Labor Force Participation and Job Search of Households (Job Market Paper)
Abstract: In the household of a married couple, an increase in the husband's wage leads to a rise in the number of days his wife remains out of the labor force. If only one of the couple is employed, a wage increase for the employed partner lengthens the spouse's unemployment duration. Moreover, if both are employed, their wages move in the same direction. To explain these stylized facts, I construct an equilibrium model of the labor market in which a married couple jointly chooses market participation and search for and separation from a job. Calibration shows that the model can correctly account for the facts. The unified framework with endogenous market participation and frictional search is necessary to correctly predict the correlations in spouses' labor market outcomes. Using the benchmark model, I do policy experiments of unemployment insurance (UI) and the earned income tax credit (EITC). I show that generous UI can increase the employment-population ratio by mitigating married females' disincentive to participate in the labor market. I also show that the EITC increases the employment of single parents but it decreases employment of workers who belong to other types of households. In the sense of welfare, the EITC enhances welfare for all single parents, but it reduces welfare of some married parents by reducing the value of working wives.
