The Insurance Role of Household Labor Supply for Older Workers

Abstract

In this paper, we explore and compare how older and younger couple households use adjustments in the wife’s labor supply to mitigate the effects of negative shocks to the husband’s employment status. Using difference-in-differences matching methods, we document a substantial added worker effect for younger households. However, the wives of older men do not increase employment in response to their husbands’ negative employment shocks. Instead, in older households, female unemployment increases. These results are consistent with older women being constrained by the labor market in the extent to which they can adjust their labor supply to mitigate the effects of spousal employment shocks. Our findings suggest that spousal labor supply is not an effective intra-household insurance device for older households.

Keywords: Added worker effect, Household labor supply, Unemployment, Retirement, Aging, Older workers, Employment risk, Intra-household insurance, Propensity score matching

JEL Classification: J14, J26, J63, J64