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

Ángel Martín-Román ()

Economic Modelling, 2022, vol. 110, issue C

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.

Keywords: Labour force participation; Business cycle; Unemployment; Added-worker effect; Discouraged-worker effect; Unemployment benefit (search for similar items in EconPapers)
JEL-codes: E24 E32 H55 J22 J64 J65 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect (2020)
Working Paper: Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:110:y:2022:i:c:s026499932200058x

DOI: 10.1016/j.econmod.2022.105812

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