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Job Displacement, Family Dynamics, and Spousal Labor Supply

by Martin Halla (JKU Linz), Julia Schmieder (DIW), and Andrea Weber (CEU).

"The impact of husbands losing their jobs on wives entering the workforce is weak in Austria compared to other countries. This may be explained by gender roles, preferences for time spent with children, and availability of formal childcare."

Mass layoffs and firm closures are instances that give rise to unexpected and large shocks to affected workers with persistent negative consequences in terms of employment and earnings. Marriage can provide the possibility to share these risks and to attenuate shocks: if one partner is unexpectedly affected by an income loss, the other partner can increase her labor supply to prevent a drop in household income. The desire to raise a family and gender norms might, however, interfere with the risk-sharing potential by limiting the flexibility of spouses to respond. In our recently published paper we disentangle the roles of different channels in the responses to income shocks within married households. We study a sample of couples in Austria, where the husband loses his job due to a mass layoff or plant closure.

 Our main results show that husbands suffer large and persistent employment and earnings losses over the first five years after displacement. In the top of the Figure, we see that immediately after the job displacement, the employment of husbands drops by more than 30 percent. We see a rapid recovery in subsequent quarters, which stalls after about three to four years. At the same time, wives' labor supply increases only moderately and they respond predominantly by moving into employment. As illustrated in the bottom of the Figure, wives of displaced husbands increase their employment on average by about one percentage point after displacement. The additional income earned by the wife is very small compared to the income loss of the husband. Public transfers and taxes are more important insurance mechanisms, at least in the short term. The labor supply of wives with children under the age of three does not react at all to husbands’ job displacement. Potential explanations are the lack of childcare facilities and social norms with respect to gender roles. The latter is consistent with data from the European Values Study: A high proportion of Austrians believe that a young child is likely to suffer if his or her mother works.

Figure: Effect of a husband’s job displacement on his (panel 1) and his wife’s (panel 2) employment

Notes: These figures plot the effect of a husband’s job displacement on his (top) and his wife’s (bottom) likelihood to be employed in the twenty quarters before and after the job displacement with 95% confidence intervals. We compare couples with displaced husbands to a control group of observationally similar couples.

We contribute to the large literature on family labor supply and the long-term effects of job displacement by providing quasi-experimental evidence on the effects of job displacement on labor supply of couples. We also contribute to the emerging literature on the role of gender norms in shaping labor market outcomes. Based on our findings, we identify different policies that might strengthen the intra-household insurance channel. Policies that aim to help mothers re-entering the labor market after a maternity period, for example by expanding subsidized child care, are important. Measures to increase fathers' involvement in child care at home, for example by reserving part of the parental leave for fathers (“daddy months”), should also be considered. These could also entail changes in social norms regarding gender roles in childcare.

The full paper is published as Halla, Martin, Julia Schmieder, and Andrea Weber (2020). Job Displacement, Family Dynamic, and Spousal Labor Supply. American Economic Journal: Applied Economics 12(4): 253–287, 2020.

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