SPOUSAL LABOR SUPPLY, CAREGIVING, AND THE VALUE OF DISABILITY INSURANCE

Abstract

This article evaluates the insurance value of the Social Security Disability Insurance (SSDI) program among married households when wives face a trade-off between market hours and spousal care following their husbands' disability. Event study analyses show that wives' labor supply responses to their husbands' disability are small, and instead, a considerable amount of time is spent in spousal care. Using a dynamic structural model, I find that incorporating time loss due to spousal care increases the insurance value of SSDI relative to its costs. Finally, budget-neutral policy reforms that subsidize the cost of care can improve social welfare.