Unemployment insurance and family labor supply

• In Event: Social Insurance

Abstract

This paper investigates how unemployment insurance (UI) generosity shapes labor supply responses within extended family networks, moving beyond the well-documented “added worker effect” among couples. While previous research shows that generous UI benefits crowd out spousal labor supply, little is known about how unemployment shocks are insured across broader family ties such as parents, adult children, and siblings. Moreover, the overall impact of UI generosity on family insurance is theoretically ambiguous: direct income support from UI may reduce the need for family assistance, but longer unemployment spells induced by generous UI could increase reliance on family networks. Existing empirical evidence remains limited and often overlooks these behavioral responses. Using rich administrative data from the Netherlands, I exploit sharp discontinuities in maximum UI entitlement duration at employment history thresholds as a source of exogenous variation in UI entitlement. Using a regression discontinuity design, I identify the causal spillover effects of UI generosity on family members' outcomes. First stage results show that longer UI entitlement significantly prolongs benefit duration and delays exits from the UI. I find spillover effects within the family network. Parents of UI recipients increase their employment and reduce reliance on non-UI social benefits, while adult children exhibit increases in both employment and the take-up of non-UI benefits. These results highlight the importance of family networks as a form of informal insurance.

Author

• Yiwei Yin, University of Mannheim