Economic Implications of Disintegrating Family Should Cause Profound Concern

By Lynn Wardle | April 2, 2015 | 11:01am EDT

In this May 2005 picture, Toni Gates, a 24-year-old single mother, sits in the living room of her home in Milwaukee. She works part time as a nursing assistant and earns about $500 every two weeks. "It is sort of hard to make ends meet," she said. "You've got the kids, you try to make it home and make dinner and get everything done for the next day." (AP Photo/Morry Gash)

Among the most dangerous and least discussed consequences of the revolution in family structure and family living in the United States and other post-industrial societies are the general economic dangers.  The micro-economic effects for individuals and families (significant reduction in family income for mothers and their children following divorce or abandonment) are well-known and widely discussed.  However, the macro-economic effects – the effects upon the national economy – are largely ignored.

The negative effects upon the economy are not just manifest in the costly drain on welfare systems, the criminal and juvenile justice systems, and other out-of-pocket social costs. The deleterious impacts of family disintegration upon entrepreneurism might be called the peripheral effects because they have been in the shadows.

For example, in “Toward a Theory of Family Capital and Entrepreneurship: Antecedents and Outcomes,” the authors, W. Gibb Dyer, Elizabeth Nenque, & E. Jeffrey Hill, propose that family capital—in human, social, and financial forms—influences entrepreneurial activity.  Families are often the most accessible (or only available) potential sources of financial support for entrepreneurs.  Dyer, et al, show that there is a strong relationship between family capital and entrepreneurial activity and outcomes based upon (1) family patterns, (2) family capital, and (3) entrepreneurial outcomes. Among the family demographic variables that affect the formation and transfer of family capital in support of entrepreneurial ventures are marriage rates, fertility rates, cohabitation rates, divorce rates, and out-of-wedlock birthrates.

According to “Chapter 8: The role of family capital in necessity entrepreneurship,” in “Necessity Entrepreneurs,” “‘Family capital’ is the human, social, and financial resources that are available to individuals or groups as a result of family affiliation.”  Individuals from families that have never formed or have dissolved are less likely to have access to “family capital” to help them begin and progress in their businesses, careers, professions and income-production.

In light of the demonstrated connections between intra-family financial transfers, entrepreneurial activity and family demographics, the economic implications of falling rates of marriage and marital fertility, and rising (or steady high) rates of nonmarital cohabitation, nonmarital births and marital dissolutions should be of profound concern to those interested in protecting the economy.  As Gibbs, et al, note:

“[Some] individuals start businesses out of necessity – they lose a job, a family member who was providing income becomes sick, or their nation's economy cannot provide enough employment opportunities for all its citizens. [Sometimes,] out of necessity, these individuals launch a new business – often with just themselves as the only employee. These 'necessity entrepreneurs' often have greater difficultly gaining access to the resources they need. … However, most necessity entrepreneurs can access one form of capital that can help them succeed – family capital.”

Such “family capital” can not only be a supplemental source of financing or investment, but it can be the only source for some entrepreneurs who may lack the collateral or experience or borrowing history or business experience to qualify for investments or business loans under ordinary commercial lending standards.

However, individuals whose parents have divorced or whose families are otherwise fragmented, fragile and insecure are less likely to have access to this important alternative funding resource -- “family capital.” Divorced families not only have fewer resources to offer their members who are starting businesses or careers than intact married families but they also may have less committed, current, altruistic familial relations to motivate risky investments, loans and gifts.

Recent disintegrative trends in family formation (e.g., fewer marriages, more cohabitation), family living (reduced fertility rates, raising children out of wedlock), and family stability (i.e., high divorce rates, and unprecedented rates of out-of-wedlock births) have diminished the amount of family capital that is available in the United States and elsewhere.

“For example, and the resultant decline in entrepreneurial achievements and success. The age at first marriage in the United States has increased for men (and women) from 22.5 (20.5) in 1970, to 25.5 (23.7) in 1988, to 28.4 (26.5) in 2009. Today individuals are older before gaining access to marital family capital.  In addition, overall marriage rates have decreased from 76.5 marriages per 1,000 unmarried women in 1970 to 61.4 in 1980 to the latest figure of 36.0 in 2009 (Wilcox, Marquardt, Popenoe, Whitehead, 2010).”

Dyer, et al, supra.

These family demographic trends showing increased disintegration of families foreshadow a decline in the availability of family capital.  The rising generation will have fewer family resources available to them when they attempt to start their own economic enterprises than any prior generation of Americans had.

As families fail to form or disintegrate, the resource of “family capital” dries up.  Children from such fragmented families are deprived of that important start-up support and resource.  Not only do family fragmentation and dissolution disadvantage economically and in networking loss the individuals in such families, but the national economy is diminished and deprived of the contributions, allocations, ventures, investments, loans, quests and expansions as well.

So the disintegration of families has significant public economic costs and losses as well as private economic losses and lost opportunities.  Family breakdown is not merely a private concern.  It affects the economic welfare of our entire society and the whole marketplace.

Lynn D. Wardle is the Bruce C. Hafen Professor of Law at Brigham Young University.  He is author or editor of numerous books and law review articles mostly about family, biomedical ethics and conflict of laws policy issues. His publications present only his personal (not institutional) views.

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