Essays on the Added Worker Effect

Abstract

One of the mechanisms through which the households adjust to income shocks is the labour supply adjustments of household members. By increasing labour supply as a response to the primary breadwinner's unemployment, a household member becomes an added worker. This thesis examines the added worker effect at the extensive margin for married and cohabiting women in the UK. Chapter 1 describes the construction of a dataset on couples' monthly labour market histories from the British Household Panel Survey 1991-2009. Unlike its alternatives, this dataset enables the identification of censored labour market spells, spans a longer period by following the same individuals, and provides a more accurate account of women's and their partners' employment episodes as parallel events at a higher frequency. This dataset is used in the empirical analyses of the following two chapters of this thesis. Chapter 2 investigates a woman's labour force participation conditional on the duration she spends in inactivity, and examines how her partner's different labour market activities affect her likelihood of participation in the labour force. The analysis also distinguishes between the two potential exit states for women's participation via job-search and job-finding. The results indicate that the longer a woman spends time in inactivity, the less likely she is to become active in the labour market. In line with previous studies in the UK, the analysis shows there is a negative added worker effect, i.e. participation probability of a woman with an unemployed partner is significantly lower than a woman whose partner is employed. The results also show that some determinants of women's participation have destination-specific effects. Chapter 3 examines the causal relationship between women's partners' non-employment and their labour market attachment. Furthermore, this chapter seeks to identify the sources of the potential endogeneity in partners' labour market outcomes, i.e. unobserved permanent characteristics of partners (heterogeneity endogeneity) and/or the idiosyncratic shocks. It proposes a measure for assortative mating, which is defined as the correlation between the unobserved factors between partners' labour market outcomes. The findings show that partner's parental employment is a weak instrument, whereas partner's health turns out to be a stronger instrument. A woman is around 30 percentage points less likely to be active in the labour market when her partner is unemployed. The effect is lower when partner's non-employment is assumed to be exogenous. This negative effect drops to 13 percentage points when the unobserved permanent couple characteristics are controlled for. The findings suggest that the endogeneity in this context is due to heterogeneity endogeneity and not due to idiosyncratic shocks. There is positive correlation in partners' unobserved factors, which indicates a negative assortative mating based on unobserved characteristics on partners' labour market outcomes.

Date of Award	1 Aug 2018
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Martyn Andrews (Supervisor) & Kenneth Clark (Supervisor)