Job loss, consumption insurance, and household time allocation

Abstract

This study examines how married households respond to negative income shocks resulting from the husband’s job loss, focusing on both monetary insurance channels and changes in the time use of husbands and wives. Using a unique Japanese panel dataset, the empirical analysis shows that the husband’s involuntary job loss leads to significant and persistent declines in his labor earnings. However, the impact on household consumption expenditure is considerably smaller, with only about one-fifth of the income shock transmitted to consumption, suggesting that a substantial amount of monetary insurance is at work. In the short run, unemployment benefits play a crucial role in mitigating the shock, while the wife’s labor supply becomes important in the long run, especially for households where the wife was not employed full-time before the job loss. Additionally, husbands significantly increase their time spent on home production following job loss, and this effect persists for at least three years.