Health Shocks and Couples’ Labor Supply Decisions

Abstract

This paper explores the effect of negative health shocks, such as heart attacks or new diagnoses of chronic illnesses, on the labor supply of both the affected spouse and his or her partner. In so doing, the paper links two important strands of the retirement literature, the large literature on health and retirement and the small but growing literature modeling retirement in a family context. This paper may also be viewed as an extension of the literature on spousal labor supply as insurance against negative events, which measures whether there is an “added worker effect” when one spouse becomes sick and whether it is crowded out by public insurance programs. This work uses the first five waves of the Health and Retirement Study (HRS), a recent, nationally representative survey of the young elderly with extensive information on health, labor force status, and demographics.