Does the Added Worker Effect Matter?
55 Pages Posted: 18 Mar 2021
Date Written: March 17, 2021
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.
Keywords: added worker effect, household labor supply, intra-household insurance, female employment, cyclicality, skewness
JEL Classification: D1, E32, J21, J22
Suggested Citation: Suggested Citation