The Entry of the Wife into the Labor Force in Response to the Husband’s Unemployment: A Study of the Added Worker Effect in Brazilian Metropolitan Areas

Abstract

The temporary participation in the labor force of wives whose husbands have become unemployed has been referred to in the literature as the “added worker effect” (AWE). Previous research conducted using data from the United States has found only a small AWE, a result that accords with life cycle models with perfect capital markets. The current article uses panel data obtained using a short recall period to evaluate the AWE in the six major Brazilian metropolitan areas. Our results show a positive AWE that is much more substantial than those found for the U.S. economy. The finding of an important AWE for Brazil suggests that liquidity constraints may prevent Brazilian households from sufficiently smoothing income and consumption in periods when the male head of the family is unemployed. Alternatively, the significant AWE may indicate that the husband’s unemployment signals household members that there may be a substantial reduction in future income flow.

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