Added Worker Effect Research Articles

Is there a desired added worker effect? Evidence from involuntary job losses

AbstractWhile the existing evidence on added worker effects is mixed, most studies find no or only small effects. However, studies to date have mostly analyzed individuals’ actual labor supply responses to their partners’ job loss, neglecting to consider a potential mismatch between desired and actual labor supply adjustments. Using data from the German Socio-Economic Panel (SOEP), we study individuals’ changes in actual and desired working hours after their partners’ involuntary job loss in an event study design. Our results show that actual and desired working hours only increase marginally and that these increases are of similar magnitude. Thus, we provide first evidence that the absence of more substantial added worker effects is in line with individuals’ stated labor supply preferences and is not the result of an inability to realize desired working hours.

Effects of Conflicts on Labor Market Outcome and Intimate Partner Violence: Evidence from Nepal

This study investigates the impact of conflict intensity on married women’s employment and intimate partner violence (IPV) in Nepal during and after the civil conflicts. Analyzing five waves of the Nepal Demographic and Health Survey, it reveals a negative short- and long-term effect of conflict on work probabilities for women facing reduced economic opportunities and delayed human capital accumulation. However, this result masks substantial heterogeneity by subgroups. The older cohort experiences a temporary negative effect, while the impact is enduring for younger cohorts. The long-run effect of conflict intensity was more sustained for married women who were children or teenagers at the onset of the war compared to older cohorts. These results hold under IV regressions. Data availability restricts our analysis of IPV to the post-war years. The study does not find a direct impact of conflict on the stated IPV experiences of married women but identifies an indirect effect. HIGHLIGHTS Conflict in Nepal affects women’s employment and intimate partner violence. Women’s employment increased during the conflict but declined post-conflict. Conflict intensity in Nepal reduced long-term employment, particularly for younger women Intimate partner violence shows indirect rise due to reduced women’s employment. The added-worker effect in Nepal was weak, with conflict disrupting labor opportunities.

Gender differences in the added (home) worker effect

This study combines the literature on home production and on the added worker effect as households’ self-insurance mechanisms against unemployment. Exploiting Dutch panel data with detailed information on time use categories and subjective job loss expectations, we estimate the causal effect of an unforeseen job loss on spouses’ time use decisions regarding paid work and home production. In the analysis we explicitly differentiate between males and females who experience sudden unemployment. We find no effect on the intensive or extensive margins of spousal labor supply or on spousal time in home production.

Exploring Factors and Disparities: Female Labor Force Participation in the Palestinian Regions: East Jerusalem, West Bank and Gaza Strip

This paper investigates Female Labor Force Participation (FLFP) across the Palestinian regions of East Jerusalem, the West Bank, and the Gaza Strip. Utilizing data from the Palestinian Central Bureau of Statistics spanning from 1999 to 2018, we employ logistic regression models and age-period-cohort analyses to examine the determinants and trends shaping FLFP. Despite a notable increase in FLFP rates in Gaza since 2008, East Jerusalem witnesses a declining trend, widening the gap between East Jerusalem and the West Bank/Gaza strip. Our investigation aims to elucidate these regional differences, considering both supply-side and demand-side factors. Supply-side factors encompass social and gender norms, as well as social structure, while demand-side factors include structural changes in the economy over time, the availability of public sector employment, predominant economic activities engaging women (services and agriculture), and the repercussions of economic shocks on FLFP (added worker effect), among other factors.

The added worker effect: evidence from a disability insurance reform

AbstractThe Netherlands reformed its disability insurance (DI) scheme in 2006. Reintegration incentives for employers became stronger, access to DI benefits became more difficult, and benefits became less generous. Using administrative data on all individuals who fell sick shortly before and after the reform, we study the impact of the reform on labor participation of individuals who fell sick and their spouses. Difference-in-differences estimates show, among other things, that the reform led to an increase of labor participation of the individuals who fell sick only if these individuals had a permanent job, whereas spouses responded to the DI reform in other cases, where the individuals reporting sick had a temporary job or were unemployed. More generally, the spouses respond when the sick individual’s labor market position is weak and the individual him- or herself has trouble finding or retaining employment. The effects are persistent during the 10 years after the reform. The effect on the spouse can be seen as an “added worker effect,” where additional earnings of the spouse compensate for the sick individual’s income loss so that both partners share the burden of a more stringent DI scheme. Comparing individuals reporting sick with and without partner provides further support for the notion that the responses of couples to the reform are joint decisions of the two partners.

Not All That It Seems: Narrowing of Gender Gaps in Employment during the Onset of COVID-19 in Indonesia

This paper studies the COVID-19 pandemic’s impact on Indonesia’s labor market, using the exogenous timing of the pandemic in a seasonal difference-in-differences framework. We use multiple rounds of Indonesia’s National Labor Force Survey to establish a pre-pandemic employment trend and attribute any difference from this trend to the estimated effect of the pandemic on employment outcomes. We find mixed impacts of the pandemic on Indonesia’s labor market. While the pandemic has reduced the gender gap in employment participation due to the “added worker effect” among women, it has also lowered overall employment quality among both women and men. The increase in female employment was mainly driven by women in rural areas without a high school education entering either informal agricultural employment or unpaid family work. For men, the pandemic had negative employment impacts for all subgroups. Among the employed, both women and men work fewer hours and earn lower wages.

Household donations of time and money in response to a health shock

Donations play a critical role in supporting the provision of public goods, yet how donating behaviour changes in response to health shocks is poorly understood. We investigate how the household's joint decision to donate time (volunteer) and money changes following a health shock. Using data from the United States Panel Study of Income Dynamics, and a within-household design that captures the dynamics of a post-health shock response, we find no overall change in the probability of households donating money but an overall reduction in the probability of donating time following a health shock. This is driven by a significant shift from donating both money and time to donating only money after a health shock. The shift away from donating time occurs for both the individual who experienced the health shock and their spouse, though the reduction is greater for the spouse. We examine the role of labour market responses to health shocks in explaining donating behaviour and find that consistent with the added worker effect, spouses of those who experience a health shock increase their work hours, constraining their time available for volunteering.

Correction to: What limits intra-household insurance or the ‘Added Worker Effect’?

Correction to: What limits intra-household insurance or the ‘Added Worker Effect’?

Economic cycle, labour market and pro-environmental behaviours. The case of separate waste collection in Italy

Pro-environmental behaviours have been studied extensively in the economic literature, with particular regard to the effects induced by unemployment. A key element that was little investigated in previous contributions consists in intrahousehold dynamics. This work provides a novel microeconomic framework describing the interaction between economic cycle and intrahousehold time allocation that is ultimately responsible for the adoption of pro-environmental behaviours. Intrahousehold differences in productivity represent a key assumption in this framework. The theoretical model is then tested empirically on recent Italian observations using Data Envelopment Analysis. Our results indicate that the most efficient allocations are attained in periods when joint drops in unemployment and female labour market participation (added worker effect) lead to intrahousehold specialisation.

What limits intra-household insurance or the ‘Added Worker Effect’?

Abstract The ‘Added Worker Effect’ (AWE) theory posits that partners of the unemployed provide intra-household insurance by increasing their earnings. However, estimates of the AWE are small. Popular explanations include lacking need (e.g. due to generous unemployment benefits), capacity or willingness to increase earnings, though these explanations are seldom tested systematically. Using Swiss administrative data and difference-in-differences estimates, we find an overall AWE among only non-working women. We find no systematic differences in AWEs between couples with differing needs or capacities, but aspects related to willingness like marriage, long marital duration and shared biological children are associated with higher AWEs. Men’s overall slight reduction in earnings upon their partners’ unemployment is driven by young, childless, cohabiting men. Overall, compared to unemployment insurance, in all studied subgroups, the AWE is a minimal source of insurance.

The Effect of Parental Occupation and Family Arragements on Occupational Choices among Brazilian Youth

This paper estimates the added worker effect and discouraged worker effect for young people in metropolitan Brazil. Its main contribution is to reveal how the transition to unemployment by the household head impacts labor supply among youth, considering the demographic changes – especially the size and composition of family arrangements – that Brazil has undergone in recent decades. We designed multinomial probit models (with and without correction of sample selection bias) covering the main metropolitan regions of the country using data from Brazil’s Monthly Employment Survey (PME) for the years 2002 to 2015, which compiles information on monthly transitions in the Brazilian labor market. Our findings point to evidence of a greater transition of young men and women to activation in the labor market, specifically from inactivity to unemployment, in periods when the household head became unemployed. On the other hand, there is no evidence of a statistically significant discouraged worker effect impacting these individuals. Furthermore, the parents’ occupational situation seems to have little effect on the transition to activation of young males in low-income families, unlike those belonging to wealthier families.

The Added Worker Effect within Italian Households: The Role of Employment Uncertainty and Underemployment

The Added Worker Effect within Italian Households: The Role of Employment Uncertainty and Underemployment

Labor supply and informal care responses to health shocks within couples: Evidence from the UK.

Shocks to health have been shown to reduce labor supply for the individual affected. Less is known about household self-insurance through a partner's response. Previous studies have presented inconclusive empirical evidence on the existence of a health-related Added Worker Effect, and results limited to labor and income responses. We use UK longitudinal data to investigate within households both the labor supply and informal care responses of an individual to the event of an acute health shock to their partner. Relying on the unanticipated timing of shocks, we combine Coarsened Exact Matching and Entropy Balancing algorithms with parametric analysis and exploit lagged outcomes to remove bias from observed confounders and time-invariant unobservables. We find no evidence of a health-related Added Worker Effect but a significant and sizable Informal Carer Effect. This holds irrespective of spousal labor market position or household financial status and ability to purchase formal care provision, suggesting that partners' substitute informal care provision for time devoted to leisure activities.

Unemployment and labor force participation in Canada

ABSTRACT We examine the long run relationship between labour force participation and unemployment rate in Canada using data from 1975M01 to 2019M12. A cointegration analysis is conducted at the aggregate, across gender, and by age. Support is found for an added worker affect for males and a discouraged worker effect for females. Findings by age reveal that the working age females exhibits the discouraged effect. However, we cannot confirm the added worker effect for any male age groups.

Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect

This paper identifies and analyses a new effect related to the cyclical behaviour of labour supply: the Entitled-Worker Effect (EWE). This effect is different from the well-known Added-Worker Effect (AWE) and Discouraged-Worker Effect (DWE). The EWE is a consequence of one of the most important labour institutions: the unemployment benefit (UB). We develop a model with uncertainty about the results of the job-seeking and transaction costs linked to such a search process, showing that a kind of moral hazard appears. This creates new incentives for workers and produces an additional counter-cyclical pressure on aggregate labour supply, but with a different foundation from that of the AWE. We present empirical evidence supporting the EWE for the Spanish case. As a forward-looking conclusion, policymakers should rethink their political actions in the future as unemployment might be overstated, particularly in those countries with generous UB systems.

The added-worker effect in the Netherlands before and during the Great Recession.

We study the added-worker effect in the Netherlands with large-scale administrative panel data for the period 1999–2015. Conditioning on samples with similar employment histories, we employ differences-in-differences to estimate the effect of a male partner’s unemployment shock on the female partner’s income. We find a modest added-worker effect of 2–5% of the male partner’s income loss, as compared to the much larger compensating effect from social insurance schemes. The added-worker effect largely disappeared at the beginning of the Great Recession, but resurfaced a few years later. Over the years, profits from self-employment have become more important in dealing with unemployment shocks.

The Added Worker Effect: Evidence from a Disability Insurance Reform

The Added Worker Effect: Evidence from a Disability Insurance Reform

Separating aggregate discouraged and added worker effects: the case of a former transition country

Research background: We analyse the added worker effect (AWE) and the discouraged worker effect (DWE) from an aggregate perspective. The first effect refers to an increase in labour force participation in response to a decrease in the wage rate. The second effect refers to the decision by workers who have been unsuccessful in their job search to leave the labour market or to decrease their labour force participation. For our analysis, we use the case of Poland, a country with a persistently low labour force participation rate.
 Purpose of the article: While previous studies focused on the net of the two effects, we aim to analyse the two effects both separately and simultaneously. We propose a new approach for analysing the two effects. We generalise and model them as resulting from different shocks: (i) the AWE as the result of a negative wage income shock, and (ii) the DWE as the result of a positive job search time shock. The underlying assumption is that both shocks have at least a transitory effect on the labour force participation rate. However, we also track the potential long-lasting effects of these shocks, and we analyse the reactions of gender and age groups to them. While this approach demonstrates the robustness of our results, it also provides the range of the sensitivity, as it shows that there are large differences in the magnitude of the AWE and the DWE for different labour market cohorts.
 Methods: We use the multivariate unobserved component model to extract the AWE and the DWE, and we then use VAR models, applying sign and exclusion restrictions to model the underlying shocks. We use quarterly data for Poland in 1995?2019. Most of these data come from the Labour Force Survey, while the rest come from Statistics Poland.
 Findings & value added: In contrast to previous literature, which analysed only the net effect of the two effects, we model the AWE and the DWE separately. Contrary to the findings of previous research, our approach seems to confirm that both effects are simultaneously present in the labour market, and both effects influence the labour force participation rate. Thus, we find that both effects are significant. Specifically, we show that the AWE is stronger, but transitory; while the DWE is weaker, but long-lasting.

Unemployment invariance hypothesis and structural breaks in Poland

We study the long-run relationship between unemployment and the labour force participation rate while accounting for potential non-linearities. We explore two sources of non-linearities: structural breaks (as we allow the relationship to be time-varying) and differences by gender groups. We apply a novel approach, as we extend the cointegration analysis by combining it with structural break tests. The model is applied to Poland, which is a suitable case for study because it allows us to illustrate how this relationship operates in a developed country that was formerly centrally planned. The results qualify previous findings by providing mixed evidence for the invariance, the discouraged worker, and the added worker hypotheses. In particular, in the past, a positive and cyclical relationship – i.e., an added worker effect – could be observed, albeit with differences by gender and age group. For the current regime, we can provide evidence of a discouraged worker effect among Polish men only.

Does the added worker effect matter?

The added worker effect (AWE) measures the entry of individuals into the labor force due to their partners’ adverse labor market outcomes. We propose a new method to calculate the AWE that allows us to estimate its effect on any labor market outcome. The AWE reduces the fraction of households with two non-employed members by 16% for the 1977-2018 period; 28% in the 1990 recession and 23% during the great recession. The AWE also accounts for why women’s employment is much less cyclical and more symmetric than men’s. Without the AWE, married women’s employment would be as volatile as men and display negative skewness (declining quickly in recessions and recovering slowly in expansions). In recessions, while some women lose their employment, others enter the labor market and find jobs. This keeps female employment relatively stable.