The Added Worker Effect and the Discouraged Worker Effect for Married Women in Australia

Abstract

This paper investigates both the added worker effect (the labour supply responses of women to their partners' job losses) and the discouraged worker effect (workers withdrawing from the labour market because of failed searches) for married women in Australia, with the emphasis on the former. We focus on the partnersﾒ involuntary job loss experiences, and analyse women's labour market activities in the periods before and after their partnersﾒ job loss. By estimating fixed effects labour supply equations using the first seven waves of data from the HILDA Survey, we find a significant added worker effect in terms of increased full time employment and working hours. The findings also suggest that it is harder for the female partners of males who have recently lost jobs to enter the labour market than for those already working to increase their working hours to compensate for lost income incurred by their partnersﾒ job loss. We also find the effect to be persistent in that, one year after the partnersﾒ job loss, more of those women would still like to work longer hours than they actually were. By investigating the relationship between self-assessed job-finding probability on job-seekersﾒ subsequent labour force participation, and by studying the relationship between labour force participation of all married women and the regional unemployment rate, we also find a substantial discouraged worker effect.

Keywords: added worker effect, discouraged worker effect, panel data

JEL Classification: C23, J20, J60