Osaka Workshop on Economics of Institutions and Organization (#156)

Female labor is widely recognized as one of the most important consumption insurance mechanisms for a household facing income risks. Despite its acknowledged importance, our empirical evidence, based on data from the Panel Study of Income and Dynamics (PSID), demonstrates that a significant proportion of U.S. households encounter limitations in their ability to use both intensive and extensive margins of female labor supply as insurance when the male household head confront with an unemployment shock. One common constraint on the intensive margin pertains to the current wife’s working hours beyond which households find it difficult to make flexible adjustments. A critical constraint on the extensive margin relates to the age and number of children in the household. The presence of such constraints on the female labor supply often leads to precautionary savings as an alternative insurance, potentially resulting in lower consumption. This study examines the welfare cost of constraints on female labor supply, shedding light on the potential welfare gains achievable by easing these restrictions through policy interventions. Abstract：Dongya Koh