Who Picks Up the Slack? Understanding Spousal Responses to Unemployment Spells

Abstract

We use a large panel of married households to update estimated added worker effects. In response to a primary earner's job loss, secondary earners are 3 percentage points more likely to work and compensate for 6% of the displaced worker's lost earnings. When a secondary earner is displaced, spousal labor force participation is unchanged but there is a substantial earnings reduction. These small compensatory responses are explained by an increased probability that the nondisplaced spouse exits employment, either through correlated unemployment shocks or retirement. Conditional on relative-earner status within the couple, the gender-based differences in added worker effects are small.

JEL Classification: D13, H31, J60