Health shocks and the added worker effect: a life cycle approach

Carlos Acuña,Héctor Acuña,Diego Carrasco

doi:10.1080/15140326.2019.1613089

Carlos Acuña, Héctor Acuña + Show 1 more

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https://doi.org/10.1080/15140326.2019.1613089

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Abstract

ABSTRACTThis study analyzes the existence of the added worker effect (AWE) when a male partner suffers a health shock (negative health event), by using the information from the Chilean Social Protection Survey. The health shocks considered in this study are new cases of arthritis, asthma and hypertension. We find that neither asthma nor hypertension diagnosis generates an AWE. In the case of arthritis, the study shows differentiated effects by age cohorts. More specifically, we find that women’s probability of labor force entry over three years increases by 50 percentage points when the husband between the ages of 18–44 is diagnosed with arthritis. This effect disappears in older age groups, which suggests that when studying the effect of health shocks, the differences between life cycle stages should be considered (chronic disabling conditions are an important source of financial risk for young households).

Highlights

The added worker effect (AWE hereafter) refers to an increase in the labor supply of married women whose husbands have become unemployed (Mincer, 1962; Spletzer, 1997; Woytinsky, 1942)
50 percentage points when the husband between the ages of 18–44 is diagnosed with arthritis. This effect disappears in older age groups, which suggests that when studying the effect of health shocks, the differences between life cycle stages should be considered
We find that neither asthma nor hypertension generate an AWE, which is consistent with the use of the mechanisms created by the Chilean law to protect families from income loss when a member is affected with one of these pathologies

Summary

Introduction

The added worker effect (AWE hereafter) refers to an increase in the labor supply of married women whose husbands have become unemployed (Mincer, 1962; Spletzer, 1997; Woytinsky, 1942). This labor supply response is a way to smooth household consumption in periods when the head of the family is unemployed. The increase in health-care expenditure may lead to a decline in consumption through its effect on the family’s budget constraint (Mohanan, 2013). The main purpose of this research is to identify the relative importance of health shocks compared to other shocks and to explore the differential effects of health shocks on household budget constraint at different stages of the life cycle

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