Shifts in the unemployment rate affect individuals through both actual and potential loss of a job. This paper contributes to the literature by exploring whether fluctuations in the unemployment rate induce couples to readjust time allotted for market work and housework and hence leisure time. More specifically, I enquire whether a rise in spouse's and in one's own sectoral unemployment rate affects one's weekly time allocation. A rise in the unemployment rate as opposed to actual job loss influences one's time allocation through a reassessment of one's job loss probability. An increase in the odds of a job loss reduces one's bargaining power within the household and this might lead to a fall in one's leisure time relative to his/her spouse. This is the bargaining effect. On the other hand, in response to a rise in partner's job loss probability, the other spouse might increase his/her hours of market work, resulting in the reduction of his relative leisure time. This is the efficiency effect. This study utilizes the first seven waves of HILDA survey to explore which of the two effects dominate.

To identify the coefficient of interest, this study constructs a series of unemployment rate proxy that varies across sector-state-year. Next, I tie this measure to individuals based on their primary sector of employment. Preliminary evidence shows that couples respond to a rise in the unemployment rate by reducing their hours of housework without a concomitant increase in their hours of market work. This is true of both husbands and wives with the exception of women and men cohabiting with a partner. Women in a de-facto marriage respond to a hike in the unemployment rate by increasing their hours of market work and cutting back on housework. Analogously, men in a de-facto marriage respond to a rise in the spousal unemployment rate by increasing their hours of market work and cutting back on housework.

The results have important implications for household welfare given the public good nature of housework. All components of housework might not be marketable and if this is true then periods of high unemployment might result in a fall in the welfare of even those households, where both the husband and the wife have a job.