Household Unemployment and The Labour Supply of Married Women

2017-06-07T03:55:39Z (GMT) by Bingley, Paul Walker, Ian
A recent reform to the UK Unemployment Insurance (UI) system has reduced the duration of entitlement from 12 to 6 months. The Ul and welfare systems interact in the UK in such a way that exhaustion of UI for married individuals has potentially large disincentive effects on the labour supply of spouses. A model of labour supply is estimated for married women allowing for endogenous unemployment durations of husbands and wives, using 43531 married couples drawn from UK Family Expenditure Surveys 1978-92. Evaluating the impact of the reform requires that we distinguish between transfer programme induced incentive effects and any correlation between labour supply and wages within couples, any complementarity between the leisure times of spouses, and a possibility of a discouraged worker effect. We find that shifting households with a medium duration unemployed husband from UI onto Income Support, the main UK welfare programme, increases the wife's probability of non-participation by 3.5%, mainly at the expense of part-time work. Should the husband find employment, the wife's probabilities of part-time and full-time work will increase by 2.3 and 9.0% respectively, about half of which is due to the welfare system. Thus the net effect depends on the extent to which the reform affects employment of married men directly. Evidence on the elasticity of duration with respect to UI for long durations suggests that it seems unlikely that this effect would be sufficiently strong that the net effect on married women would be beneficial.