Spousal Labor Market Effects from Government Health Insurance: Evidence from a Veterans Affairs Expansion

Boyle and Lahey (2010) find a 3.3% increase in the probability that a veteran
leaves the labor force and an 8.4% decrease in the probability that a veteran works
full time although some disadvantaged groups appear to increase their labor
supply.

III. Theory, Data, and Empirics

A. Theory

In the simplest model, health insurance on the job is paid for in terms of
lower compensation on the job. Receiving health insurance exogenous to
employment is therefore akin to a positive income shock for the household. In
this model, there is an income effect which dictates that household labor supply
will drop.

However, it is not clear within the household whether this decrease in
labor supply will be borne by both spouses or by a specific spouse. Boyle and
Lahey (2010) find that husbands’ labor supply drops upon receipt of public health
insurance, but they do not explore the spillover effects on spousal labor supply.
Because wives in these cohorts are more likely than their husbands to have jobs
with flexible hours, it is possible that a wife’s hours may rise when a husband
leaves a traditional 40-50 hour a week job, although the income effect would
dictate that total family labor supply would decrease. If a woman had been

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