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Abstract

The supply behavior of labor often depends on the demand conditions prevailing in the labor market. If demand is inadequate, households may send additional household members, who otherwise would not have worked, to look for work, for fear the main income earner may lose his job. The authors study the theoretical consequences of this"added worker"effect. They show that it can rise to multiple equilibria in the labor market. Surprisingly, a minimum wage law set below the prevailing market wage can cause the market wage to fall and unemployment to rise. Unemployment benefits, by countering some of the risks of unemployment, can neutralize the inefficiencies caused by households'tendency to oversupply labor.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2049.

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Date of creation: 28 Feb 1999
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Handle: RePEc:wbk:wbrwps:2049

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Keywords: Economic Theory&Research; Labor Policies; Health Economics&Finance; Labor Markets; Environmental Economics&Policies; Health Economics&Finance; Labor Markets; Access to Markets; Environmental Economics&Policies; Economic Theory&Research;

References

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1. Basu, Kaushik & Van, Pham Hoang, 1998. "The Economics of Child Labor," American Economic Review, American Economic Association, vol. 88(3), pages 412-27, June.
2. Layard, R & Barton, M & Zabalza, A, 1980. "Married Women's Participation and Hours," Economica, London School of Economics and Political Science, vol. 47(185), pages 51-72, February.
3. Christopher J. Flinn & James J. Heckman, 1982. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," NBER Working Papers 0979, National Bureau of Economic Research, Inc.
   
   • Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
4. Kaushik Basu, 1999. "Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1083-1119, September.
   
   • Basu, Kaushik, 1998. "Child labor : cause, consequence, and cure, with remarks on International Labor Standards," Policy Research Working Paper Series 2027, The World Bank.
5. Fleisher, Belton M & Rhodes, George, 1976. "Unemployment and the Labor Force Participation of Married Men and Women: A Simultaneous Model," The Review of Economics and Statistics, MIT Press, vol. 58(4), pages 398-406, November.
6. Ashenfelter, Orley, 1980. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Econometrica, Econometric Society, vol. 48(3), pages 547-64, April.
   
   • Orley Ashenfelter, 1977. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Working Papers 484, Princeton University, Department of Economics, Industrial Relations Section..
7. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
8. Stiglitz, Joseph E, 1974. "Alternative Theories of Wage Determination and Unemployment in LDC'S: The Labor Turnover Model," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 194-227, May.
9. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
10. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
11. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
12. Fortin, Bernard & Lacroix, Guy, 1997. "A Test of the Unitary and Collective Models of Household Labour Supply," Economic Journal, Royal Economic Society, vol. 107(443), pages 933-55, July.
13. Greenwald, Bruce C & Stiglitz, Joseph E, 1995. "Labor-Market Adjustments and the Persistence of Unemployment," American Economic Review, American Economic Association, vol. 85(2), pages 219-25, May.
14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
15. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
16. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.

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Citations

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Cited by:

1. Pieter Serneels, 2002. "The added worked effect and intra household aspects of unemployment," CSAE Working Paper Series 2002-14, Centre for the Study of African Economies, University of Oxford.
   
   • Pieter Serneels, 2002. "The Added Worker Effect and Intrahousehold Aspects of Unemployment," Economics Series Working Papers WPS/2002-14, University of Oxford, Department of Economics.
   • Pieter Serneels, 2004. "The Added Worker Effect and Intrahousehold Aspects of Unemployment," Development and Comp Systems 0409014, EconWPA.
2. Shirkosh, Mehdi, 2005. "The Case for an International Minimum Wage in the Context of Free Trade," MPRA Paper 2463, University Library of Munich, Germany.
3. Jason Furman & Joseph E. Stiglitz, 1998. "Economic consequences of income inequality," Proceedings, Federal Reserve Bank of Kansas City, pages 221-263.
4. Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Economics Series Working Papers WPS/2004-01, University of Oxford, Department of Economics.
   
   • Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," Development and Comp Systems 0409042, EconWPA.
   • Pieter Serneels, 2004. "The Nature of Unemployment in Urban Ethiopia," CSAE Working Paper Series 2004-01, Centre for the Study of African Economies, University of Oxford.
5. Bhalotra, Sonia R. & Umana-Aponte, Marcela, 2010. "The Dynamics of Women's Labour Supply in Developing Countries," IZA Discussion Papers 4879, Institute for the Study of Labor (IZA).
   
   • Sonia Bhalotra & Marcela Umaña-Aponte, 2010. "The Dynamics of Women’s Labour Supply in Developing Countries," The Centre for Market and Public Organisation 10/235, Department of Economics, University of Bristol, UK.
6. Jorge A. Paz, 2008. "Cambios en el ingreso del hogar y sus efectos sobre la escolaridad de menores (Argentina, 1995-2003)," Working Papers 2, Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) - Universidad Nacional de Salta - Facultad de Ciencias Económicas, Jurídicas y Sociales.
7. Grimsrud, Bjorne, 2001. "What can be done about child labor ? - An overview of recent research and its implications for designing programs to reduce child labor," Social Protection Discussion Papers 23030, The World Bank.
8. Jellal, Mohamed, 2012. "Maroc salaire minimum emploi et pauvreté
   [Morocco minimum wage employment and poverty]," MPRA Paper 38491, University Library of Munich, Germany.

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