Serdar documents a small spousal earnings response to the job displacement of the family head in recessions, when earnings losses are larger and additional insurance is most valuable. He investigates whether the small response is an outcome of crowding-out effects of existing government transfers. To accomplish this, he uses an incomplete asset markets model with family labor supply and aggregate fluctuations whose predicted female labor supply elasticities with respect to transfers are in line with microeconomic estimates both in aggregate and across subpopulations. In this model, counterfactual experiments indeed show that generous transfers in recessions discourage spousal labor supply significantly after the head's job displacement. Given the large incentive costs of transfers, he solves for optimal means-tested transfers paid to poor families and employment-tested transfers paid to the unemployed. Unlike the current policy that maintains generous transfers of both types in recessions, he finds that the optimal policy features procyclical means-tested and countercyclical employment-tested transfers. In an alternative environment in which spousal labor supply were invariant to transfer generosity, the optimal policy would instead feature countercyclical transfers of both types since larger incentive costs in recessions on spousal labor supply would be unaccounted for.