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Spousal Labor Response to Primary Income: Identification and Heterogeneity (with Elin Halvorsen and Marios Karabarbounis).
Based on administrative data from Statistics Norway, we provide a new estimate of the elasticity of spousal labor supply in response to changes in the household's primary worker's income: the so-called ``added worker effect.'' Our estimation uses the sales revenue of the primary worker's employer as an instrument to isolate primary income shifts that are orthogonal to spouse's productivity and persistent over time, both key properties to mitigate the attenuation bias typically present in empirical studies. We find an economically meaningful and statistically significant role for the spousal labor supply, especially among young, hand-to-mouth households. We show that a heterogeneous agent model with dual labor supply calibrated to the Norwegian economy successfully reproduces our empirical estimates. Using our model, we evaluate the welfare implications of various government subsidies designed to mitigate the effects of unexpected income shocks.
We propose an economic mechanism that generates asymmetric Frisch labor supply elasticities. Based on the Australian panel data (HILDA), we document two stylized facts on labor supply: (i) asymmetric distribution of hours gap between preferred and actual hours of work: a pronounced concentration of workers whose actual hours are larger than preferred ones (workers are on average over-employed), and (ii) a persistently declining age profile of preferred working hours (relative to actual hours) over the life cycle . We build a heterogeneous agent model that matches these facts and, as a result, generates asymmetric responses of hours at the aggregate level. Our results justify a use of sizeable aggregate Frisch elasticities for the business cycle analysis and, at the same time, such labor supply schedule is still compatible with small elasticities found from the studies based on tax holidays.
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