Regional Oil-shock and Household Adaption
31 Pages Posted: 9 Mar 2021
Date Written: January 13, 2021
In this paper we take advantage of an economic shock that generated a substantial exogenous change in the demand for labor in some specific local labor markets. The shock we exploit is the collapse in the oil-price in 2014. We analyze how this shock affected a broad set of outcomes for men and women. Oil and oil-related industries are typically heavily male-dominated industries; consequently a negative shock, may affect men and women differently. The results show that husbands in the exposed regions experience a large negative and sustained wage shock, equal to almost 10 percent in the last year of observation. Predictions from economic theories on household adaption would predict that wives would increase their labor supply as a response. We find no support for such predictions; wives do also experience negative wage development in the aftermath of the oil-shock. However, results suggest that the lack of compensatory behavior is masked by limitations on the demand side. Investigating this issue, we find indicative evidence of compensatory behavior from the wife. The welfare state compensate some the households’ wage loss, but only a small portion. The negative demand shock does not seem to create frictions in the households, with respect to marital stability and number of children.
Keywords: household labor supply, added worker effect
JEL Classification: D19, J22, J65
Suggested Citation: Suggested Citation