In 1960, only five percent of all births occurred out of wedlock, and only 13 percent of all children lived in a single-parent family. By 1990, increasing divorce and out-of-wedlock childbearing had raised these figures substantially, more than one-fourth of all births were to unmarried mothers, and 27 percent of all children lived with only one parent. Bumpass (1984) predicted that, as a result of rising divorce and non-marital fertility, 50 percent of all children born as early as 1980 would spend part of their childhood in a fatherless family.
Assuming that workers enter the labor market at age 20, and that the workforce turns over every 40 years, these demographic trends imply that, within the next 20 years or so, roughly one-fourth of the labor force will have spent part of its childhood in a single-parent home. Put differently, this means that within the next couple of decades, there will be as many workers who grew up fatherless as workers who hold college degrees. The fraction of the labor force that was raised in a single-parent family will undoubtedly exceed the fraction that is unionized.
These trends is family structure may bode ill for tomorrow's labor force, at least if the predictions of economic theory are correct. In Becker's (1981) model, for example, children raised in families with fewer resources tend to have lower human capital. Thus economic theory would predict that, all else equal, the next generation of workers will enter the labor market with less human capital than the last.
The objective of this study is to estimate the effects of fatherlessness on the children's educational attainment and entry-level wages. We consider an important methodological issue not addressed by previous researchers; unobserved heterogeneity across families. One can imagine that families vary greatly in a number of ways that are unobservable to the analyst. Moreover, many of these unobservable family characteristics are likely to be correlated both with the probability of divorce and with the well-being of the children. Thus a cross-sectional regression of children's educational attainment on a measure of their childhood family structure fails to identify the effects of living in a fatherless family, because the effects of fatherlessness are confounded with the effects of the family-specific unobservables. We would generally expect such unobserved heterogeneity to lead to exaggerated estimates of the true effects of fatherlessness.