Family ties: occupational responses to cope with a household income shock

In this paper we analyse household members’ reactions in case of unforeseen negative income shocks due to a transition into unemployment and/or into income support. More specifically, we estimate the impact of an income loss suffered by one household member on the probability that another household member – not necessarily the wife - transit from out of the labour force into employment or into workforce. Since in a lifecycle setting the labour supply of secondary workers is also affected by credit constraints, we take into account financial wealth and liabilities as well as a measure of household illiquidity due to housing. To perform our analyses, we use a discrete choice model and data drawn from the Bank of Italy Survey on Household Income and Wealth (SHIW) over the period 2004-2012, so as to include the effects of the Great Recession. Even after accounting for standard socio-economic controls, results show significant reactions to income shocks, especially during the recession. As for portfolio controls, we find a significant difference (mostly in terms of intercept, but also of slope) between the level of illiquidity and labour market participation for households hit/not hit by a shock.