The Economic Crisis of 2008 and the Added Worker Effect in Transition Countries
Levy Economics Institute, Working Paper No. 765
32 Pages Posted: 16 May 2013
Date Written: May 15, 2013
Following the financial crisis of 2008, transition countries experienced an increase in female labor force participation rates and a decrease in male labor force participation rates, in part because male-dominated sectors were hit the hardest. These developments have prompted many to argue that women have been spared the full-blown effects of the crisis. In this paper, we critically evaluate this claim by investigating the extent to which the increase in the female labor force participation rate may have reflected a distress labor supply response to the crisis. We use the data on the 28 countries of the transition region assessed in the 2010 Life in Transition Survey. We find the presence of the female added worker effect, driven by married 45- to 54-year-old women with no children in the household. This effect is the strongest among the region’s middle-income countries. Among men, a negative relationship between labor force participation and household-specific income shocks is indicated. Unlike the differences in the response to household-specific income shocks, the labor supply response to a weaker macroeconomic environment is negative for both men and women — hinting at the presence of the “discouraged worker” effect, which cuts across gender lines. We conclude that the decrease in men’s labor force participation observed during this crisis is likely a combined result of the initial sectoral contraction and the subsequent impact of the discouraged worker effect. For women, on the other hand, the added worker effect appears to outweigh the discouraged worker effect, contributing to an increase in their labor force participation rate. Our findings highlight the presence of heterogeneity in the way in which household-specific shocks, as opposed to economy-wide conditions, affect both female and male labor force participation rates.
Keywords: Gender Economics, Economic Crisis, Added Worker Effect, Labor Supply Response, Labor Force Participation, Central and Eastern Europe, Former Soviet Union, Transition Countries
JEL Classification: J16, J21, P20
Suggested Citation: Suggested Citation