IDEAS home Printed from https://ideas.repec.org/a/spr/jopoec/v27y2014i3p767-796.html
   My bibliography  Save this article

Wage shocks, household labor supply, and income instability

Author

Listed:
  • Sisi Zhang

Abstract

Do married couples make joint labor supply decisions in response to each other’s wage shocks? The study on this question aids in understanding the link between the rising income instability and household insurance. Existing studies on household insurance either focus on consumption smoothing and take labor supply as a given, or only focus on wife’s labor responses to husband’s unemployment shocks. This article develops an intra-household insurance model that allows for insurance against permanent and transitory wage shocks from both partners. Estimation using the Survey of Income and Program Participation shows that wife increases labor supply in response to husband’s adverse wage shocks when both of them are working, and wife gets more nonlabor income when she is out of work. This intra-household insurance reduces earnings instability by about 2 to 9 %. These results suggest that joint labor supply decisions provide an extra smoothing effect on income instability. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Sisi Zhang, 2014. "Wage shocks, household labor supply, and income instability," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(3), pages 767-796, July.
    • Handle: RePEc:spr:jopoec:v:27:y:2014:i:3:p:767-796
    DOI: 10.1007/s00148-014-0507-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00148-014-0507-y
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s00148-014-0507-y?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richard Blundell & Ian Walker, 1986. "A Life-Cycle Consistent Empirical Model of Family Labour Supply Using Cross-Section Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(4), pages 539-558.
    2. Jeremy Lise & Shannon Seitz, 2011. "Consumption Inequality and Intra-household Allocations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 328-355.
    3. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    4. Benoît Rapoport & Catherine Sofer & Anne Solaz, 2011. "Household production in a collective model: some new results," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(1), pages 23-45, January.
    5. Frederic Vermeulen, 2006. "A collective model for female labour supply with non-participation and taxation," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(1), pages 99-118, February.
    6. Bernarda Zamora, 2011. "Does female participation affect the sharing rule?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(1), pages 47-83, January.
    7. Peter Gottschalk, 2005. "Downward Nominal-Wage Flexibility: Real or Measurement Error?," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 556-568, August.
    8. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
    9. Denise Doiron & Silvia Mendolia, 2012. "The impact of job loss on family dissolution," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(1), pages 367-398, January.
    10. HansG. Bloemen, 2010. "An Empirical Model of Collective Household Labour Supply with Non-Participation," Economic Journal, Royal Economic Society, vol. 120(543), pages 183-214, March.
    11. Orazio P. Attanasio & Nicola Pavoni, 2011. "Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption," Econometrica, Econometric Society, vol. 79(4), pages 1027-1068, July.
    12. Guy Lacroix & Natalia Radtchenko, 2011. "The changing intra-household resource allocation in Russia," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(1), pages 85-106, January.
    13. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
    14. Richard Blundell & Pierre-Andre Chiappori & Thierry Magnac & Costas Meghir, 2007. "Collective Labour Supply: Heterogeneity and Non-Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 417-445.
    15. Donni, Olivier, 2003. "Collective household labor supply: nonparticipation and income taxation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1179-1198, May.
    16. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    17. Shin, Donggyun & Solon, Gary, 2011. "Trends in men's earnings volatility: What does the Panel Study of Income Dynamics show?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 973-982, August.
    18. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
    19. Pierre-Andre Chiappori & Bernard Fortin & Guy Lacroix, 2002. "Marriage Market, Divorce Legislation, and Household Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 37-72, February.
    20. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-1198, December.
    21. Carneiro, Pedro & Lee, Sokbae, 2009. "Estimating distributions of potential outcomes using local instrumental variables with an application to changes in college enrollment and wage inequality," Journal of Econometrics, Elsevier, vol. 149(2), pages 191-208, April.
    22. Dynan Karen & Elmendorf Douglas & Sichel Daniel, 2012. "The Evolution of Household Income Volatility," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(2), pages 1-42, December.
    23. Chiappori, Pierre-Andre, 1992. "Collective Labor Supply and Welfare," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 437-467, June.
    24. Marcus Eliason, 2012. "Lost jobs, broken marriages," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(4), pages 1365-1397, October.
    25. Thomas Aronsson & Sven-Olov Daunfeldt & Magnus Wikström, 2001. "Estimating intrahousehold allocation in a collective model with household production," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(4), pages 569-584.
    26. repec:bla:econom:v:68:y:2001:i:270:p:157-85 is not listed on IDEAS
    27. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages 68-73, March.
    28. Chinhui Juhn & Simon M. Potter, 2007. "Is there still an added-worker effect?," Staff Reports 310, Federal Reserve Bank of New York.
    29. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    30. Molly Dahl & Thomas DeLeire & Jonathan A. Schwabish, 2011. "Estimates of Year-to-Year Volatility in Earnings and in Household Incomes from Administrative, Survey, and Matched Data," Journal of Human Resources, University of Wisconsin Press, vol. 46(4), pages 750-774.
    31. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    32. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
    33. Miki Kohara, 2010. "The response of Japanese wives’ labor supply to husbands’ job loss," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(4), pages 1133-1149, September.
    34. Cullen, Julie Berry & Gruber, Jonathan, 2000. "Does Unemployment Insurance Crowd Out Spousal Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 546-572, July.
    35. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 857-895.
    36. Robert A. Moffitt & Peter Gottschalk, 2012. "Trends in the Transitory Variance of Male Earnings: Methods and Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 47(1), pages 204-236.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Donni, Olivier & Molina, José Alberto, 2018. "Household Collective Models: Three Decades of Theoretical Contributions and Empirical Evidence," IZA Discussion Papers 11915, Institute of Labor Economics (IZA).
    2. Julio Guzman, 2014. "Social Protection and Private Coping Strategies During Recessions: Evidence from Chile," Working Papers wp_041, Adolfo Ibáñez University, School of Government.
    3. Bautista Lacambra, Sergio, 2020. "Household labor supply: Collective results for certain developed countries," MPRA Paper 101514, University Library of Munich, Germany.
    4. Zhu, Mengbing & Xing, Chunbing & Li, Yi, 2023. "Husbands' wages and married women's labor supply in urban China," China Economic Review, Elsevier, vol. 82(C).
    5. Salmon, Claire & Tanguy, Jeremy, 2016. "Rural Electrification and Household Labor Supply: Evidence from Nigeria," World Development, Elsevier, vol. 82(C), pages 48-68.
    6. Santoso, Rokhedi Priyo & Sriyana, Jaka, 2020. "The Effect of Idiosyncratic Shocks on Labor Market Outcomes of Informal Households in Indonesia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(2), pages 13-27.
    7. Henry R. Hyatt, 2015. "Co-Working Couples and the Similar Jobs of Dual-Earner Households," Working Papers 15-23, Center for Economic Studies, U.S. Census Bureau.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiappori, Pierre-André & Donni, Olivier, 2009. "Non-unitary Models of Household Behavior: A Survey of the Literature," IZA Discussion Papers 4603, Institute of Labor Economics (IZA).
    2. Donni, Olivier & Molina, José Alberto, 2018. "Household Collective Models: Three Decades of Theoretical Contributions and Empirical Evidence," IZA Discussion Papers 11915, Institute of Labor Economics (IZA).
    3. Chiappori, Pierre-André & Donni, Olivier, 2006. "Les modèles non unitaires de comportement du ménage : un survol de la littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(1), pages 9-52, mars-juin.
    4. Olivier Donni & Eleonora Matteazzi, 2018. "Collective decisions, household production, and labor force participation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(7), pages 1064-1080, November.
    5. Rana Hendy & Catherine Sofer, 2010. "A Collective Model of Female Labor Supply : Do Distribution Factors Matter in the Egyptian Case ?," Post-Print halshs-00482492, HAL.
    6. Robert Moffitt & John Abowd & Christopher Bollinger & Michael Carr & Charles Hokayem & Kevin McKinney & Emily Wiemers & Sisi Zhang & James Ziliak, 2022. "Reconciling Trends in U.S. Male Earnings Volatility: Results from Survey and Administrative Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 1-11, December.
    7. Berulava George & Chikava George, 2011. "The Determinants of Household Labor Supply: A Comparative Study," EERC Working Paper Series 11/13e, EERC Research Network, Russia and CIS.
    8. Olivier Donni & Eleonora Matteazzi, 2012. "On the Importance of Household Production in Collective Models: Evidence from U.S. Data," Annals of Economics and Statistics, GENES, issue 105-106, pages 99-125.
    9. André de Palma & Nathalie Picard & Ignacio Inoa, 2014. "Discrete choice decision-making with multiple decision-makers within the household," Chapters, in: Stephane Hess & Andrew Daly (ed.), Handbook of Choice Modelling, chapter 16, pages 363-382, Edward Elgar Publishing.
    10. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1789-1891, Elsevier.
    11. Cappellari, Lorenzo & Jenkins, Stephen P., 2014. "Earnings and labour market volatility in Britain, with a transatlantic comparison," Labour Economics, Elsevier, vol. 30(C), pages 201-211.
    12. Hryshko, Dmytro & Juhn, Chinhui & McCue, Kristin, 2017. "Trends in earnings inequality and earnings instability among U.S. couples: How important is assortative matching?," Labour Economics, Elsevier, vol. 48(C), pages 168-182.
    13. André de Palma & Nathalie Picard & Robin Lindsey, 2024. "Activity and transportation decisions within households," Chapters, in: Stephane Hess & Andrew Daly (ed.), Handbook of Choice Modelling, chapter 16, pages 426-451, Edward Elgar Publishing.
    14. Molina, José Alberto & Gimenez-Nadal, José Ignacio & Velilla, Jorge, 2018. "Intra-Household Wealth and Welfare Inequality in the US: Estimations from a Collective Model of Labor Supply," IZA Discussion Papers 11707, Institute of Labor Economics (IZA).
    15. Olivier Bargain & Miriam Beblo & Denis Beninger & Richard Blundell & Raquel Carrasco & Maria-Concetta Chiuri & François Laisney & Valérie Lechene & Nicolas Moreau & Michal Myck & Javier Ruiz-Castillo , 2006. "Does the Representation of Household Behavior Matter for Welfare Analysis of Tax-benefit Policies? An Introduction," Review of Economics of the Household, Springer, vol. 4(2), pages 99-111, June.
    16. Bloemen, Hans, 2010. "Income Taxation in an Empirical Collective Household Labour Supply Model with Discrete Hours," IZA Discussion Papers 4697, Institute of Labor Economics (IZA).
    17. Alexandros Theloudis & Jorge Velilla & Pierre-André Chiappori & J. Ignacio Gimenéz-Nadal & José Alberto Molina, 2022. "Commitment and the Dynamics of Household Labor Supply," Working Papers 2022-042, Human Capital and Economic Opportunity Working Group.
    18. Robert Moffitt & Sisi Zhang, 2018. "Income Volatility and the PSID: Past Research and New Results," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 277-280, May.
    19. GholamReza Haddad, 2015. "Gender ratio, divorce rate, and intra-household collective decision process: evidence from iranian urban households labor supply with non-participation," Empirical Economics, Springer, vol. 48(4), pages 1365-1394, June.
    20. Kyong Hyun Koo, 2016. "The Evolution of Earnings Volatility During and After the Great Recession," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(4), pages 705-732, October.

    More about this item

    Keywords

    Household labor supply; Collective model; Permanent shocks; Transitory shocks; Income instability; D12; D13; D81; J22;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jopoec:v:27:y:2014:i:3:p:767-796. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.