects of economic conditions on transitions into and out of living arrangements. This is critical to the analysis because economic conditions may have larger or at least different effects on flows into and out of...

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