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Life Insurance and the Value of Spouses:
Labor Supply vs. Household Production

Jay H. Hong

This version: October 2008

To understand women's decision on labor market participation, it is crucial to correctly measure the value of household production as well as earning ability. Researchers have attempted to measure home production and other nonmarket activity by looking at the amount of time devoted to nonmarket production or the amount of household capital investment. We argue that the value of household production may not be correctly measured by looking at inputs because the value of home production can vary by individual's nonmarket productivity as well as by the stage of lifecycle of nonmarket production. In this paper we use data on life insurance holdings of married couples by age, education, and employment status to infer how much non-market value they produce across different demographic stages. We construct a fully specified overlapping generation model of multiperson households where individuals face mortality risk, have access to life insurance markets, and consume and save. Then we use the model to find out the profile of home production which generates employment rates, life insurance holdings, and key statistics as in the US data. We find that the profile of women's home production has a very different picture from the profile implied by hours worked at home.


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