Job Displacement, Family Dynamics and Spousal Labor Supply

79 Pages Posted: 17 Sep 2018

See all articles by Martin Halla

Martin Halla

Johannes Kepler University Linz - Department of Economics; IZA Institute of Labor Economics

Julia Schmieder

German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Andrea Weber

Vienna University of Economics and Business; Austrian Institute of Economic Research (WIFO); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: August 2018

Abstract

We study interdependencies in spousal labor supply and the effectiveness of intrahousehold insurance in a sample of married couples, where the husband loses his job due to a mass layoff or plant closure using data from the Austrian Social Security Database. We show that in our sample of relatively young couples the shock hits households at crucial stages of family formation, which requires careful modeling of the wives' counterfactual lifecycle labor market patterns. In our empirical analysis, we propose three independent control groups of unaffected households to identify the causal effects of husbands' displacement on wives' labor supply. Our empirical results show that husbands suffer large and persistent employment and earnings losses over the first 5 years after displacement. But wives' labor supply increases only moderately and they respond predominantly at the extensive margin. The implied participation elasticity with respect to the husband's earnings shock is very small, about -0:04. While the wives' earnings gains recover only a tiny fraction of the household income loss, public transfers and taxes are a more important insurance at least in the short run. In terms of non-labor market related outcomes, we find a small positive effect on the probability of divorce, but no effect of the husband's job displacement on fertility. The presence and ages of children in the household are crucial determinants of the wife's labor supply response. The most responsive group are mothers, who are planning to return to the labor market after a maternity break, while mothers of very young children or wives without children remain unresponsive. We thus conclude that Austria's strong gender identity norms are an explanation for the limited scope of intra-household insurance.

Keywords: firm events, household labor supply, intra-household insurance, added worker effect

JEL Classification: D19, J22, J65

Suggested Citation

Halla, Martin and Schmieder, Julia and Weber, Andrea Michaela, Job Displacement, Family Dynamics and Spousal Labor Supply (August 2018). IZA Discussion Paper No. 11752. Available at SSRN: https://ssrn.com/abstract=3249866

Martin Halla

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Julia Schmieder (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Andrea Michaela Weber

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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