Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect

Martín-Román, Ángel L. (2020): Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect.

Abstract

This paper identifies and analyses a new effect related to the cyclical behavior of labor supply: the Entitled-Worker Effect (EWE). This effect is different from the well-known Added-Worker Effect (AWE) and Discouraged-Worker Effect (DWE). The EWE is a consequence of one of the most important labor institutions: the unemployment benefit (UB). We develop a model with uncertainty about the results of the job seeking and transactions costs linked to such a search process in which a kind of moral hazard appears. This creates new incentives for workers and produces an additional counter-cyclical pressure on aggregate labor supply, but with a different foundation from that of the AWE. Finally, we show some empirical evidence supporting the EWE for the Spanish case.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labor force participation, Business Cycle, Unemployment, Added-worker effect, Discouraged-worker effect, Unemployment Benefit
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J65 - Unemployment Insurance ; Severance Pay ; Plant Closings

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