Three Essays on Household Behavior and Labor Supply

Abstract

The objective of this dissertation is to investigate contemporary issues concerning population aging and low fertility in Korea’s economy. The first chapter examines the impact of intra-household transfers on the labor supply of elderly parents by employing “child’s gender” as an exogenous variable which leads to parents’ differential lifetime net transfers to children. Parental resource allocation in Korea tends to be greater for sons. However, older parents receive less financial support from grown-up sons than traditionally expected. This might be due to an erosion of the long-standing implicit contract between sons and their parents in Korea. Based on evidence that lifetime net transfers from parents are larger to sons than to daughters, I hypothesize that parents who have sons rather than daughters increase their labor supply to offset this cost. In empirical estimates using the Korean Longitudinal Study of Aging data sets, the results show that parents with sons tend to retire later or increase working hours compared to parents with daughters. This “son effect” is especially profound in cases where the boy is also the first-born child. The second chapter investigates the effect of a major change, in 2011, in the South Korean childcare leave benefits scheme, on fertility. I use a difference-in-differences analysis, exploiting the fact that the reform which increased the generosity of childcare leave benefits was targeted at higher-wage earners. I use the monthly wages and employment status as measures to define a treatment group and a control group. Education level is also used as a proxy for monthly wages in alternative estimation strategies in determining the labor supply effect. I find that the 2011 reform had positive impacts on conception for the treatment group (higher-wage or higher- education workers) compared to the control group (lower-wage or lower-education workers). These impacts were substantial in cases of second or higher-order fertility. Consistently, I find that the reform had negative effects on the contraceptive use of the treatment group. The results also show evidence of declining career interruption for the treatment group in post-reform. This effect seems a result of another specific aim of the reform: lowering career interruptions of women after giving birth. The third chapter examines the effect of health shocks on the affected persons’ and their spouse’s labor supply using the Korean Longitudinal Study of Aging. Health shocks can cause substantial loss of household income due to an involuntary exit from the labor force as well as through direct medical expenditures. In response to this loss of income, a spouse may increase his or her labor supply to make up for lost income. On the other hand, a spouse may decrease his or her labor supply if health shock strongly requires care-giving for the affected individual. The analysis reveals that health shocks reduce the labor supply for both affected males and females. The results also show that husband’s chronic illness increase wife’s labor supply. However, a wife’s health shocks do not affect a husband’s labor supply. The little impact of women’s health shocks may be explained by the fact that women’s earnings are usually a secondary source of household income in dual-earner couples, so male workers may not be highly sensitive to the economic impact of their partners' health shocks. The results also indicate that having low net assets decreases the probability of exiting the labor force for husbands and increases the probability of entering the labor force for wives in response to spousal health shocks. These imply that a lack of sufficient wealth in a household enhances the “Added Worker Effect” in South Korea.