Children, time allocation and consumption insurance*

We consider the life cycle choices of a household deciding how much to consume and how to allocate spouses­ time to work, leisure, and childcare. In an environment with uncertainty, the allocation of goods and time over the life cycle also serves the purpose of smoothing marginal utility in response to shocks. We combine data on consumption, spouses­ wages, hours of work, and time spent with children to estimate the sensitivity of consumption and time allocation to transitory and permanent wage shocks. We find that family labor supply responses depend on three counteracting forces: complementarity of leisure time, substitutability of time in the production of child services, and added worker effects.