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Health shocks and household allocation of time and spending

Author

Listed:
  • Federico Zilio

    (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)

  • Yuting Zhang

    (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)

  • Ross Hickey

    (University of British Columbia)

  • Ted McDonald

    (University of New Brunswick)

  • Eric Sun

    (Stanford University School of Medicine)

Abstract

Using the Household Income and Labour Dynamics in Australia data, we study changes in household allocation of time and spending when a family member experiences a health shock. Applying an event study design, we document that health shocks increase household expenditures and time spent in home production activities that are complements for healing and reduce those that are substitutes. Medical expenditures and spousal caregiving time rise; while spending on alcohol, a good that detracts from healing, declines. Labour supply of the ill person decreases at both the intensive and extensive margin. As the ill person’s labour supply declines, we find an increase in consumption of complements for staying at home, such as spending on household utilities and time for housework by the unaffected spouse. Although the fall in earnings is partially offset by worker compensation and social security payments, the inability to cut total spending results in a higher proportion of individuals reporting financial stress.

Suggested Citation

  • Federico Zilio & Yuting Zhang & Ross Hickey & Ted McDonald & Eric Sun, 2024. "Health shocks and household allocation of time and spending," Melbourne Institute Working Paper Series wp2024n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2024n04
    as

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    File URL: https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0008/4942745/wp2024n04v2.pdf
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    References listed on IDEAS

    as
    1. Lixin Cai & Kostas Mavromaras & Umut Oguzoglu, 2014. "The Effects Of Health Status And Health Shocks On Hours Worked," Health Economics, John Wiley & Sons, Ltd., vol. 23(5), pages 516-528, May.
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    4. Terence C. Cheng & Jing Li & Rhema Vaithianathan, 2019. "Monthly spending dynamics of the elderly following a health shock: Evidence from Singapore," Health Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 23-43, January.
    5. Carlos Acuña & Héctor Acuña & Diego Carrasco, 2019. "Health shocks and the added worker effect: a life cycle approach," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 273-286, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    health shocks; household behaviour; time use; spending; consumption;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • I10 - Health, Education, and Welfare - - Health - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation

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