Health Shocks and Couples' Labor Supply Decisions

34 Pages Posted: 18 Oct 2004 Last revised: 17 Jul 2022

See all articles by Courtney Coile

Courtney Coile

Wellesley College; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

Unexpected health events such as a heart attack or new cancer diagnosis are very common for workers in their 50s and 60s. These health shocks can result in a significant loss in family income if the worker reduces labor supply, but the family can also protect itself against this loss if the worker's spouse increases labor supply, generating an "added worker effect." In this paper, I examine the effect of health shocks on the labor supply of both spouses using the Health and Retirement Study (HRS). I find that shocks lead the affected worker to reduce labor supply dramatically, particularly if the shock is accompanied by a loss of functioning. I also find that the added worker effect is small for men and that there is no such effect for women. There is some evidence to suggest that families respond to health shocks in predictable ways depending on characteristics such as access to retiree health insurance. The study concludes that health shocks result in real financial losses for families and are an important source of financial risk for older households.

Suggested Citation

Coile, Courtney, Health Shocks and Couples' Labor Supply Decisions (October 2004). NBER Working Paper No. w10810, Available at SSRN: https://ssrn.com/abstract=601112

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