Paying Wives Not To Work
January 18, 2001
Many economists believe that unemployment insurance (UI) discourages people from delaying looking for work until their benefits are exhausted. Furthermore, a recent study suggests that unemployment insurance discourages spouses from working as well. Using data covering the mid-1980s to the mid-1990s, the study tests the impact of UI on spousal labor supply decisions in the United States.
The study finds that the crowd-out effect of UI is very large. The authors estimate:
- In the absence of UI, wives' total hours of work would rise by 30 percent during their husbands' spells of unemployment.
- Only 62 percent of wives of unemployed men are generally employed when UI is present, but as many as 79 percent would be working if it were abolished.
- For each dollar in UI benefits received each week, wives earn as much as 70 cents less.
- An increase in UI benefits of $100 per week reduces the labor supply by 5 hours per month.
The more generous the benefits, the less work wives do. If benefits are extremely lavish, wives may quit their jobs entirely and remove themselves from the workforce.
Source: "UI and Spousal Labor Supply," Economic Intuition, Fall 2000; based on Julie Berry Cullen and Jonathan Gruber, "Does Unemployment Insurance Crowd Out Spousal Labor?" Journal of Labor Economics, July 2000.
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