Health and Work in the Family: Evidence from Spouses' Cancer Diagnoses
Health and Work in the Family: Evidence from Spouses' Cancer Diagnoses
Tuesday, June 14, 2016: 8:30 AM
G50 (Huntsman Hall)
Changes in health status may affect not just the individuals who experience such changes but also their family members. For example, if the main earner in a family loses his or her ability to generate income due to a health shock, it invariably affects the financial situation of the spouse and other dependents. In addition, spouses and working-aged children may themselves increase or reduce their labor supply to make up for the lost income (“added worker effect”) or care for a sick family member (“caregiver effect”). Since consumption smoothing and self-insurance occur at the household level, the financial effects of health for other family members have important policy implications. To shed light on such effects, we analyze how one spouse’s cancer diagnosis affects the employment and earnings of the other spouse and total family income using linked tax return and cancer registry data from Canada. The study combines matching methods with a generalized difference-in-differences (DID) strategy to control for observed and unobserved heterogeneity. Therefore, we can interpret the estimation results in a causal manner, which is essential for an informed policy discussion.
The study finds that both men and women reduce their employment rates by about 2.5 percentage points in the years following their spouses’ cancer diagnosis. Since women have lower average employment rates, this decrease represents a larger relative decline for them. Furthermore, annual earnings decrease by about $2,000 (3.5 percent) for men and $1,500 (6 percent) for women. Finally, we find substantial decreases in family income caused by the decline in the earnings of individuals diagnosed with cancer and a parallel decline in the earnings of their spouses. For men whose wives have been diagnosed with cancer, family income decreases by up to 4.8 percent while a corresponding reduction for women amounts to 8.5 percent.
The labor market effects of spousal health shocks are theoretically ambiguous, but our empirical results clearly reject the added-worker hypothesis in favor of the caregiver hypothesis. Individuals whose spouses are diagnosed with cancer decrease their employment and experience earnings losses. Also, a cancer diagnosis often implies that the affected spouse’s life expectancy is suddenly reduced. In this case, the other spouse may want to work less temporarily in order to spend time with the sick husband or wife. Therefore, the larger negative employment and earnings effects we find for both men and women in response to spousal cancer may be due to both caregiving needs and the desire to enjoy more leisure together after the cancer diagnosis.
Overall, our results provide novel and important evidence on the intra-family labor market effects of one family member’s severe health shock. The magnitudes of these effects are substantial, suggesting that a cancer diagnosis has the potential to change labor supply from a level that is optimal when both spouses are healthy and can strongly affect the family’s financial well-being in addition to the psychological costs of dealing with a health shock.
The study finds that both men and women reduce their employment rates by about 2.5 percentage points in the years following their spouses’ cancer diagnosis. Since women have lower average employment rates, this decrease represents a larger relative decline for them. Furthermore, annual earnings decrease by about $2,000 (3.5 percent) for men and $1,500 (6 percent) for women. Finally, we find substantial decreases in family income caused by the decline in the earnings of individuals diagnosed with cancer and a parallel decline in the earnings of their spouses. For men whose wives have been diagnosed with cancer, family income decreases by up to 4.8 percent while a corresponding reduction for women amounts to 8.5 percent.
The labor market effects of spousal health shocks are theoretically ambiguous, but our empirical results clearly reject the added-worker hypothesis in favor of the caregiver hypothesis. Individuals whose spouses are diagnosed with cancer decrease their employment and experience earnings losses. Also, a cancer diagnosis often implies that the affected spouse’s life expectancy is suddenly reduced. In this case, the other spouse may want to work less temporarily in order to spend time with the sick husband or wife. Therefore, the larger negative employment and earnings effects we find for both men and women in response to spousal cancer may be due to both caregiving needs and the desire to enjoy more leisure together after the cancer diagnosis.
Overall, our results provide novel and important evidence on the intra-family labor market effects of one family member’s severe health shock. The magnitudes of these effects are substantial, suggesting that a cancer diagnosis has the potential to change labor supply from a level that is optimal when both spouses are healthy and can strongly affect the family’s financial well-being in addition to the psychological costs of dealing with a health shock.