Household responses to disability shocks: Spousal labor supply, caregiving, and disability insurance

This paper examines married women’s time allocation to market hours and
spousal care in the event of their husbands’ disability and its implications for
evaluating the insurance value of the Social Security Disability Insurance (SSDI)
program. First, I find that while spousal labor supply responses to husbands’ disability are small, wives spend a sizable amount of time in spousal care after their
husbands become disabled. Motivated by these facts, I develop a dynamic model
of married households that incorporates husbands’ disability status, wives’ time
allocation choices, health state dependent utility, and the institutional features
of SSDI. Counterfactual experiments indicate that caregiving needs substantially
attenuate spousal labor supply responses and increase the insurance value of
SSDI relative to its costs. Furthermore, policy reforms such as supplementary
caregiving benefits can improve social welfare.