Working Papers

November 2025, No. 25-13R

We present a new estimate for the elasticity of spousal labor supply in response to changes in the primary worker's income, the so-called "added worker effect." By leveraging firm-side information of the primary worker as an instrument, we isolate income changes that are uncorrelated with the spouse's productivity, addressing endogeneity bias. We find an economically meaningful role for the spousal labor supply, especially among young households with limited financial assets. We construct a heterogeneous agent model consistent with the estimated spousal employment response. We then design a government transfer program that effectively mitigates the negative income shock.

DOI: https://doi.org/10.21144/wp25-13