Intra-household risk sharing and job search over the business cycle

Abstract

This paper studies the extent to which working couples can insure one another against cyclical fluctuations in the labor market and examines the implications of joint household decision-making for cyclical fluctuations in the unemployment rate. For this purpose, I provide a dynamic life-cycle model of households that make joint savings and job search decisions in the presence of aggregate shocks. I show that two key mechanisms are at play. The first is the added-worker effect, which leads to counter-cyclical search intensity because workers increase search intensity when their spouse becomes unemployed. The second is the comparative advantage effect, according to which couples' job search efforts are coordinated based on the relative returns to search of each spouse. I estimate the model using data from the US Current Population Survey, and find that joint household decision-making contributes to the counter-cyclicality of women's unemployment rate, but not for men. Moreover, joint household decision-making lowers the welfare costs of cyclicality.

From Mancession to Shecession: Women's Employment in Regular and Pandemic Recessions

“…Ellieroth (2019) analyzes the quantitative importance of family insurance over the business cycle using a joint-search model. Other contributions to the literature on women's employment and household decision-making within macroeconomics include Greenwood, Seshadri, and Yorukoglu (2005), Ortigueira and Siassi (2013), Doepke and Tertilt (2016), Mankart and Oikonomou (2017), Borella, De Nardi, and Yang (2018), Mennuni (2019), Olsson (2019), andWang (2019). 3 In addition, Albanesi andŞahin (2018) and Coskun and Dalgic (2020) note the impact that the gender breakdown of employment in various industries has on the contrasting cyclicality of male and female employment.…”

The Effect of Business Legal Form on the Perception of COVID-19-Related Disruptions by Households Running a Business

“…Second is the inter-household risk-sharing, where larger communities of households take part in risk-sharing and that acts as a supplement to self-insurance via precautionary savings. It is well evidenced that intra-household risk sharing is commonly practiced and leads to the desired outcomes, e.g., lower vulnerability of households to sudden unemployment, income losses and cyclicality (Haan and Victoria 2017;Mankart and Oikonomou 2017;Wang 2019). Intra-household risk-sharing seems to be an obvious solution in face of a turbulent environment due to close ties among household-members, smooth communication and goal sharing.…”