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Family Labor Supply Responses to Severe Health Shocks

Author

Listed:
  • Itzik Fadlon
  • Torben Heien Nielsen

Abstract

This paper provides new evidence on how household labor supply responds to fatal and severe non-fatal health shocks in the short- and medium-run. To identify the causal effects of these shock realizations, we leverage administrative data on families' health and labor market outcomes, and construct counterfactuals to affected households by using households that experience the same shock but a few years in the future. We find that fatal health shocks lead to an immediate increase in the surviving spouses' labor supply and that this effect is entirely driven by families who experience significant income losses. Accordingly, widows, who face large income losses when their husbands die, increase their labor force participation by more than 11%; while widowers, who are significantly more financially stable, slightly decrease their labor supply. Notably, however, the patterns of sensitivity to comparable income changes are similar across genders. In contrast to fatal shocks, we find that non-fatal health shocks—in particular, heart attacks or strokes—have no meaningful effects on spousal labor supply, consistent with the adequate insurance coverage for the associated foregone income. Overall, the results point to self-insurance as a driving mechanism for the family labor supply responses that we estimate. Combined with a stylized model, our findings suggest efficient ways to target government transfers through existing social insurance programs.

Suggested Citation

  • Itzik Fadlon & Torben Heien Nielsen, 2015. "Family Labor Supply Responses to Severe Health Shocks," NBER Working Papers 21352, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21352
    Note: AG HE LS PE
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    Cited by:

    1. Aouad, Marion, 2021. "An Examination of the Intracorrelation of Family Health Insurance," IZA Discussion Papers 14541, Institute of Labor Economics (IZA).
    2. Margherita Borella & Mariacristina De Nardi & Fang Yang, 2019. "Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply?," NBER Working Papers 26097, National Bureau of Economic Research, Inc.
    3. Martin Halla & Julia Schmieder & Andrea Weber, 2020. "Job Displacement, Family Dynamics, and Spousal Labor Supply," American Economic Journal: Applied Economics, American Economic Association, vol. 12(4), pages 253-287, October.
    4. Timothy F. Harris & Aaron Yelowitz, 2017. "Nudging Life Insurance Holdings In The Workplace," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 951-981, April.
    5. Janys, L.; & Siflinger, B.;, 2019. "Abortion and mental health: The role of selection," Health, Econometrics and Data Group (HEDG) Working Papers 19/15, HEDG, c/o Department of Economics, University of York.
    6. David Autor & Andreas Kostøl & Magne Mogstad & Bradley Setzler, 2019. "Disability Benefits, Consumption Insurance, and Household Labor Supply," American Economic Review, American Economic Association, vol. 109(7), pages 2613-2654, July.
    7. Manasi Deshpande & Yue Li, 2019. "Who Is Screened Out? Application Costs and the Targeting of Disability Programs," American Economic Journal: Economic Policy, American Economic Association, vol. 11(4), pages 213-248, November.
    8. Schone, Pal & Strom, Marte, 2019. "International Labor Market Competition and Spousal Labor Supply Responses," IZA Discussion Papers 12857, Institute of Labor Economics (IZA).
    9. Cynthia Kinnan & Krislert Samphantharak & Robert Townsend & Diego Vera-Cossio, 2019. "Insurance and Propagation in Village Networks," PIER Discussion Papers 115, Puey Ungphakorn Institute for Economic Research.
    10. Molina-Domene, Maria, 2018. "Labor specialization as a source of market frictions," LSE Research Online Documents on Economics 91703, London School of Economics and Political Science, LSE Library.
    11. Andrew Goodman-Bacon & Jamein P. Cunningham, 2019. "Changes in Family Structure and Welfare Participation Since the 1960s: The Role of Legal Services," NBER Working Papers 26238, National Bureau of Economic Research, Inc.
    12. Maria Molina-Domene, 2018. "Labor specialization as a source of market frictions," CEP Discussion Papers dp1580, Centre for Economic Performance, LSE.
    13. Schøne, Pål & Strøm, Marte, 2021. "International labor market competition and wives’ labor supply responses," Labour Economics, Elsevier, vol. 70(C).

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • I1 - Health, Education, and Welfare - - Health
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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