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

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  • Martín-Román, Ángel L.

Abstract

This paper identifies and analyses a new effect related to the cyclical behaviour of labour 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 labour institutions: the unemployment benefit (UB). We develop a model with uncertainty about the results of the job-seeking and transaction costs linked to such a search process, showing that a kind of moral hazard appears. This creates new incentives for workers and produces an additional counter-cyclical pressure on aggregate labour supply, but with a different foundation from that of the AWE. We present empirical evidence supporting the EWE for the Spanish case. As a forward-looking conclusion, policymakers should rethink their political actions in the future as unemployment might be overstated, particularly in those countries with generous UB systems.

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  • Martín-Román, Ángel L., 2022. "Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect," Economic Modelling, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:ecmode:v:110:y:2022:i:c:s026499932200058x
    DOI: 10.1016/j.econmod.2022.105812
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    1. Maridueña-Larrea, Ángel & Martín-Román, Ángel L., 2023. "The asymmetric cyclical behaviour of female labour force participation in Latin America," MPRA Paper 117408, University Library of Munich, Germany.
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    3. Emilio Congregado & Ewa Galecka-Burdziak & Antonio A. Golpe & Robert Pater, 2021. "Separating aggregate discouraged and added worker effects: the case of a former transition country," Oeconomia Copernicana, Institute of Economic Research, vol. 12(3), pages 729-760, September.

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    More about this item

    Keywords

    Labour force participation; Business cycle; Unemployment; Added-worker effect; Discouraged-worker effect; Unemployment benefit;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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