Spousal Labor Response to Primary Income: Identification and Heterogeneity

Yongsung Chang, Elin Halvorsen () and Marios Karabarbounis
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Elin Halvorsen: https://www.ssb.no/en/forskning/ansatte/elin-halvorsen

No 25-13, Working Paper from Federal Reserve Bank of Richmond

Abstract: We present a new estimate for the elasticity of spousal labor supply in response to changes in the primary worker's income, the so-called "added worker effect." By leveraging firm-side information of the primary worker as an instrument, we isolate income changes that are uncorrelated with the spouse's productivity, addressing endogeneity bias. We find an economically meaningful role for the spousal labor supply, especially among young households with limited financial assets. We construct a heterogeneous agent model consistent with the estimated spousal employment response to design a government transfer program that effectively mitigates the negative income shock.

Keywords: employment and labor markets; household and consumer finance (search for similar items in EconPapers)
JEL-codes: E60 H20 J20 (search for similar items in EconPapers)
Pages: 51
Date: 2025-11-20
New Economics Papers: this item is included in nep-dge and nep-lma
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DOI: 10.21144/wp25-13

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