Working Paper Revision

Spousal Labor Supply Response to Job Displacement and Implications for Optimal Transfers

Abstract: I document a limited spousal earnings response to job displacement of the family head. Using cross-state differences in transfers, I show that the main reason behind this finding is the crowding-out effects of transfers. To study the implications of this interaction between public and private insurance, I develop an incomplete markets model with a frictional labor market, family labor supply, and aggregate shocks. The optimal policy prescribes less generous means-tested and more generous employment-tested transfers, whereas current U.S. policy offers the opposite. The optimal policy mix substantially changes when the model abstracts from the interaction between public and private insurance.

JEL Classification: E24; E32; H31; J64;

https://doi.org/10.20955/wp.2019.020

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2026-03-04

Number: 2019-020

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