Linking Family Change, Parents' Employment and Income and Children's Economic Well-Being: A Longitudinal Perspective

2. FAMILY TRANSITIONS, LABOUR FORCE PARTICIPATION AND INCOME CHANGE

Much has been written about the crucial importance of income for children's well-being, and research suggests that some of the negative effects associated with separation and divorce are actually caused by the drop in income that generally accompanies it (Amato, 2000; Duncan and Brooks-Gunn, 1997; McLanahan, 1990). When a couple separates, resources that formerly maintained a single household have to support two and, even when those resources are distributed fairly between family members, each individual is by definition financially less well off. Most parents are obliged to reduce their standard of living, sometimes dramatically, and different strategies may be adopted to deal with this situation. Some separated parents may seek to reduce costs by lodging, at least temporarily, in a household maintained by someone else (often their parents), while others attempt to increase the resources available by taking paid employment or increasing the number of hours they work.

This leads us to the second important way that family transitions influence income. In Canada, families have maintained living standards over the last three decades largely through the increased labour force participation of mothers. The dual-earner family has become the norm. In other words, the standard of living enjoyed by a family is closely linked to the number of adults available to bring in an income—which generally means the number of parents within a household. Separation reduces the number of parents; family recomposition increases it. Having two potential wage earners also gives more choice in terms of the employment strategies devised by parents to balance earning a living with the other demands of family life; one can concentrate on earning an income, and the other on caring for the children, for example, or both parents may choose to work full time and use the extra income to pay for child-care services.

In this first part of the report, we focus on the direct impact that family transitions have on income levels and work patterns. The section starts by setting the scene, using Cycle 1 cross-sectional data to explore how the different family types (intact, step and lone-parent) compare, with regard to the two main variables in this part of the analysis: income and employment strategies. This is followed by a longitudinal analysis of the way in which income and work are affected by two specific family transitions occurring between the first two cycles of the survey.

  • From an intact family to a lone-parent family. Using the sample of children whose parents separated between Cycles 1 and 2, we examine changes in family income before and after parental separation, and explore how this affects the labour force participation of women becoming lone mothers during the period.
  • From lone-mother family to stepfamily. Using the sample of children living with a lone mother in 1994-95, we examine the extent to which forming a conjugal union modifies family income levels compared to remaining in a single-parent family. The small number of cases prevented a similar analysis of lone-father families.

2.1 Setting the score

Family type and income

At the time of Cycle 1 of the survey in 1994-95, children were living in different types of families (intact, step, and lone-father and lone-mother families), and the type of family they belonged to was closely linked to the financial resources available for their upbringing. Figure 1 compares family income levels across these four family types for six income categories, from less than $20,000 per year to $80,000 or more.[2] The income gap between two-parent and one-parent families, and between lone-father and lone-mother families, headed by fathers and those headed by mothers is clearly visible.[3]

Figure 1 - Household income category by family type, NLSCY 1994-95

A few points can be taken from this figure.

  • Intact families and stepfamilies have similar income levels, although incomes are slightly higher in intact families. A smaller proportion of children in intact families are in the lowest income brackets (less than $30,000) and a larger proportion in the highest.
  • Two-parent families are considerably wealthier than lone-parent families, even male-headed lone-parent families. Fewer than one in eight children (4 percent and 7 percent) with their mother, and less than one third of children (9 percent and 23 percent) with their father, were in households with an annual income of over $40,000 (the case for more than two thirds of the children in two-parent families).
  • Although lone fathers are, on average, much better off than lone mothers, many support their family on a very low income. More than one quarter of children (26 percent) living with their father were being raised on an annual income of less than $20,000.
  • The majority of lone mothers are raising children on a very limited budget. For three fifths of the children in lone-mother families (61 percent), the annual family income was less than $20,000, and for almost four fifths it was under $30,000.

Below the low-income cut-off

No matter how informative they may be, income levels are not always the best indicator of living standards, as they do not take into account the number of individuals being supported by the income. The low-income ratio, on the other hand, is estimated as the ratio of economic family income to the low-income cut-off, a measure derived from a number of indicators including family size. A ratio of 0.75, for instance, means that the household income is 25 percent lower than the low-income threshold estimated for a family with a given set of characteristics (including the number of adults and children present). Low-income ratios are given for the four family types in Figure 2.

The two lower categories represent the proportion of families with incomes below the low-income cut-off. The figure confirms the general impression given by income levels in Figure 1, with two-parent families less often below the low-income threshold than one-parent families, and single fathers less often than single mothers. The difference between family types is clearly illustrated for incomes falling below the low-income cut-off by more than 25 percent; while only 1 in 12 children (8 percent) in intact families are living on these very restricted budgets, this is the case for more than half (53 percent) of the children in lone-parent families headed by mothers. In fact, less than 30 percent of the children in lone-mother families are not in “low-income” families. The proportions are inversed for children in lone-father families: almost 70 percent are above the low-income cut-off and slightly more than 30 percent are below.

Figure 2 - Ratio of household income to the low-income cut-off, by family type, NLSCY 1994-95

Patterns of income earning

Two work-related factors explain much of the difference in income levels between two-parent and lone-parent families, and between lone-father and lone-mother families. These two factors are the number of potential wage earners and the number of hours worked. Couples have greater flexibility than lone parents in terms of balancing work and family life, since one or both parents can be employed, full- or part-time. The different arrangements adopted by parents in two-parent families are shown in Figure 3.

  • Having both parents in full-time employment is the most common situation, shared by 43 percent of children.
  • Slightly more than one quarter of children (27 percent) had one parent working full time, and the other part time.
  • Another quarter had a parent at home while the other was in the labour force full time.

Figure 3 - Parents' labour force participation, for children living in two-parent families, NLSCY, 1994-95

Overall, 95 percent of children in two-parent families benefited from the full-time employment income of at least one parent, a situation that contrasts strongly with the situation in one-parent families (Figure 4). Slightly more than 40 percent of children in one-parent families (78 percent in lone-father families, and 39 percent in mother-headed lone-parent families) live in a family supported by a full-time employment income, a figure that is all the more disquieting given that the vast majority of children in lone-parent families are with their mother. Having a parent at home, however, is more common, particularly among children in lone-mother families (43 percent); in fact, these children are the most “traditional,” in the sense that they are more likely than other children to have their mother at home.

The number of wage earners and the number of hours worked are closely linked to the level of family income, as shown in Figures 5 and 6 for two-parent and one-parent families respectively. The general pattern that emerges from these figures is predictable: the more time parents invest in paid employment, the higher their family income. However, a closer look highlights three important features of the relationship between work organization and income.

Figure 4 - Parents' labour force participation, for children living in one-parent families, by sex of parent, NLSCY, 1994-95

Figure 5 - Household income category for children living in two-parent families according to their parents' labour force participation, NLSCY, 1994-95

Figure 6 - Household income category for children living in one-parent families, according to the parent's sex and employment status, NLSCY, 1994-95

First, there is a considerable income disparity for any given employment pattern. Consider the situation when both parents are employed full time as an example. The principal challenge for these parents is to “find the time” to meet the demands of family life, given the number of hours they spend working. The family income on which more than one quarter of children in these double-income families are raised exceeded $80,000 in 1994-95; these parents could probably compensate to some extent for the hours spent in the workplace by purchasing services that lighten the load at home. However, although having two employed parents raises the likelihood of a family being financially at ease, it is certainly no guarantee of it. The parents of 16 percent of children in double-income families earned less than $40,000 between them; with scarcely enough to cover the basics, paying for services is not an option.

Second, one full-time employment income does not have an equivalent “value” across the different family types, reflecting differences in earning power. More than half the time (33 percent and 13 percent and 7 percent), single earners in two-parent families bring in $40,000 per year or more; in lone-father families, the percentage drops to 39 percent, and in lone-mother families to 27 percent. At the other extreme, 9 percent of single-earner two-parent families, and 12 percent (7 percent and 5 percent) of employed fathers, bring in less than $20,000 per year, compared to 31 percent of lone mothers. In other words, not only do lone fathers have full-time employment twice as often as lone mothers, they are also better paid, two factors responsible for the huge disparity between the incomes of lone fathers and lone mothers.

Third, at the opposite end of the scale, except for a few families of “independent means”, two unemployed parents means that families have to live on a very tight budget. Nearly 60 percent of these children were being raised on an annual income of less than $20,000, a proportion almost identical to that among children of unemployed single mothers (57 percent) with an income of less than $15,000. The extra adult to feed means that the budget in unemployed two-parent families is just as stretched as among single mothers who are not working. On the other hand, two adults in a family increases the chances of having at least one parent employed at some point and, as a result, only 3 percent of children in two-parent families are in this situation compared to 45 percent of children in mother-headed lone-mother families. With only one in five lone fathers not fully employed, the numbers were too small to include this group in Figure 6. The data nonetheless suggest that the level of poverty of these fathers surpasses even that of lone mothers who are not employed.

Evidently, employment patterns and income are far from static, changing in response to many factors, such as market forces, educational opportunities and personal choices. They may also change as a result of family transitions. In the next section of this report, we consider the impact of separation and stepfamily formation on income and employment from a longitudinal perspective.

2.2   FROM TWO-PARENT TO ONE-PARENT FAMILY

Data from consecutive cycles of the NLSCY make it possible for the first time to directly assess the drop in family income that accompanies the transition from an intact to a lone-parent family. Information on family income gathered both before separation (at the time of Cycle 1) and after (at the time of Cycle 2) was available for approximately 500 children whose biological parents separated between the two surveys. Of these, only children living with a lone parent in 1996-97 were included in this analysis. Children in shared custody are treated as belonging to the family of the parent responding to the survey in 1996-97, since information on family income was not gathered for the other parent.[4] Children were first classified in four groups according to the level of family income before separation in 1994-95, and according to whether they were living with their mother or father two years later. For each of these subgroups, the average annual family income before and after separation, as well as the percentage change, is presented in Table 2. The two lowest income categories have been combined for lone fathers due to the small number of children from families with an annual income of less than $40,000 who reside with their father after separation.

Table 2a: Intact and lone-parent family income,1 and percentage change for children whose parents separated after Cycle 1 and who were living with a lone parent at Cycle 2, according to the sex of the lone parent, NLSCY, 1994‑95 and 1996‑97 - Mother
Income level of intact family in 1994-95 Lone Parent in 1996-97
Average income before separation ($) Average income after separation ($) Change (%) N
Less than $25,000 17,800 15,700 -11.8 123
$25,000-$39,999 30,100 16,500 -45.2 100
$40,000-$59,999 48,000 28,800 -40.0 94
$60,000 and above 89,800 40,500 -54.9 116
TOTAL 46,500 25,500 -45.2 434
Median income 38,000 19,000 -50.0  

Table 2b: Intact and lone-parent family income,1 and percentage change for children whose parents separated after Cycle 1 and who were living with a lone parent at Cycle 2, according to the sex of the lone parent, NLSCY, 1994‑95 and 1996‑97 - Father
Income level of intact family in 1994-95 Lone Parent in 1996-97
Average income before separation ($) Average income after separation ($) Change (%) N
Less than $25,000 23,900 2 22,500 2 -5.9 2 23 2
$40,000-$59,999 50,400 40,100 -20.4 18
$60,000 and above 92,400 64,800 -29.9 54
TOTAL 68,100 50,000 -26.6 95
Median income 60,000 49,200 -18.0  

1 Rounded to the nearest $100.
2 Includes all fathers with a pre-separation family income under $40,000.

Lone mothers versus lone fathers

First, Table 2 provides clear evidence of a much sharper overall decline in relative income for children living with their mother (45 percent) than father (27 percent) after separation. The disparity in income decline is even greater when calculated using the median value rather than the mean, at 50 percent for mothers and only 18 percent for fathers. The median income indicates that half the children remaining with their mother when parents separate are being raised on an annual income of less than $19,000; the comparable figure for children raised by their father is $49,200. The difference between mothers and fathers holds for each pre-separation income category, and reflects the fact that men, on average, bring in a higher proportion of family income than women do.

Second, there is some evidence that, among fathers, the relative drop in income is closely linked to family income levels before separation: the higher the pre-separation income, the greater the relative drop at separation. For mothers, this pattern is less clear since the relative drop in income is high at all income levels, nearly 50 percent for all but the lowest income group. We observed earlier that higher incomes were most common in families with two full-time incomes. In other words, at higher income levels the mother's contribution to family income is greater. On the one hand, this offsets the decline in income for lone mothers who continue bringing a full-time income into the family after separation. On the other hand, the loss of the former spouse's earnings is responsible for the steeper decline in family income among fathers as pre-separation family income rises. We will be able to verify this with a greater number of cases in Cycle 3.

Perhaps one of the most unexpected and interesting findings is the considerable gap between the overall average pre-separation family income for children who continue living with their mother ($46,500) or father ($68,100) after separation. Are children from relatively well-off families more likely to remain with their father after separation than those from poorer families? We will return to this subject in a later section dealing with the impact of family income before separation on custody arrangements.

Mothers' employment status and income after separation

Findings in the previous section suggest that pre-separation earning patterns explain much of the difference between mothers' and fathers' households in the relative decline of family income after separation. Table 3 presents similar figures on family income change for the transition from two-parent to lone-mother family when parents separate, but this time according to the parents' labour force participation before separation. In families with only one full-time income, the mother is normally the parent at home or she has part-time work.

  • Lone mothers from double-income families who were working full-time before separation are better off financially than other lone mothers. Their average annual income of close to $32,000 is significantly higher than that of mothers from the three other situations.
  • Lone mothers from families with only one full-time income were in a similar financial position whether they had worked part-time before separation ($22,500) or not ($21,800), despite the higher pre-separation income of the former. With a higher relative decline in income among lone mothers who had worked part time (54 percent) than among those who had not (47 percent), many of these mothers were raising children on an income below the low-income threshold after separation.
  • Families with neither parent fully employed were already struggling financially, thus, given that a bare minimum is necessary for survival, the relative decline after separation for lone mothers is small (9 percent).
Table 3: Average family income1 and percentage increase for children whose parents separated after Cycle 1 and who were living with their mother at Cycle 2, according to the parents' pre-separation labour force participation, NLSCY, 1994-95 and 1996-97
Employment situation in 1994-95 Average two-parent family income 1994-95 ($) Average lone-mother family income 1996‑97 ($) Change (%) N
Both parents, full time 60,000 31,900 -46.8 168
1 full time / 1 part time 48,900 22,500 -54.0 94
1 full time 41,200 21,800 -47.1 97
Neither full time 18,700 17,000 -9.1 57
TOTAL 47,500 25,400 -46.5 4162
Median income 40,000 20,000 -50.0  

1 Rounded to the nearest $100.

2 Excludes 18 cases with missing information on labour force status.

Overall, separation reduces the differences in living standards between women who become single mothers. Before separation, for instance, women in double-income families had an average income of more than three times that of women in families with no full-time income; after separating, their income was less than twice as high.

2.3 From lone-mother to stepfamily: a way out of poverty?

In this section, we look at the opposite movement, from a one-parent to a two-parent family. Given the relatively limited number of lone fathers making the transition during the period, the analysis will be restricted to the impact of union formation on the family income of lone mothers. The majority of children living with their mother only in 1994‑95 were in the same situation two years later. However, 6 percent were living with both biological parents after their parents decided to give their union another chance, and 12 percent were living in a stepfamily as a result of their mother's union with a new partner. Table 4 compares the evolution of average family income for each of these three groups. The first column shows the average family income of each group in 1994-95, when it was all earned by lone mothers. The second column gives the average income two years later, while the third indicates the change in income during the period for each group. Median incomes are also indicated in each table, to show the level of income below and above which 50 percent of the sample is situated; the fact that the median is consistently lower than the average means that the average overestimates the income of the majority of mothers.

Table 4: Family income1 and percentage increase for children living with their mother in 1994-95, according to the mother's conjugal situation in 1996-97, NLSCY
Conjugal situation in 1996-97 Lone mother's average family income 1994-95 ($) Average family income 1996‑97 ($) Change (%) N
Lone mother 21,800 23,600 8.3 1,790
In a couple:
- With new partner and stepfamily 24,200 43,600 80.2 260
- Reunited with child's father 18,800 33,700 79.3 127
TOTAL 21,900 26,600 21.5 2,177
Median 16,800 19,200 14.3  

1 Rounded to the nearest $100.

Average family income increased in all three groups. However, as one would expect, the increase was considerably higher when mothers formed a union in the interval: family income rose by about 80 percent for children living in a stepfamily or with reconciled parents in 1996‑97, compared to a rise of 8 percent for those whose mothers were still on their own. Interestingly, the average income of the group of lone mothers who were reconciled with their children's father was the lowest of all three groups of women in 1994-95 (at $18,000 annually); the average annual income of lone mothers who subsequently formed a union with a stepfather for their children, for example, was approximately one-third higher (at $24,200). The source of this association needs further investigation. Do financial difficulties force separated parents back into sharing their residence? Or, on the contrary, does financial stress cause the temporary breakdown of an otherwise satisfactory union? Whatever the reason, with an average annual family income of $33,700, mothers uniting or reuniting with their children's father remain considerably less well-off than mothers entering a union with a new partner ($43,600).

Table 5
Percentage increase in family income for children living with their mother in 1994-95, by income level in 1994‑95 and by the mother's conjugal situation in 1996-97, NLSCY


Income level of lone-mother family in 1994-95
Mother's conjugal status in 1996-97
Lone mother
Average family income 1994-95
($)
Average family income 1996-97
($)
Change
(%)
N
Less than $12 000 9,400 14,900 58.5 342
$12,000-$15,999 13,600 15,800 16.2 492
$16,000-$24,999 19,100 19,400 1.6 455
$25,000 and above 40,900 41,300 1.0 500
TOTAL 21,800 23,600 8.3 1790
Median 16,000 17,900 11.9  

Income level of lone-mother family in 1994-95 Mother's conjugal status in 1996-97
In a couple
Average family income 1994-95
($)
Average family income 1996-97
($)
Change
(%)
N
Less than $12 000 8,800 27,900 217.0 45
$12,000-$15,999 13,500 36,500 170.4 112
$16,000-$24,999 19,200 30,700 59.8 120
$25,000 and above 40,800 59,900 46.8 110
TOTAL 22,500 40,300 79.1 387
Median 18,000 35,000 94.4  

Is there any relation between the level of income in lone-mother families at the time of Cycle 1 and the relative increases in income among mothers who had or had not formed a conjugal union during the period? Table 5 shows the following.
  • Average income rose between Cycles 1 and 2 whether or not women formed a conjugal union, and the lower the income in 1994-95, the larger the increase.
  • Among mothers with an annual income of less than $12,000 in 1994-95, even women who were still alone two years later had seen their income rise by close to 60 percent. Mothers who became part of a couple (with a new partner or their children's father) more than tripled their income. However, the scale of these increases are more a reflection of how poor these lone-mother families were in 1994-95 than of how rich they had become two years later.
  • At slightly higher 1994-95 income levels (over $16,000 annually), mothers who did not re-unite with their children's fathers or acquire a new partner scarcely registered any rise in the average income.
  • Even at the highest income category, mothers reuniting with their children's father or forming a new conjugal union saw a sizeable increase in family income (46.8 percent).

In other words, one very tangible effect when lone mothers become part of a couple is a sharp rise in their family income; this is particularly true for those not working full time. However, acquiring a new partner is a complicated issue for many lone mothers, particularly those least well-off financially. By losing their entitlement to certain benefits, they could even experience a drop in disposable income; the new partner may be unwilling to contribute to another man's children, or may have child support commitments of his own outside the household.

However, as Table 6 shows, full-time employment also protects against the poverty afflicting many women raising children alone Among lone mothers who did not form a conjugal union during the period, those working full-time in 1994-95 had an average annual income of $32,700 in 1996-97. They were a good deal better off financially than those who worked part time ($22,000) or who were not in the labour force ($16,100). Moreover, the relative increase in income for lone mothers who formed a conjugal union was considerably higher among mothers who were not working (87 percent) or who were employed part-time (140 percent) than among fully employed women (60 percent). As a result, income differences between the groups of lone mothers who formed a couple decreased during the period.

Table 6
Family income 1 and percentage change for children living with their mother in 1994-95, according to her employment status in 1994-95, and her conjugal situation in 1996-97, NLSCY


Mother's employment status in 1994-95
Mother's conjugal status in 1996-97
Lone mother
Average family income 1994-95
($)
Average family income 1996-97
($)
Change
(%)
N
Working full time 31,100 32,700 5.1 690
Working part time 18,300 22,000 14.8 328
Not employed 14,900 16,100 14.8 762
TOTAL 21,800 23,600 8.3 1780


Mother's employment status in 1994-95
Mother's conjugal status in 1996-97
In a couple
Average family income 1994-95
($)
Average family income 1996-97
($)
Change
(%)
N
Working full time 32,100 51,300 59.8 155
Working part time 17,200 41,300 140.1 74
Not employed 15,500 29,000 87.1 157
TOTAL 22,500 40,300 79.1 386

1 Rounded to the nearest $100.

2.4 Summary

In this section, we have explored the relationship between family type, income levels and employment patterns. First, the cross-sectional analysis of Cycle 1 data emphasized the close association between the family type in which children live, on the one hand, and the financial resources available for their upbringing, on the other. Also highlighted was the close relationship between the number of potential income-earners in a family, the level of income and the strategies available to parents in terms of balancing income-earning with the other responsibilities of family life. The longitudinal analyses of Cycle 1 and 2 data that linked the passage from a) an intact family to a lone-parent family and b) from a lone-parent family headed by a mother to a two-parent family, confirmed the importance of the close association between family, income and employment, and clearly illustrated the impact of couple formation or dissolution on a family's financial circumstances.

In addition to the general trends, however, these analyses also reveal the great diversity in the experience of Canadian families, whether in relation to income levels, patterns of employment or the impact that family transitions have in these two areas. For example, while it is true that, generally speaking, the more parents are involved in the labour force, the higher their family income, many double-income families earn scarcely enough to make ends meet. Likewise, not all lone mothers living on a tight budget will remain in this situation for an extended period; a rise in family income will result, for some, from the labour market and, for others, from a change in their conjugal situation.

Analyzing the transition from intact family to lone-parent family suggests that the lone parent's financial circumstances after separation are closely linked to the intact family income before separation and to the way the couple shared income-earning. The wealthiest lone mothers, for instance, are those from the wealthiest intact families, and who were already fully involved in the labour force before they separated.

The next section continues this line of investigation, examining how the socio-economic status of the intact family influences the decisions that separating parents make about the physical and financial care of their children.

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