Association for Public Policy Analysis & Management

A major health shock has the potential to affect the labor supply decisions not only of those who experience the shock but also of their family members. People who experience a health shock often experience difficulty working and incur large medical expenses, both of which can impact the family budget. They may also require additional help with daily activities. Thus, spouses face a tradeoff between time spent earning income for the family and providing care for their partner. Our paper explores the impact of a health shock on spousal labor supply decisions and the role of public safety net programs in making these decisions. The health shocks we focus on are heart attacks, cancer, strokes, and the onset of a disability for individuals whose spouse is younger than age 65. We use an event study approach in which we compare the labor supply decisions of households before and after the health shock, treating the timing of the health shock as exogenous. We use data from the Panel Study of Income Dynamics from 1994 onwards, which contains information on families where at least one spouse is observed to have experienced a health shock. We then examine whether public safety net programs influence the spouse’s labor supply decision. Our findings have important implications for the health care system because spousal labor supply responses to a health shock affect a family’s reliance on informal caregiving versus formal care.