The added-worker effect in the Netherlands before and during the Great Recession

Area of Science:

• Labor Economics
• Family Economics
• Social Policy

Background:

• The added-worker effect (AWE) describes a phenomenon where a secondary earner increases labor supply when the primary earner becomes unemployed.
• Understanding AWE is crucial for assessing household economic resilience and the effectiveness of social insurance programs.
• Previous research on AWE has yielded mixed results, necessitating further investigation with robust data.

Purpose of the Study:

• To quantify the added-worker effect in the Netherlands using comprehensive administrative panel data.
• To analyze the dynamic changes in the AWE, particularly in response to economic shocks like the Great Recession.
• To explore the role of self-employment income as a buffer against unemployment.

Main Methods:

• Utilized large-scale, longitudinal administrative panel data from the Netherlands spanning 1999-2015.
• Employed a differences-in-differences (DiD) estimation strategy.
• Controlled for similar employment histories to isolate the impact of male partner unemployment on female partner's income.

Main Results:

• A modest added-worker effect was identified, with female partners increasing their income by 2-5% of their male partners' income loss.
• The AWE diminished at the onset of the Great Recession but reappeared in subsequent years.
• Profits from self-employment emerged as an increasingly significant income source for households facing unemployment shocks over time.

Conclusions:

• The added-worker effect in the Netherlands is relatively small compared to the cushioning effect of social insurance.
• The AWE exhibits time-varying dynamics, influenced by major economic downturns and evolving labor market conditions.
• Self-employment income plays a growing role in household income stabilization during periods of primary earner unemployment.