How important is intra-household risk sharing for savings and labor supply?

Abstract

While it is recognized that the family is primarily an institution for risk sharing, little is known about the quantitative effects of this informal source of insurance on savings and labor supply. In this paper, we present a model where workers (females and males) are subject to idiosyncratic employment risk and where capital markets are incomplete. A household is formed by a female and a male, who make collective decisions on consumption, savings and labor supplies. We find that intra-household risk sharing has its largest impact among wealthpoor households. While the wealth-rich use mainly savings to smooth consumption across unemployment spells, wealth-poor households rely on spousal labor supply. For instance, for low-wealth households, average hours worked by wives of unemployed husbands are 8% higher than those worked by wives of employed husbands. This response in wives' hours makes up 9% of lost family income. We also study the crowding out effects of public unemployment insurance on other sources of private insurance, and consumption losses upon an unemployment spell.

Families and social security

“…They are also in line with other papers that highlight the insurance role of families such as Brown and Poterba (2000) or Ortigueira and Siassi (2013). It also sheds more light on the role of home production an issue which has just recently deserved increasing attention, see Guler and Taskin (2013) or Dotsey, Lin and Yang (2015).…”

“…First, couples realize economies of scale in consumption and benefit from specialization in market and home labor, so that life-cycle labor supply and savings as well as liquidity constraints may differ substantially from their single counterparts. Second, as already discussed by Attanasio et al (2005), Ortigueira and Siassi (2013), Kotlikoff and Spivak (1981) and Brown and Poterba (2000), marriage can provide insurance against labor market and longevity risk and therefore substitute (at least partly) for social security. Third, specific features of the social security system such as survivors benefits or supplementary benefits to one-earner couples may redistribute resources from singles towards couples.…”

Husband's Unemployment and Wife's Labor Supply The Added Worker Effect Across Europe

“…For the US, Cullen and Gruber (2000) find that the added worker affect is partly crowded out by unemployment benefits and that the labor supply response of females whose husbands became unemployed would be 30 percent larger in the absence of these benefits. Ortigueira and Siassi (2013) come to a similar conclusion and further show that the crowding-out effect of unemployment insurance is stronger among liquidity-constrained households.…”

“…Previous empirical literature on this topic mainly concentrates on a single country and provides mixed results. These might be explained by the crowding-out effect of the countries' unemployment insurance (Cullen and Gruber, 2000;Ortigueira and Siassi, 2013) or by individual unobserved heterogeneity obscuring the added worker effect (Maloney, 1991). Cross-country evidence on the added worker effect, however, is scarce (exceptions are McGinnity, 2002;Prieto-Rodriguez and Rodriguez-Gutierrez, 2003).…”

How to Raise Household Savings in LAC: Constraints and Best Practices

“…Ortigueira and Siassi (2013) build a model where female and male workers are subject to idiosyncratic labor shocks and where capital markets are incomplete to evaluate the role of savings and labor supply as an insurance mechanism within the household. Upon a sudden unemployment spell, two-person households with liquidity constraints face smaller reductions in consumption when compared to their singleperson counterparts: while the former see their consumption reduced by 17 percent of their income, the latter experience a 36 percent reduction of consumption.…”