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

Ángel Martín-Román ()

No 707, GLO Discussion Paper Series from Global Labor Organization (GLO)

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.

Keywords: Labor 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: 2020
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:707

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