153 Spousal Labor Response to Primary Income: Identification and Heterogeneity
- Yongsung Chang, Elin Halvorsen, Marios Karabarbounis
- sier_153.pdf
Abstract
We present a new estimate for the elasticity of spousal labor supply in response to changes in the primary worker’s income, the so-called “added worker effect.” By leveraging firmside information of the primary worker as an instrument, we isolate income changes that are uncorrelated with the spouse’s productivity, addressing endogeneity bias. We find an economically meaningful role for the spousal labor supply, especially among young households with limited financial assets. We construct a heterogeneous agent model consistent with the estimated spousal employment response to design a government transfer program that effectively mitigates the negative income shock.
Keywords: Added Worker Effect, Income Risk, Intra-household Insurance
JEL classification: E6, H2, J2