Family ties: Labor supply responses to cope with a household employment shock

We use data from the European Union Statistics on Income and Living Conditions (EU-SILC) to explore labor responses of individuals (not only the spouse) to a negative employment shock suffered by another household member. We focus on Italy where family ties other than spousal ones are particularly strong and grown up children live in their parents’ household till late, especially when they are students. Two main results emerge. First, we find strong and robust evidence that households hit by an employment shock do respond by increasing labor supply. Second, we document an added worker effect that is affecting not only wives, but also teenage children and students independently of their age, with important policy implications in terms of human capital formation. Results are robust across gender, household financial conditions and the crisis, yet they do not point to differential reactions along these dimensions.