Added Worker Effect Research Articles

The Gender Gap in Earnings Losses after Job Displacement

Existing research has shown that job displacement leads to large and persistent earnings losses for men, but evidence for women is scarce. Using administrative data from Germany, we apply an event study design in combination with propensity score matching and a reweighting technique to directly compare men and women who are displaced from similar jobs and firms. Our results show that after a mass layoff, women’s earnings losses are about 35% higher than men’s, with the gap persisting five years after job displacement. This is partly explained by a higher propensity of women to take up part-time or marginal employment following job loss, but even full-time wage losses are almost 50% (or 5 percentage points) higher for women than for men. We then show that on the household level there is no evidence of an added worker effect, independent of the gender of the job loser. Finally, we document that parenthood magnifies the gender gap sharply: while fathers of young children have smaller earnings losses than men in general, mothers of young children have much larger earnings losses than other women.

Earnings Dynamics in Germany

This paper documents earnings dynamics over the life-cycle and income level using a large administrative database from German tax records. I find that labor earnings display important deviations from the typical assumptions of linearity and normality. For the bottom earners, large income changes are driven equally by hours and wages which is consistent with transitions between labor status or jobs, whereas, for those at the top, earnings changes are mainly induced by wage rate growth. There are also asymmetries in the mean reversion of earnings growth mainly driven by the asymmetric hours' dynamics. Finally, there is no evidence of an added-worker effect but government insurance and income pooling can mitigate the pass-through of individual earnings changes to the household level and attenuate the deviations from normality of the male earnings growth distribution.

The Great Depression and the rise of female employment: A new hypothesis

The life-cycle labor supply of women born at the turn of the 20th century diverged sharply from previous cohorts. Although they had similar participation rates in early adulthood, younger cohorts were significantly more likely to work at middle age. This paper documents a link between these changing patterns of female labor supply and the Great Depression. We find that the onset of the Great Depression led to an increase in young women's employment in 1930 via an added-worker effect. Cohorts induced into the workforce in the early 1930s had significantly higher employment rates through the 1940s and 1950s of up to 3 percentage points, suggesting a permanent impact of the Great Depression on women's lifecycle labor supply.

Family and government insurance: Wage, earnings, and income risks in the Netherlands and the U.S.

We document new facts about risk in male wages and earnings, household earnings, and pre- and post-tax income in the Netherlands and the United States. We find that, in both countries, earnings display important deviations from the typical assumptions of linearity and normality. Individual-level male wage and earnings risk is relatively high at the beginning and end of the working life, and for those in the lower and upper parts of the income distribution. Hours are the main driver of the negative skewness and, to a lesser extent, the high kurtosis of earnings changes. Even though we find no evidence of added-worker effects, the presence of spousal earnings reduces the variability of household income compared to that of male earnings. In the Netherlands, government transfers are a major source of insurance, substantially reducing the standard deviation, negative skewness, and kurtosis of income changes. In the U.S. the role of family insurance is much larger than in the Netherlands. Family and government insurance reduce, but do not eliminate non-linearities in household disposable income by age and previous earnings in either country.

The changing nature of gender selection into employment over the great recession

SUMMARY The Great Recession has strongly influenced employment patterns across skill and gender groups in EU countries. We analyse how these changes in workforce composition might distort comparisons of conventional measures of gender wage gaps via non-random selection of workers into EU labour markets. We document that male selection (traditionally disregarded) has become positive during the recession, particularly in Southern Europe. As for female selection (traditionally positive), our findings are twofold. Following an increase in the labour-force participation of less-skilled women, due to an added-worker effect, these biases declined in some countries where new female entrants were able to find jobs, whereas they went up in other countries which suffered large female employment losses. Finally, we document that most of these changes in selection patterns were reversed during the subsequent recovery phase, confirming their cyclical nature.

Cross-spousal influences on mature-aged Australians’ transitions in and out of employment 2001–2017

This article uses data from the longitudinal Household, Income, and Labour Dynamics in Australia survey to examine cross-spousal influences on workforce transitions by men ( n = 4667) and women ( n = 5051) aged 50–69. We assess how gender patterns in employment (full- and part-time work) and non-employment activity (unemployment, non-employment and homemaking) changed among this age group over the period 2001–2017, which included the Global Financial Crisis (GFC) of 2008. Notwithstanding that more men than women were in full-time work, and more women than men were employed part time or were homemakers, over the period there was an overall rise in employment for both genders, which following the GFC continued most strongly for women. Random effects logistic regression on partnered men and women showed that prior to the GFC one spouse transitioning out of the labour market was associated with significantly higher odds of the other spouse also doing so. This implies coordination, for example spouses retiring together. In contrast, following the GFC, one spouse leaving paid employment was associated with higher odds of the other taking up work or increasing their hours, suggesting that the economic slowdown encouraged an added worker effect in those households, with one spouse compensating for the job loss of the other. The finding was apparent for both men and women.

Asymmetry and Non-linearity in Discouraged and Added Worker Effects

ABSTRACTWe examine whether discouraged and added worker effects are state-dependent, business cycle phase-dependent, or change stochastically. We use quarterly LFS data for the 1995–2016 period for Poland. Labor force participation rate behaves non-linearly. The change is rapid and connected to the stable value of the cyclical unemployment rate. An unemployment rate higher than 13% implies a discouraged worker effect. Policy actions should aim to prolong the labor market activity (added worker effect) of females and older workers. Workers may be encouraged to reenter the labor market if their probability of finding a job is improved through active economic policy measures.

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.

Family job search and wealth: The added worker effect revisited

We propose and estimate a model of family job search and wealth accumulation with data from the Survey of Income and Program Participation (SIPP). This dataset reveals a very asymmetric labor market for household members who share that their job finding is stimulated by their partners' job separation. We uncover a job search‐theoretic basis for this added worker effect, which occurs mainly during economic downturns, but also by increased nonemployment transfers. Thus, our analysis shows that the policy goal of increasing nonemployment transfers to support a worker's job search is partially offset by the spouse's cross effect of decreased nonemployment and wages. The added worker effect is robust to having more children and more education in the household and does not just result as a composition of heterogeneous individuals. We also show that the interdependency between household members is understated if wealth and savings are not considered. Finally, we show that gender equality in the labor market not only improves women's labor market performance, but it also increases men's accepted wages and nonemployment rates.

The Relationship between Female Labor Force Participation and Violent Conflicts in South Asia

This paper explores the link between the prevalence of violent conflicts and extremely low female labor force participation rates (FLFPR) in South Asia. We merge Labor Force Surveys (LFSs) from Bangladesh, Sri-Lanka, India, and Pakistan to the Global Terrorism Database (GTD) to estimate the relationship between terrorist attacks and female labor supply. We exploit the availability of geographical level data on exposure to violence, comparing administrative units exposed to attacks with administrative units not exposed. We find that one additional attack reduces FLFP rates by about 0.008 percentage points, on average. Violence has less impact on male labor participation, thus widening the gender labor participation gap. Also, one extra wounded person or one extra killed person reduces FLFP rates by 0.0015 and 0.0048 percentage points on average, respectively. We test the added-worker effect theory - which posits that violence might increase FLFP as women try to make up for lost household income - and find mixed evidence: greater prevalence of attacks may encourage married women to exert more working hours, but when the environment gets more risky as number of dead and wounded people increase, all women work less hours. We also test the non-linearity of various violence effects, finding that violence decreases FLFP less where FLFP was already higher before the advent of violence, and that violence has a progressively greater impact on lowering FLFP where the number of attacks is higher.

Who Buffers Income Losses after Job Displacement? The Role of Alternative Income Sources, the Family, and the State

AbstractUsing survey data from the German Socio‐Economic Panel (SOEP), this paper analyses the extent to which alternative income sources, reactions within the household context, and redistribution by the state attenuate earnings losses after job displacement. Applying propensity score matching and fixed effects estimations, we find that income from self‐employment reduces the earnings gap only slightly and severance payments buffer losses in the short run. On the household level, we find little evidence for an added worker effect whereas redistribution by the state within the tax and transfer system mitigates income losses substantially.

Economic cycle and deceleration of female labor force participation in Latin America

We study the behavior of female labor force participation (LFP) over the business cycle by estimating fixed effects models at the country and population-group level, using data from harmonized national household surveys of 18 Latin American countries in the period 1987–2014. We find that female LFP follows a countercyclical pattern—especially in the case of married, with children and vulnerable women—which suggests the existence of an inverse added-worker effect. We argue that this factor may have contributed to the deceleration in female labor supply in Latin America that took place in the 2000s, a decade of unusual high economic growth.

Intra-household risk sharing and job search over the business cycle

This paper studies the extent to which working couples can insure one another against cyclical fluctuations in the labor market and examines the implications of joint household decision-making for cyclical fluctuations in the unemployment rate. For this purpose, I provide a dynamic life-cycle model of households that make joint savings and job search decisions in the presence of aggregate shocks. I show that two key mechanisms are at play. The first is the added-worker effect, which leads to counter-cyclical search intensity because workers increase search intensity when their spouse becomes unemployed. The second is the comparative advantage effect, according to which couples' job search efforts are coordinated based on the relative returns to search of each spouse. I estimate the model using data from the US Current Population Survey, and find that joint household decision-making contributes to the counter-cyclicality of women’s unemployment rate, but not for men. Moreover, joint household decision-making lowers the welfare costs of cyclicality.

The Discouraged Worker Effect and the Added Worker Effect within the Framework of European Debt Crisis

The debt crisis experienced in Europe has had several adverse effects on economies of countries. Employment is one of the adversely affected areas. The relationship between the labor force participation rate and unemployment is essentially examined within the framework of two hypotheses. These hypotheses are “The Discouraged Worker Effect” and “The Added Worker Effect”. The discouraged worker effect anticipates that workers looking for employment for extended periods of time will withdraw from the labor market due to losing hope in periods of economic recession. According to this hypothesis, it is expected that the labor force participation rate will increase once the unemployment rate decreases and vice versa. The added worker effect anticipates that if the worker who provides the livelihood of the family becomes unemployed, other members of the family will participate in the labor market. According to this hypothesis, it is expected that the labor force participation rate will decrease once the unemployment rate decreases and vice versa. This study aims to test whether these two effects apply to selected Euro zone countries (PIIGGS-Portugal, Ireland, Italy, Greece, Great Britain, Spain) during the European Debt Crisis .

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

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).

Great Depression and the Rise of Female Employment: A New Hypothesis

The cohorts of women born at the turn of the 20th century increased markedly their participation in the labor market when older. These are the first cohorts who worked after their childbearing years. In this paper, we document a link between their work behavior and the Great Depression. We show that the 1929 Crash attracted young women 15 to 34 years old in 1930 (whom we name D-cohort) into the labor market, possibly via an added-worker effect. Using several years of Census micro data, we further document that the same cohort remained or re-entered the labor market in the 1940s and 1950s and that its entire life cycle labor supply is tightly linked to the conditions dating back to the Great Depression. We argue that these facts are consistent with the hypothesis of a labor supply shift for this cohort triggered by the 1929 Crash.

How does the Household Labour Supply Respond to the Unemployment of the Household Head?

AbstractIn this paper, we explore one of the oldest labour market phenomena documented in the literature: the added worker effect. This refers to the labour supply response of secondary earners of the household to the main earner's job losses. Using longitudinal data for Colombia, we find that when the head of the household becomes unemployed, the labour supply of the female partner increases between 9 and 20 percentage points. Such response appears during the first 6 months of the unemployment spell of the household head. In addition, within 1 year of the unemployment shock, household members under college age were more likely to enter the labour market and less likely to be in tertiary education.

Unemployment invariance hypothesis, added and discouraged worker effects in Canada

PurposeThe purpose of this paper is to explore the long-run relationship between unemployment rate (UR) and labor force participation rate (LFPR) for men and women in Canada. Given that there are differences in the URs and participation rates of men and women, the authors perform separate analysis for them also.Design/methodology/approachThe authors use co-integration analysis to investigate the existence of a long-run relationship between UR and LFPR in Canada using time series monthly data for the past 40 years.FindingsThe finding that there is long-run relationship between UR and LFPR leads the authors to doubt the pertinence of the unemployment invariance hypothesis for Canada. The authors further find evidence for added-worker effect for men and discouraged-worker effect for women in Canada and the authors elaborate on the possible explanations for this seemingly contradictory finding.Practical implicationsThe lack of support for the unemployment invariance hypotheses implies that changes in the participation rate which may be due to aging population, policies of early retirement or constraints on working time will affect the UR in the long run.Originality/valueThis paper investigates the unemployment invariance hypothesis in Canada to come up with policy implications about long-run UR. The authors further elaborate on the possible explanations for the added-worker effect for men and the discouraged-worker effect for women that the authors find in this study.

Migrant women breadwinners in Italy during the crisis: improvement or trap?

Gender gaps in some aspects of the labour market in Europe narrowed during the recent economic crisis, mainly because men were hit harder and because of the ‘added worker effect’. Therefore, the number of families with a single wage-earner, in particular female-headed households, increased. However, the differential impact of the crisis on male and female labour force in part was an unintended effect of the ‘gendered’ and ‘racialized’ structure of the labour market. Occupational concentration in care and reproductive work and the public sector in fact protected women from unemployment. Adopting an intersectional approach and using individual and household data from the Labour Force Survey from 2008 to 2015, the aim of this paper is to assess to what extent the gendered and ‘racialized’ structure of the Italian labour market has changed, both from a quantitative and qualitative point of view, and to what extent the increase in female breadwinner families, especially among migrants, hides widening or narrowing intersectional inequalities by gender and citizenship.

Intra-Household Risk Sharing and Job Search over the Business Cycle

This paper studies the extent to which working couples can insure one another against cyclical fluctuations in the labor market and examines the implications of joint household decision-making for cyclical fluctuations in the unemployment rate. For this purpose, I provide a dynamic life-cycle model of households that make joint savings and job search decisions in the presence of aggregate shocks. I show that two key mechanisms are at play. The first is the added-worker effect, which leads to counter-cyclical search intensity because workers increase search intensity when their spouse becomes unemployed. The second is the comparative advantage effect, according to which couples’ job search efforts are coordinated based on the relative returns to search of each spouse. I estimate the model using data from the US Current Population Survey, and find that joint household decision-making contributes to the counter-cyclicality of women’s unemployment rate, but not for men. Moreover, joint household decision-making lowers the welfare costs of cyclicality.