Spousal labour supply adjustments

Abstract

In this paper, we study the impact of increased generosity in the unemployment insurance system on labour supply adjustments of a spouse following the job loss of his/her partner. We exploit the longitudinal household format of the Canadian Labour Force Survey following labour force transitions of each spouse over time and estimate spousal labour supply responses arising from an added worker effect, whereby spousal labour supply increases following the partner's job loss. We study whether the additional weeks of benefits offered by the Extended Weeks (EW) pilot, an initiative of the Employment Insurance program implemented in a subset of regions, had a differential impact on spousal labour supply. We use a difference-in-difference (DiD) approach to identify (separately from the added worker effect) a crowding-out effect of EI on the spousal labour supply resulting from the greater generosity of the added benefits weeks. Our fixed-effect estimation results show a statistically significant and substantial added worker effect for married women. Our DiD results show evidence of EI crowing-out the labour supply of wives whose spouse's job loss qualifies for EI benefits. The crowding-out effect of EI diminishes about 55% of the added worker effect.