Dollars and Sex

by Marina Adshade

  As an aside, one interesting observation made by Betsey Stevenson and Justin Wolfers is that not only are less-educated people more likely to divorce—they find a 10-percentage-point difference between college graduates and those with less than a college education in the probability that their marriage would still be intact when they are 45 years old—but also that less-educated people are less likely to remarry following a divorce and, if they do remarry, they are more likely to divorce again.

  While I have no direct evidence to prove that when women have more say in their marital decisions that their marriages function better, low divorce rates for educated couples suggest that the gains women have made in terms of equality in decision making are not leading to more unhappy marriages.

  THE RICH GET RICHER, AND THE POOR GET DIVORCED

  According to economists Adam Levine, Robert Frank, and Oege Dijk, the rich are getting richer, and marriage is paying the price.

  We already know that the growing divide between the rich and poor has influenced sexual mores, and we will see more evidence of this in chapter 7 when we discuss teen promiscuity, but it also seems to be driving up divorce rates.

  Just to give you an example of how wide the divide has become, consider this: The bottom 20 percent of income earners have experienced only a 9 percent increase in income in the years between 1979 and 2003, while those earning in the top 1 percent have seen their incomes increase a remarkable 201 percent.

  At the same time, everyone seems to be saving less. The personal savings rate in the United States, for example, has fallen from 10 percent in the mid-1970s to close to zero in recent years, an observation that has led many analysts to suggest that excessive consumption contributed to the severity of the most recent recession.

  There are several reasons why personal savings has fallen, but the main reason has to be that we are consuming more than ever before. Not only are we spending all of our current income, but we are also borrowing against our future income so that we can consume more today than we earn. One of the reasons for this is that, as the incomes of wealthy households increase, everyone spends more in an attempt to keep up with their consumption.

  To understand how, imagine that you are in a community in which everyone has the same level of income, lives in the same size house, drives the same car, and everyone is good-looking (just for good measure).

  Now imagine that one family, let’s call them the Joneses, gets a big increase in their income and decides to build a bigger house and buy a nicer car. This increase in consumption encourages the people who live around them to think: “Well, if the Joneses deserve a bigger house and a fancier car, then so do I!”

  Other families start to spend more of their income to buy things that compare to those owned by the Jones family. The families in the Joneses’ neighborhood can probably manage to pay for this increase in consumption by reducing their savings. But as this effect spreads out into lower and lower income communities, it can lead to an increase in consumption that can cause real economic hardship—especially when people start mortgaging their homes to pay to the bills.

  Keeping up with the Joneses’ family consumption has encouraged everyone to consume too much and save too little.

  So, the rich get richer, and everyone else races to keep up with their consumption. Excess consumption puts stress on families: people start working longer hours, making longer commutes to work so they can own bigger homes, and bankruptcies become more common. Not surprisingly, this race to consume and the financial hardship it causes put a big strain on marriages.

  Robert Frank and his coauthors find that in counties where inequality is high, divorce rates are high as well; a 1 percent increase in inequality in a county is associated with a 1.2 percent increase in the proportion of people in that county who are divorced. In just ten years (1990 to 2000), the increase in income inequality caused a 5 percent increase in the number of divorces.

  One possible explanation for this relationship between divorce and income inequality, besides the stress created by excess consumption, is that high levels of inequality encourage men and women to seek out new marriage partners whose better income makes it possible for them to buy the things they feel they need to compete in a highly unequal society. If that is the case, it is good news for them that there is a cheap way to look for a new marriage partner—the Internet.

  LOVE IN CYBERSPACE FOR THE ALREADY MARRIED

  If you have ever searched online for the phrase “why do people divorce,” you know it is popular for pundits to blame access to online dating and social networking sites for infidelity and divorce. This conclusion is based on the assumption that because searching online is so easy (and so private), men and women who might otherwise have remained faithful are instead shopping online for a new partner.

  A new paper by Todd Kendall presents some compelling evidence that despite the popularity of the claim that access to the Internet is responsible for marriages breaking down, it is simply not true. In fact, the ease with which married people can now find new lovers online might actually be reducing divorce rates, not increasing them.

  Remember the model of searching for love that I used to explain why single people migrate to urban centers in search of love? The Internet operates just like a city in that it reduces the cost of searching for new love with the added bonus of allowing married people to search without their partners finding out.

  As we already know, when search costs are high, marriages are generally of lower quality since men and women choose to settle on an inferior partner rather than incur the high cost of searching for longer (earlier we referred to this as setting their reservation value at a low level). When search costs are low, however, marriages are generally of higher quality since men and women can continue to search until they find someone closer to their perfect match without paying the high cost (they set their reservation value at a high level).

  Inasmuch as access to online dating and social networking sites lowers the cost of searching for a mate, having greater access to the Internet should lead to higher-quality marriages in general.

  The implication is that increased access to online dating and social networking will both decrease the probability of divorce (because the quality of marriages increases) and increase the probability of divorce (because married people can continue to search privately for new partners). In order to say which of these two factors has had the greatest influence on divorce, we need to take a look at the data.

  Todd Kendall’s research uses data collected from 43,552 couples and finds that there is no relationship between access to the Internet and the probability of divorce. He also finds that couples in which the husband uses the Internet daily are actually less likely to divorce than those in which the husband uses the Internet less frequently. There is no relationship between how frequently a wife uses the Internet and the likelihood that the couple will divorce.

  We really don’t know what these men and women are doing online—they could be shopping or downloading porn for all we know—but even without that information this is pretty conclusive proof that online dating and social networking sites are not a major cause of divorce. This doesn’t imply that no married people are shopping for new mates on the Internet. It just means that those people would still be looking for a new mate even if they didn’t have that resource available.

  A LUBRICANT LEADING INDICATOR?

  Can watching the market for sex toys help economists predict a recession?

  Economists at their most playful like to find interesting ways to watch the market for signs of an impending economic downturn. After we get tired of watching inventories and production capacity, we turn to other leading indicators such as hamburger sales and whether or not doughnut shops are moving into downtown cores.

  One of the most famous leading indicators of a recession is lipstick sales. Leonard Lauder, who was chief executive of the cosmetics company Estée Lauder until 1999, observed that in the lead up to a recession, lipstick s
ales tend to increase. It turns out that an inexpensive way to make a woman feel good is a fun way for economists to forecast hard economic times.

  Lipstick sales did not predict the economic downturn in 2007 and 2008, though, and sales in that market have been flat over the last few years. Another feel-good market is booming instead: the market for personal lubricants and sex toys.

  Market research in 2009 found that sales of lubricants and sexual-enhancement devices were rocketing in the recession. The argument for this surge in sales of sexual aids sounds much like the argument made for lipstick; people need a cheap way to feel good in tough times (or you might say they need a way to get hard in hard times).

  The real test as to whether or not this market is a good indicator of economic activity will be revealed in the recovery. If the sales of his-and-her gels and vibrators go limp over the next year, then I think we have a winner.

  Maybe then we should ask The Economist to start reporting on the sex toy and lubricant markets. After all, they seem to share my perspective when it comes to providing stimulating economic analysis.

  If this does not convince you, there is research from the Netherlands that also examines the relationship between marriage quality and Internet usage and finds that the more frequently an individual uses the Internet, the happier they are in their marriage.

  Using data collected from married couples, Peter Kerkhof, Catrin Finkenauer, and Linda Muusses find that frequency of Internet use is associated with happier marriages, marked by partners who keep fewer secrets, feel more attached to each other, and have a greater passion for their relationship.

  When they looked only at compulsive Interest users, however, they found that those addicts experienced declining intimacy and passion in their marriages over time, spent less time with their partners, and were more willing keep secrets from them. Overall, the quality of their relationships was lower and appeared to be deteriorating over time. This deterioration wasn’t because they spent all their time online but rather because the compulsiveness of their behavior hurt their marriages.

  MARRIAGE AS INSURANCE IN HARD TIMES

  There were many problems in Jane’s marriage in the story I shared with you at the beginning of this chapter, particularly John’s unwillingness to negotiate with Jane on important family decisions, but eventually it was his joblessness that eroded the weak foundation of their marriage.

  Besides the toll that living through a period of economic hardship places on a couple, job loss removes one of the reasons for being married in the first place—to have some additional support when things go wrong. If marriage is a form of insurance in hard times, then when one person in a marriage has already lost his or her job, the insurance, in terms of income for the second person, is essentially gone.

  MY HUSBAND THE JUNK BOND

  In making financial decisions, women are far less willing to take on risky assets than are men; they appear more risk-averse. Single individuals, in turn, are more risk-averse than married individuals, and so it follows that married women, historically at least, appear to be more willing to take on risky assets than are single women.

  If we think of a husband as another asset in a portfolio along with stocks, bonds, and real estate, this behavior of married women makes sense, but only if a husband is a low-risk asset. With the additional safe asset (i.e., the husband) in a married woman’s portfolio, it makes sense that she seeks to balance her portfolio by purchasing riskier assets. So married women are not really less cautious than single women, they just look that way because we are ignoring her safe asset that puts his feet on the coffee table at night.

  But here’s the thing: over the last forty years, the asset that is a husband has evolved from behaving like a risk-free asset to behaving more like a junk bond—a high-yield asset with a high risk of default. Add to that the volatility in the housing market (essentially the returns from which the junk bond pays out in the case of default), and the riskiness of the husband asset has increased over time.

  If this is true, and if the husband-as-portfolio item argument explains the lower risk-aversion of married women, then as divorce rates increase, we would expect to see the risk-aversion gap between married and single women shrink.

  New research by Italian economists Graziella Bertocchi, Marianna Brunetti, and Costanza Torricelli finds that, starting in the early 1990s, the risk-aversion gap between single and married women actually widened as married women entered the workforce and began behaving more like men in their investment decisions. But that all changed in the beginning of the twenty-first century; since that time, the marriage gap in risk aversion has narrowed considerably and married women have increasingly begun to behave in their investment decisions just like single women—they are acting more risk-averse.

  While divorce rates in many countries have been stable for more than a decade, in just three years (2000 to 2002) the divorce rate in Italy has increased by 45 percent. So, in a period of increased risk in marriage, the level of risk-aversion of married women has converged to that of single women. This is consistent with our hypothesis that married women are choosing to rebalance their portfolios with less-risky assets in response to the increase risk associated with their junk-bond husbands.

  Job loss reduces the motivation that couples have to stay together. This probably doesn’t matter for relationships that stand on a solid foundation—after all there is no point in having insurance if the insurer backs out of the arrangement just when you need to make a claim—but not all relationships have a solid foundation, and, for many, the loss of a spouse’s job is the straw that breaks the camel’s back.

  New research by Judith Hellerstein and Melinda Morrill looks for evidence of a relationship between unemployment and divorce, and finds, somewhat surprisingly, that when economic times are good, people are more likely to divorce than they are when economic times are bad. In fact, when the unemployment rate goes up by 1 percentage point, the divorce rate falls by 1 percentage point.

  There are two possible reasons for this counterintuitive result.

  The first reason is that while in a recession some couples are more likely to divorce (i.e., those who have actually lost their jobs), other couples are more likely to stay married (i.e., those who haven’t lost their jobs but fear that they might).

  After all, you wouldn’t cancel your car insurance just when the risk of an accident is at its highest; even if you no longer wanted it, you would wait until the risk has passed. One reason why divorce rates increase when unemployment rates fall is that improvements in the economy decrease employment uncertainty, reducing the need for the insurance marriage provides.

  The second reason that more couples stay together in a recession is that falling house prices make it difficult to part with a family home whose value has fallen well below their expectation, or even fallen below the value of their mortgage.

  Imagine you are married and you wish you weren’t. If house prices have fallen, then buying a new home—or two, since that is what you now need as a couple—is more affordable than it had been in the past. So falling house prices might increase your willingness to end your relationship since finding a new place to live is now less expensive.

  If this is the case, then when house prices fall, divorce rates should increase, and, alternatively, when house prices increase, divorce rates should fall.

  According to research by Martin Farnham, Lucie Schmidt, and Purvi Sevak, while it is a good idea to buy new homes when the market is low, couples prefer staying in less-than-satisfying marriages rather than lose equity they had built up in their existing home. These authors contend that an emotional barrier to selling property at a loss encourages people to hang on to their homes, and stay in their marriages, in the hope of reducing that financial loss in the future.

  They find that a 10 percent decrease in house prices decreases the divorce rate of college-educated couples (those who are more likely to be home owners) by an incredible 29 percent. When you consider that house
prices fell by three times that amount (30 percent) between April 2006 and August 2010, this result translates into a massive decline in divorce rates.

  For those who are less likely to own a home, falling house prices had the opposite effect on divorce rates; a 10 percent decrease in house prices increased the divorce rate of those who did not complete high school by an equally incredible 20 percent.

  What this tells us is that recessions do have a destructive effect on marriages, but that effect is principally among poorer households. This shouldn’t be that surprising given that low-skilled jobs are the hardest hit during recessions; in 2010, a person with less than a high school education was three times more likely to be unemployed than was a person with a college degree.

  If the decision to divorce is related to unemployment and house prices, then maybe the decision to marry is also related to the state of the economy. According to the U.S. Census Bureau, the overall marriage rate for individuals between the ages of 25 and 34 fell by 4 percent between 2006 and 2010 (from 49 percent to 44 percent). While it is true that marriage rates have been falling for decades, this downward trend during the recession was different for one reason—while the marriage rate for educated people stayed almost constant, the marriage rate of people with only a high school diploma, or less, fell precipitously to 10 percentage points less than it was a decade ago.