The Economics of Cohabitation

Union formation behavior has undergone vast changes over the past 25 years in virtually all Western countries. Key components of the change have been the increase in cohabitational unions and the decline in the marriage rate. Although this has important implications for both household and market production activities, no previous economic studies have focused explicitly on cohabitation. This paper develops an economic model of cohabitational demand based on the standard theory of consumer choice. Regression analysis of United States’ data aggregated at the state level provides support for this economic model. Specifically, it suggests that the increased labor force participation of women has generated a higher level of demand for the greater flexibility offered by cohabitational unions relative to formal marriage.