Essays on household decision

Abstract

This thesis considers the fact that the majority of households consists of two adults whose characteristics and preferences matter for the households' decisions. The first chapter studies how an increase in the generosity of maternity leave payments affects parental labor supply, early child development, and the relative well-being of the parents considering that parents may have different preferences over outcomes and that the policy change may affect the parental bargaining positions. I develop and estimate a static cooperative Nash bargaining model of parental decision-making in the first period of the child's life and use the model to investigate how the decision-making changes with an increase in the leave payments. The results indicate that mothers will spend more time at home rather than in the labor market when the leave payments increase, but that the average early child development is not much affected. Furthermore, the policy shifts the bargaining positions within the household in favor of the father and, although both parents are better o from the policy change, the mother would be better o relative to the father without the increase in maternity leave payments. In the second chapter we look closer at how the insurance value of marriage, represented by the correlation of shocks to individual incomes, varies over different groups in the population. We find that this value may be lower for more recent cohorts, and decrease with age and with higher education. The third chapter builds on the second. We investigate the importance of intra-household risk-sharing through labor supply by testing the following prediction: A higher correlation of income shocks within the household implies a lower ability to insure income through spousal labor supply and should, all else equal, lead to higher asset accumulation of the household. Our results indicate that this prediction holds empirically, suggesting that households perceive spousal labor supply as an important income insurance.