Added Worker Effect PDF

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The Added Worker Effect Author(s): Shelly Lundberg Source: Journal of Labor Economics, Vol. 3, No. 1, Part 1 (Jan., 1985), pp. 11-37 Published by: The University of Chicago Press on behalf of the Society of Labor Economists and the NORC at the University of Chicago Stable URL: http://www.jstor.org/stable/2535048 . Accessed: 28/08/2013 22:28
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Effect The AddedWorker

University ofPennsylvania Lundberg, Shelly
The term "added worker effect"usually refersto a temporary increasein the labor supply of marriedwomen whose husbands This paper presents a new approach to have become unemployed. which emphasizes the empiricalstudyof the added workereffect, in genuncertainty and creditconstraints the role of employment The estipatterns. and employment participation erating short-run rather than probabilities transition matesare based on employment simulation of laborsupplyand are used in a dynamic static measures and participation rates of wives of changes in the employment among their followingan exogenous increase in unemployment added worker husbands.The resultsshow a small but significant effect, at least for white families,and suggestthat the apparent among previous studies may stem from different disagreement eventsuch as an responsesto a transitory approachesto measuring spell. unemployment
and Dick Dale Mortensen, GeorgeNeumann, NicholasKiefer, wishto thank Startz.

1985,vol. 3, no. 1] ofLaborEconomics, [Journal of Chicago. All rights reserved. (C 1985by The University -0002$01.50 0734-306X/85/0301
An earlyversionof thispaper appearedas NBER WorkingPaper 706 in July I particularly on several useful comments drafts; 1981.Manypeople haveprovided
11
12
Lundberg
I. Introduction in thesize ofthelaborforce, and their effect on Cyclical fluctuations have been controversial measured unemployment, topics since the Theresponse oflaborforce rates to a demandDepression.' participation induced to thefamiliar decomfallin employment consists, according addedworker effect position, oftwocomponents-the and thediscourin employment effect. A widespread deterioration agedworker opporin discouraged tunities results workers, who dropoutofthelaborforce it in anticipation of reduced or refrain from entering wagesor more costlyjob search. Additional labor forceparticipants, however, may whoseemployed members haveexperienced appearin families layoffs in workhours. or restrictions Moststudies effect oftheaddedworker haveconcentrated on changes in thesize of theaggregate laborforce overtimerather thanon the Thereis clearevidence behavior of individuals. (see Cain 1966) that when the unemployment rate rises,the discouraged workereffect dominates theaddedworker effect on aggregate participation rates, even for workers" suchas married women The few "secondary andteenagers. in individual to test forthepresence ofan addedworker effect attempts households have produced variedresults; some have founda strong while othershave discerned added worker effect, no response. This new estimates of theaddedworker effect whichutilize paperpresents employment transition probabilities rather thanstatic measures of labor The results showa smallbutsignificant addedworker supply. effect, at thatthe apparent least forwhitefamilies, and suggest disagreement stem different studies from tomeasuring among previous may approaches event suchas an unemployment to a transitory responses spell. In a static modelof household laborsupply, an addedworker effect in thefollowing A spellof unemployment arises manner. experienced affects thelaborsupply of a nonparticibythemaleheadof household wifein twoways:thetransitory in household income reduction pating in husband's and theincrease nonmarket timebothtendto reduce the time. laborforce relative nonmarket Sincethewife's valueof thewife's is onlyone of several thehousehold entry waysin which might adjust to thelossofincome, themagnitude of theaddedworker effect should be related to the efficacy or costs of othermethods, such as more intensive job search bythehusband or borrowing. In a life-cycle we wouldexpect context, theaddedworker effect to be important ofcredit The wealth effect constraints. onlyin thepresence ofa short is likely to be smallin theabsence of spellofunemployment in the labor such constraints, so thatcontemporaneous movements
1
in Mincer(1966) and Wachter(1974). See the references
The AddedWorker Effect
13
supplyof husbandand wife will reflect only cross-substitution effects, whichare expectedto be small. The classic 1962 studyby Mincer showed that,in a cross-section, a transitory reductionin income due to husband's unemployment has a greatereffecton the labor supply of marriedwomen than does a permanent income loss. Specifically, Mincer found a strongnegative relationship betweenthe proportion of wives who workedat some time duringthe year and the weeks worked by the husband, holding his earningsconstant.Heckman and MaCurdy (1980), in a longitudinal betweenthe husband's annual study,found no significant relationship hoursof unemployment and hours worked by the wife.Though there in methodology betweenthe two studies, the most are manydifferences concernsthe measurement of the added worker important discrepancy in effect. differences Heckman and MaCurdy are measuring, roughly, average annual hours worked between women whose husbands are at some timeduringthe year and women whose husbands unemployed are employedfull-time. Mincer (1962), on the other hand, uses a 0-1 which represents measureof wife'semployment maximum, ratherthan labor supply. average, The distinction is likely to be an important one, since the added in the presenceof creditconstraints will be a transitory workereffect Studies responseto what is, in general,a briefspell of unemployment. which use long-run averagemeasuresof labor supply are less likelyto observe effect and will ignoreone of themostimportant an added worker attributes of an added worker response:changesin laborsupplybehavior in householdincome. are timedto smoothout fluctuations Suppose thathoursat work are fixed,so thatboth husbandand wife may be in one of two states:employedor unemployed.The simplest schematic is shown in figure representation of an added workereffect 1. The illustrated responseis a stylizedversionof what we expectfrom an added worker.A woman who is initially a nonparticipant entersthe
Husband's hours
C
Wife's hours
C FiG. I.-The added workereffect
Weeks
14
Lundberg
laborforce whenherhusband becomes unemployed somelag and,with due to job search becomes The job is a temporary activity, employed. is related one and its duration to the duration of the unemployment neednotend at thesametime. spell,though they This pattern can be ifwe distinguish described mostcompletely between theprobability of a laborsupply to unemployment response (Mincer's and the measure) which do occur. duration ofresponses Heckman andMaCurdy's annual theproduct worked of these hours twomeasures. The is,very roughly, and duration of addedworker of incidence can be separation responses flowsinto and out of the laborforceby accomplished by observing wives. Sincethedecision to enter thelaborforce can be distinguished thedecision whenoffers from to accepta job offer are uncertain, this can be generalized to flowsintoand out of employment and unemployment. The nextsection introduces household transition ratesand outlines in a two-person thesourceof an addedworker effect modelof labor The effect is then restated supplyunderuncertainty. as a set of predictions abouttransition probabilities amongthe possible states of and nonparticipation. III presents employment, unemployment, Section a technique forestimating the determinants of transition ratesfrom actual histories andis followed employment ofthedata. bya description V contains Section themainempirical results and employs theentire theeffects household transition matrix unemto simulate of increased husbands on thelabor The simulations ployment among ofwives. supply reveal thatincreased has a smallbut unemployment amonghusbands definite effect on bothunemployment ratesand employment ratesfor white and Hispanic white women. theaddition Among families, of 100 mento theranks results in theparticipation oftheunemployed ofthree additional wives,or 7% of the previous Six months nonparticipants. the increase in unemployment after has occurred, two of thesethree womenhavebecomeemployed. Thesemagnitudes shouldbe regarded as understatements addedworker ofthe"true" since there is some effect, whichcan perhaps be attributed tendency, to assortative for mating, women arenotlikely to be employed whosehusbands to be lesslikely themselves. The results to be employed for blackfamilies arecompletely in the dominated selection which also appears bythis apparent problem, results forHispanic families. II. The AddedWorkerEffect and Labor MarketTransitions A. Household Employment Histories as a Markov Process theaddedworker effect 1 illustrates, As figure consists ofa temporary in laborsupplybehavior. It will be reflected in conventional change measures of labor supplysuch as annualaveragehoursworkedor butcan be described morecompletely participation probabilities, using
Effect Worker The Added
15
These states.2 deviceof flowratesbetweenlabor market thenow-familiar and unemployment, definedas employment, statesare conventionally but theycan be expanded or reducedas data permit nonparticipation, suggest. and requirements Marston (1976) found such a flow analysis useful for studyingthe and describedtheoperationof the labor of unemployment determinants matrix(see below) of flow rates. marketin termsof a three-by-three
Labor Force Status CurrentMonth E,
kEE kNE
Labor Force Status PreviousMonth

Et_ I Nt_ 1
Ut- IkXUE
U.
XEU
kUU
N.
XEN
kUN
XNU
kNN
rate at which transitions elementXjk is the monthly Each off-diagonal occur from statej to state k or, in a homogeneouspopulation,the Since each such probability probability of making such a transition. state,together depends only upon the initialstate and the destination an they definea Markov process. In a continuoustime framework, rate can be estimated as the numberof transitions analogous transition observedduringthe sample period,divided by the numberof months spent in the initialstate.Each row must sum to one, so the diagonal elements Xjj = 1- Ik#/ Xsk. rates definea continuoustime stochastic Together,these transition probasteady-state processforwhich we can calculatea corresponding Following Howard (1971), we define 4kj(t) as the bilitydistribution. that a continuoustime Markov process occupies statej at probability forall states. timet and let ?D(t)be the row vectorof stateprobabilities elementis Let A be the square matrixsuch thatthe j-kth off-diagonal thetransition rateXjk and thejth diagonal elementis -Xj. Then, if the at initialprobability distribution is (D(O),we can writethe distribution any timet as
?D(t) = (D(O)e
(1)
where
e~tI?At?
2 Since Marston's(1976)
A2t2 A3t3
2! ?3!
influential article,which emphasizedthe volume of stocks, transition to month-to-month changesin employment theseflowsrelative in the studyof unemployment. In particular, rateshave been used extensively methodof characterizing the frequency and duration theyprovidean alternative forindividuals are employment histories of unemployment spells when lengthy (1979). notavailable.For an exampleof thisapproach,see Clark and Summers
16
Lundberg
Differentiating thisexpression produces
dt d 4(t)
(t,
so that the limitingstate probability vector(1 satisfies1A = 0 and Ej l y = 1 and can be solved forin a straightforward manner. In thispaper,the householdrather thanthe individual is the relevant decision-making unit,but the stochastic processdescribedabove can be modified accordingly. Choices betweenavailablestatesforhusbandand wifeare madejointly, so thestatespace is expandedto nine,representing all possible combinations of employment, and nonparunemployment, ticipation forthe two members of the household.Equation (1) turns out to be veryusefulsince,after theelements estimating of A and calculating thesteadystate(D,we can perturb theemployment distribution and trace its path back to the steadystate.In SectionV, such simulations are used to measure the response of wives to an exogenous increase in their husbands'unemployment. When modelingthe determinants of eitherindividualor household transition rates,it seems naturalto thinkof themas comprisedof two distinctcomponents-a stochasticelement,which is not conceptually under the controlof the individualhousehold,and a second element householdchoicesor strategy.3 Each rate,therefore, representing depends both upon the arrival rates of opportunities to change state or of information aboutthevalue of alternative states and upon thehousehold's preferences over the statesavailable. The arrivalof a job offer to one member but thestateoccupancy of a householdmaybe a randomevent, that results will depend on the probabilitythat this offerwill be acceptable.In a standardsearchtheorymodel, the individual'sstrategy is definedby the reservation, or lowest acceptable,wage. Below, we can be represented as a set of demonstrate thatthe household'sstrategy two "reservation' wages foreach member-one thatcontrolsthe particIt is offers. ipationdecisionand one thatdefines acceptableemployment status on thereservation theeffects of thehusband'semployment through the wife'sbehaviorthatwe can represent the added wages determining in terms worker effect of transition probabilities.
'For a more detailed treatment of the compositionof transition rates,see have been Burdett and Mortensen (1978) or Lundberg(1981). Severalattempts made to provide a "structural" interpretation of these rates and to separate arrivalsfrom choice probabilities.These include Mortensen and Neumann (forthcoming), Flinnand Heckman (1982), and Olsen, Smith, and Farkas(1982). Otherempirical applications includeBurdett, Kiefer, Mortensen, and Neumann (1984);Tuma, Hannon, and Groeneveld(1979); and Tuma and Robins (1980).
Effect The AddedWorker B. Household Labor SupplyunderUncertainty
17
individual a three-state (1978) havecharacterized Burdett and Mortensen of a modelof laborsupplywithuncertainty employment processin terms This has been generalized in thearrival and job separations. of job offers in Lundberg(1981), with householdwith joint utility to a two-person model provides the additionof shocksto thevalue of leisure.The latter in an uncertain labor market, and a rationale foran added workereffect below. ratesare summarized forhouseholdtransition its implications Let a two-person household maximizethe expectedvalue of utility, sum of theutility is a discounted flowin each wheretheutility function concavefunction, u(xt,lIt, /2t),which flowis a strictly period.This utility in period t (xt)and on consumption dependson householdcommodity thefraction of the perioddevotedto leisureby the husband(1,) and the in wife (12t). Commoditiesand leisureare assumed to be complements are while the leisuretimesof the two members householdproduction, substitutes.4 Each member of the household can be in one of three states, of memor nonparticipation. Employment unemployment, employment, ber i requiresthat a fixed fractionof available time,hi, be devoted to marketwork, and leisure time consumed is the residual 1 - hi. requiresthatanotherfixedamount, Unemployment si < hi,be spenton job search.Each employedperson receivesa wage which,when added thebudgetconstraint of nonlaborincome,determines to a fixedquantity each period. The household is subjectedto a varietyof random events,such as changes in the value of leisure time and job separations.The most of job offers important of these,forour purposes,is the randomarrival Each offer consistsof a wage drawnfroma known to the unemployed. distribution which may vary across individuals.A choice between will involveweighingthe value of and nonparticipation unemployment which job offers, fromfuture lost leisureagainstthe expectedbenefits and arriveonly to the unemployed.A choice between employment will depend upon the relative arrives searchwhen an offer unemployed offer valuesof employment income,and the leisureand expectedfuture arrivals associatedwithunemployment. is derivedby maximizinga value The household'soptimal strategy functionwhich consists of currentutilityflow plus the discounted
4"Leisure" in thismodel can also be viewedas timedevotedto nonmarket or householdproduction. This interpretation renders the assumption of substitutabilitybetween11and 12 more palatable.The added workereffect may become in sign if strongcomplementarities ambiguous between11and 12 are permitted. The empirical evidenceon this point is mixed,but Ashenfelter and Heckman (1974) concludethatthe cross-substitution effect is zero.
18
Lundberg
we introduce the function Vj(wI, w2), which is the sum of the current utilityflow when the wife is in state j earninga wage w2 and the husbandis earningwi, plus the expectedfuture utility gain attributable to the current allocation of the wife's time. The household's strategy will consist, wage functions in part,of two reservation whichequate the value of the wife's employment to the values of unemployment and and therefore determine nonparticipation, herparticipation and acceptance
decisions. Let wr(wl) be the solutionto
valueof future expected utility, giventhestochastic parameters of the problem and thepresumption of an optimal future strategy. Sincetime allocation andincome arecompletely determined bythestate occupied, thisstrategy can be derived simply by comparing theexpected utility with associated alternative states. occupying First, consider thevalueto thehousehold of all possible allocations ofthewife's thehusband time, given that is working. To represent this,
VE[w1, wr(wl)]
VU(w1, 0)
(2a)
and w'(wl) be the solutionto

VE[w1, w'(w1)]
=
VN(wl, 0).
(2b)
The function thewage-equivalent value to thehousehold wr(. ) represents of unemployedsearchby the wife and is analogous to the reservation value of wage in individualjob search models. The wage-equivalent nonparticipation by the wife,w'(*), is similarto the "reservation wage in a staticparticipation analysis(and would, in fact,be equivalentwere job durations not uncertain). An unemployed wifewill accepta job offer w2ifthevalue of working at that wage exceeds the value associated with continuedsearch, or VE(Wi, w2) > VU(wh, 0). This impliesthat a job offer W2is acceptable in the wifeshould participate only ifw2 > w2(w. In decidingwhether the labor market, givenno job attachment, the householdwill compare VU(wl, 0) and VN(wl,0). This impliesthata memberof the household will participate as an unemployed job searcherif the cost of search,in termsof the utility loss fromforgoneleisure,is less than the expected in view of (2), is return to search.An equivalentparticipation condition, w(w1) > w '(w,). Given the assumptionthat the leisure of the two members it can be shown that are substitutes,
d2> d2>0o.
This propositionstates that an increase in the husband's wage, by the reservation increasing wages of the wife,makes her less likely to
The Added Worker Effect
19
in the labor forceand, if she does participate, less likelyto participate It followsimmediately thatthe wifeis morelikelyto accepta job offer. search for work and to accept a given wage offerif her husband is ratherthan employedat any acceptablewage. Reversing unemployed, the identities of the household membersleads to analogous resultsfor the husband. of the wages of the wifeas functions Figure2 shows the reservation ceteris paribus.If the husbandis employed wage earnedby thehusband, in the labor force.If w, drops at a wage w7, thewifewill not participate the value below w', however,or if the husbandbecomes unemployed, of the wife's search will exceed the value of full leisure,and she will become an added worker. C. Componentsof the Added WorkerEffect The principal resultof the previoussectionis that,all else equal, both reservation wages (the value of unemployedsearch and the value of will be lower for wives whose husbands are not nonparticipation) will appear in a employed.This implies that the added workereffect rates.Denote each household state as numberof household transition statusof the husbandand K refers JK where to the employment J refers to the employmentstatus of the wife. Controlling for wages and predictions: nonlaborincome,we can make the following
1
XEE-EU XEElEN > > XUE-UU XUEWUN.
either for Employed wives will be less likely to leave employment, whentheir husbands are unemployed. unemployment or nonparticipation,
2.
XEN-EU XEN < XUN-UU XUNWUE-
EE <
W2e
W2
w2 w2:
<
2 ~~~W w
~~~~~~~~~~~~r
W~~~(O)~
ai w
of husband'swage FIG. 2.-Wife's reservation wages as functions
20
Lundberg
wives will be more likely to enter the labor force Nonparticipating when theirhusbandsare unemployed. 3.
XEU-EE <
XUUJUE.
forwork will findmore jobs acceptable,and Wives who are searching thus become employedmore rapidly,when theirhusbandsare unemployed. sample of using a heterogeneous In order to test these predictions to controlforobservablecharacteristics it will be necessary households, in preferences, as well as fordifferences which may indicatedifferences in budgetconstraints. In the next section, a method for estimatingtransitionrates as such as age, wages, and cityof residenceis of characteristics functions described. III. Estimating Labor Force Transition Rates There exists a special case of the model describedin the previous If transition ratesthatcan be simplyestimated. sectionwhichgenerates the arrivals of all randomeventsare Poisson with constantparameters, theneach typeof and if the household'sstrategy (wI, w1)is stationary,5 transition will be a time-independent Poisson process.It is well known rates (see, e.g., Tuma and Robins 1980) that these constanttransition lead to state occupancy durationswhich have a negativeexponential In particular, the cumulativedistribution function repredistribution. fromstatej beforet1, giventhat the probability of a transition senting the householdoccupies statej at timeto, is = Fj(t0lto) whereXj =
1k~j
Xnk
1 - eci(tl-to)
(3)
is function or the rateof leavingstatej. The density (-f (tlIto) d
Xke-Xj(t1-to).
Given that a transitiondoes occur from state j, the conditional is statek is Xjk/Xj, so thatthe probability thatthedestination probability of a spell in j whichends in a transition to statek at timet1 is
Ito)* f(t, -k = je-7

infinite and no assets. known andstable wagedistributions, horizon,
'A stationary an results,in part, fromthe followingassumptions: strategy
The Added Worker Effect
21
forany sequence of state a likelihoodfunction We can now construct of a occupanciesby a sample of households,in which the contribution of an incomplete spell is completed spell is (4), and the contribution
= e-i(ti-t?) 1 - Fj(t11to)
We do not,of course,wish to assumethattransition ratesare identical for households,but ratherexamine theirdependenceupon observable since XOk mustbe positivefor characteristics. A convenient specification, all households, is
Xjk(z) =
exp{6jkXj(i)}
for
i=
jk ~j,
1,. .
l,...,n,
where Ojk is a vector of parametersto be estimatedby maximum rate and Xj(i) are observable likelihood methods for each transition variablesforhouseholdi which may be statedependent. explanatory The log has some veryconvenient properties. The above specification is separablein the individualtransition rates, of the likelihoodfunction In independently. vector,Ojk, can be estimated so that each parameter addition,each spell in statej can be easily divided into subspells to allow the values of exogenousvariablesto vary.However,the assumed timeindependence of the Xjk rules out any durationdependencein the is made hereto employmultiple rateof leavinga state6 and no attempt The spells for the purpose of isolatingunobservedindividualeffects. is discussed fromsuch unobserved possible bias resulting heterogeneity in detail with the empiricalresultsbelow. A more complicatedmodel can easily be constructed, but the simple exponential model offers of a obvious computationaladvantagesfor analyzingthe movements states. largesampleover a numberof employment
IV. Data
employrateswere estimated usingthemonthly Household transition menthistories of a subsampleof familiesfromthe Seattleand Denver Income Maintenance (SIME/DIME). The sample consisted Experiments of 603 families livingin Denver and 478 in Seattle.Each containedboth a male head and a femalehead, and all were fromthe controlgroup, whichdid not receiveincome maintenance Sample selection payments. characteristics history construction, and important criteria, employment of thesampleare described in AppendixA.
6 There of heteroor someform is someevidence that duration dependence, does appearin from duration dependence, whichis indistinguishable geneity with forthcoming). this sample (seeWeiner, sometransitions
22
Lundberg
Table 1 of Wivesover Labor MarketStates Distribution by Employment Statusof Husband

Employment Unemployment
(%)
All wives Husband employed Husband unemployed Husband not participating 37.1 37.9 37.7 29.5
(%)
5.2 4.7 9.7 5.4
Participation (%) (E + U) 42.4 42.6 47.4 34.9
Did the wives in this sample respond to the unemployment of their husbands by increasing their labor supply? If so we would expect, as a first approximation, that the wives of unemployed men would have higherparticipationand/or employmentrates than the wives of employed men. Table 1 presents such a comparison. This simple cross-tabulation reveals that married women are most likely to participate in the labor force when their husbands are unemployed. However, a closer look shows that this increase in the participation rate comes entirely from an increase in the number of unemployed wives; the proportion employed is lower for the husband-unemployed group, except for black wives. This suggests that women do look for work when their husbands become unemployed but that they are less likely to be employed than are women with employed husbands. These apparently contradictorypoints can be reconciled in a number of ways. An employed husband may be able to assist his wife's job search directly by providing contacts or information, thereby hastening the transition from unemployment to employment. A more plausible explanation is that individual characteristicsthat affecttastes for leisure or employment opportunities may be positively correlated within households, due to assortative mating or simply to residence in the same labor market. A test for an added worker effect in wife's labor supply behavior must therefore control for such characteristics to the extent that they are observable. This is accomplished by estimating the transition rates described in the previous section. V. Empirical Results A. Transition Rate Estimates Estimated parameters for 23 household transition rates are presented and discussed in Appendix B.7 Transition rates between each two
49 ofthepossible 7For theremaining 72 transition thissample did not rates, In fortheconditional estimation to be performed. observations supply enough the entire transition the simulations household below,whichrequire matrix, or meanrates havebeenusedforthese transitions. Sincemany of unconditional in theemployment and these involved simultaneous status of husband changes wifewhichcould be ruledout on theoretical the fewobservations grounds, which do appear areprobably theresult oftime aggregation.
TheAdded Effect Worker
23
be briefly summarized. Own wagesare,in general, significant determinants of movements into and out of employment. As expected,higherwages make both husbands and wives less likely to leave employment, and higherpredictedwages increase the probability that wives will enter effects employment. However,thecross-wage are generally insignificant, the effect of the husband's wage on the wife's transitions particularly into and out of employment. The effects of otherstandardlabor supply variablesare mixed, but Seattle residenceappears to be a consistent indicator of aggregate demand effects, and the receiptof otherincome generally discourages employment.8 Since simultaneous transitions of thehusbandand wifeare rather rare, the different of wives with employedand unememployment patterns ployed husbands can be represented by a three-by-three matrix of transition rates,withhusband'semployment statusheld constant. Table 2 displaysaveragemonthly transition rates for wives in representative white,black, and Hispanic households in Denver (patternsin Seattle were verysimilar).Coefficient fromtables B1-B5 were used, estimates with the husband's wage set at $3.70, the wife's at $2.20, and the husband'sage at 30 years.We assume thattheyhave one child under6 years of age. Other income is set at the sample average for each employment state.For transitions withveryfewobservations, thesample ratehas been used. averagetransition in wages,otherincome,age, and numberof children Once variations
of actualwagesforthose household as functions states are represented who are initially and predicted of the employed, wagesas indicators whoarenotemployed. Predicted wagedistribution for those gross wage on average annualwageobservations rates arederived from regressions runseparately fortheentire of controls, sample by raceand sex.Other of current income includes from all monthly receipts sources-earnings members other thanthetwo heads, transfer family payments, alimony, and assetincome.All dollaramounts are deflated usingSeattleand Price inJuly Denver Metropolitan Indices andarereported 1972dollars. under6 yearsof age are included in the of children Age and number the relative transition rateequations to represent value of nonmarket time.The valuesforwagesand otherincomeare averaged over the duration of thespell;age and number of children aresetat their initial valuesfor eachspell. Thoseresults which are relevant to thepredictions of thetheory can
8 The same model hasalso beenestimated with onlytwostates-employment andnonemployment-for eachhousehold member. Thiswasattempted since, as table B5 demonstrates, transitions between and nonparticipation unemployment arenotwellexplained. sincethecoefficient However, estimates fortransitions between andeachofthese twostates differ employment substantially, aggregating them state ofnonemployment intoa single is notstatistically valid.
24
Lundberg
o~~~~~~~~~
o
._
" C
NJ ON
c) N
QQN
QQo
xoe t o O otO o tC N C) QQOe
O N(I-
0 o
-X
z
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X
n
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r
oCIO x
Ln
Q
oo
Ln
oo
Lr)
oo
cn L
C'
oo
_o
~
-
tN
O-'
Vrj--
all Cn
=>~~~~~C
U~~~~~~0
0
'I cn O n
"D
e0 11 C0. C)c
CI
11
C) cr,
C)C0c,
~~~~~~~~~~C) oON
I-C
.) C QQQ
e~N
0\ \ 00 r0-I
Lrx n~~~~~C
CI
nc
"r
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o =~~~~~~~~C C'sC .>oONQ1Q *H~~ C2
~~~
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._~~~2-
'S C
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v~~~
es;X 0o
0 =M
Q-
The Added WorkerEffect
25
consistent rate patterngenerally have been controlledfor,a transition is clearest in the This pattern of SectionII emerges. withthepredictions a woman's transitions of white wives. If her husband is unemployed, rates the labor force(the sum of the transition probability of entering thanifherhusbandis employed, N ) U and N ) E) will be 25% higher of leavingthelabor forcewill be 33% lower.Women and herprobability husbandsare also 28% less likelyto leave employment. withunemployed to rate fromunemployment The only anomaly is that the transition employment is 35% lower when the husband is unemployed.Since all set out in other resultsare consistentwith the household strategies whichare common characteristics SectionII, it appearsthatunobserved in the arrival ratesof job important to husbandand wifeare particularly offers. In black families, thisselectionproblemappears even more strongly, in both havingdifficulty withwomen whose husbandsare unemployed For black wives, the rate of employment. acquiringand maintaining due to is 35% lower when husbandsare unemployed, labor forceentry is slightly higher. a low N ) E rate,and the rateof leavingemployment women withunemployed husbandsare more likelyto But, as expected, remainin the labor force;theirexit rateis 24% lower. case between the Hispanic familiesappear to be an intermediate resultsfor white familiesand the heterogeneity-dominated consistent The ratesof leavingemployment and the labor results forblack families. forcehave the expectedsigns,thoughthe rate of labor forceentryis husbands. 20% lower forwives withunemployed The racial patternof these transition matricesis puzzling. It seems in thetastesand/ results are caused by similarities clearthattheperverse of husbands and wives which are not or employment opportunities variables.It is not obvious capturedby the observable beingcompletely should dominatethisselectionproblemfor whytheadded workereffect with the finding of white but not for black wives, but it is consistent are used to compensateforchangesin Smith(1979) thatwife'searnings members extentin whitethan to a greater the earnings of otherfamily in black families. observation takesus back to Mincer'scentral One possibleexplanation is triggered thatthe added workereffect drop in family by a temporary in consumption decreases cause an adjustment which, income.Permanent in the credit-constrained household, largely replaces a labor supply of white husbands in this response.Suppose that the unemployment sample(whichhas been selectedon the basis of low householdincome) is more likely to represent income reduction,while the a transitory income. of black husbandsis a signalof low permanent unemployment husbands incomeforthetwo groupsof unemployed If average permanent the different of the added worker effectare not strengths differs,
26
Lundberg
Further of thispossibility surprising. investigation may requirea longer panel of observations. B. Simulation Results The transition rate estimates forwhitewives clearlydemonstrate the It would be helpful, in assessingits presence of an added workereffect. in termsof more familiar magnitude, to be able to expressthis effect and participation measuressuch as employment rates.This revivesthe how to measure a labor supply problem stated in the introduction: such as an unemployment responseto a temporary phenomenon spell. A steady-state distribution could be calculatedfromeach transition in table 2. This would give an equilibrium matrix rate for employment wiveswithemployedhusbandsand anotherforwives withunemployed husbands.Any comparisonof theserateswould be a spuriousmeasure of the added worker effect, however, since holding the husband's employment statusconstantimplies that both employment and unemduration. ployment spells formen are of infinite There are two typesof valid experiment which could be performed to get a simple measure of the added worker effect.Both involve the steady-state calculating distribution for husbandsand employment wives, usingthefullnine-by-nine householdtransition matrix as described in Section IIA. The transitionrates used are for a representative withthecharacteristics listedin table2. For whitehouseholds, household, this steadystateimpliesan unemployment rate of 3.8% forhusbands,9 an employment rate of 54.8% for wives, and a 'participation rate of The first possible experiment would involve changingone or more transition ratesto generate a highersteady-state unemployment rate for husbands(such as increasing The XE-U or decreasing steady-state Xu-E). ratesof wivesin thetwo equilibriacould thenbe compared. employment It is important to note that this measureof the added workereffect would, in general, depend upon whether the husbands'unemployment was increasedby generating longeror more frequent spells. The alternative method,which is illustrated here, is to introducea disturbance to the steady-state employment distribution of households. The adjustment of the systemback to its steady-state distribution can be tracedover timeusinginterval transition probabilities, as in equation (1). This secondexperiment reflects moreaccurately thedynamic behavior of the economywhen unemployment increasesthandoes a comparison of alternative steadystates.Leavingthe transition matrix unchanged, the initialstatedistribution was alteredso thatthe proportion of husbands notparticipants, rate is theproportion ofthepopulation, 9 This unemployment whoareunemployed.
58.5% for wives.
Effect TheAdded Worker
27
unemployed was increased by 5 percentage points.The monthly changes in the participation and employment rates of the wives followingthis shock are shown in figures 3, 4, and 5 for all threegroupsin Denver. The same experiment was performed forwhite families in Seattle,and generated similarresults. the increasein husband'sunemployment For whitefamilies, leads to increases in both the participationand the employmentof wives. Althoughthe peak in husband's unemployment occurs in month 1, wife'sparticipation peaks at about 6 monthsand employment peaks a month or two later. If 100 men become unemployed,the maximum impact is the additional participation of about three wives and the additionalemployment of two. The employment effect is slightly larger in Seattlethanin Denver. the increasedunemployment Among black families, among the hus-
.5865 a,
.5863 .5861 .58593 .5857 1
~~~d ~~~~ ife's

/5493
.5497 .5495 Cr .5491 .5483
Participation
K
.
SSSS0
10
12
14
16
18
.089 -
tr|
D
~Husband's
.049Ss 0 Ss. .0392 4 6 8 lo I 14 16 18
Months
and participation FIG. 3.-Effect on wife's employment rate of increasinghusband's unemployment by 5 points(whitefamilies, Denver).
28
.6603 -,A .6601 .6098 .6096
Lundberg
Cc.6599
o
x
\ Wife's
Parti
.6094
citation .6092 .6090
a
C1
o
.6597
_ .6595 Wife's
.6593 .6591 Employment
~~~~~~~~~~~~~~~~E ~~~~~~~~~~~~~~~~0
a
E
.6088 6086
SSSS 0
I0
12
14
16
18
Months .114-. Il44
Husband's
c .094Unemployment
E
0
E
:D
.084-
.064
s550
8 Months
10
12
14
16
18
FIG. 4.-Effect on wife's and participation rateof increasing husband's employment (blackfamilies, Denver). unemployment by5 points
bands is accompaniedby a sharp decreasein the employment of wives and a small fallin participation rates.10 For Hispanic wives, a slightadded workereffect is apparentin the participation rate,but the employment ratefirst fallsas a switchto the lower employment ratesof wives of the unemployed entry occurs,then risesas the reducedrateof labor forceexit dominates. VI. Conclusion This paper presentsa new approach to the empiricalstudy of the added workereffect which emphasizesthe role of uncertainty and of in generating creditconstraints short-run labor forceparticipation and
10In an earlier financial treatment as well as control version of thispaper, with were in theanalysis, theaddition ofvariables families included representing rateestimates. and support levelsto thetransition For thisexpanded taxrates addedworker effect forblackwives, and theadded a positive sample, appeared than in thecontrols-only effect white wives was larger case. worker among

.5273 .5272 .4860
29
.5271 o .5270a
G)/F
W;
Sa Participation
~~~e
.4859
.4858
.5269 0
.5268 .5267
~~~~~~~~~~mlyet0
e's
.4856
.4855
> E
.4854 . . . . 2 4 . . 6 . . . 8 . .. . 10 12 14 . 4853 18
.5266 . . . SSSS 0
16
M0 nt h s .104 '
.094 -
E
0
a, .084.074-
~~~Unemployment
Husband's
E
D .064
054
SSSS 0
10
12
14
16
18
Mo nths and participation FIG. 5.-Effect on wife's employment rate of increasinghusband's employment by 5 points(Hispanic families, Denver).
A modelofhousehold laborsupply with behavior. random employment and separations is outlined, and theaddedworker arrivals of job offers is restated in terms of changes in theprobabilities of transitions effect when member between labor force states onefamily becomes unemployed. as functions The transition ratesare expressed of individual and and the parameters are estimated from household the characteristics, ofa sample andwives enrolled in the histories ofhusbands employment Seattleand DenverIncomeMaintenance These results Experiments. showthat own wagesand own predicted determiwagesareimportant of theprobabilities of leaving nants and entering butthat employment effects aregenerally cross-wage insignificant. The estimated transition rates forrepresentative are then households usedto generate thesteady-state distribution of households overlabor andtheeffect ofan exogenous increase intheunemployment force states, and participation of wivesoverthe of husbands on the employment is simulated. In general, the simulations 18 months show succeeding
30
Lundberg
labor to husband's that wivesdo respond unemployment by increasing the unemployment men For whitefamilies, of 100 additional supply. results in thelaborforce ofthree additional and the participation wives, 6 months. thefirst oftwo,within employment and to a lesser extent families reveal The results forblack, Hispanic, a species thewives ofunemployed menareless ofselection bias,in that to becomeemployed thanare womenwithemployed likely husbands, evenafter characteristics are heldconstant. This effect, which observed may result from themarriage ofindividuals with similar tastes or market dominates the addedworker effect forblackwivesbut opportunities, notfor white or Hispanic wives. A Appendix The SIME/DIME Household Sample TheSeattle andDenver Income Maintenance Experiments were conducted between 1969and 1973andwere to test theeffects designed ofa negative income tax (NIT) on laborsupply. About4,800families wereinitially in theexperiment; dataareavailable enrolled for in Seattle 2,038families
in Denver.These families and 2,657families did not constitute a random sample fromthe populationsof the two citiesbut were chosen both to facilitate the analysisof labor supply response and to correspondas NIT closelyas possibleto thetarget populationof a future, hypothetical program.Four groups were therefore excluded from the sample: (1) familieswith heads over 58 years of age or under 18 years of age; (2) families withdisabledheads who were unable to work; (3) families with pre-experiment earningsin excess of $9,000 for a familyof fourwith one working head or above $11,000 for a familyof four with two who did not belongto a "family," defined working heads; (4) individuals
Table Al Characteristicsof the Household Sample (N = 1,081) Black (%o) (/) Hispanic (o/o) White (0/) Seattle Meanagein years, January 1, 1972: Husbands Wives Meanpredicted wages, 1972: Hus ands Wives Education, highest grade completed: Husbands
Wives
33.8 16.2 60.0 44.2 32.6 30.0 3.51 1.88 11.2

11.1
Effect The AddedWorker
31
as a unitconsisting of eithera married couple or a singleparentwith a withthisunit. dependent child,plus otherrelatives permanently residing of household transition The sample actuallyused in the estimation rates consistsof 603 familiesliving in Denver and 478 in Seattle.All the followingcriteria: were requiredto satisfy (1) the familycontains or cohabiting coupleplus dependents); ofa married two heads(i.e.,consists enrolledin the experiment, was one of those originally (2) the family formed whichexcludesfamilies duringthe courseof theexperiment and data is available foreach; guarantees thata fullyear of pre-experiment remainsin the sample untilthe second periodicinterview (3) the family or approximately 6-8 monthsafterenrollment has been administered, resultsin considdue to the structure of the periodics, (earlierattrition, was includedin erablemissing data,including education);(4) the family the controlgroupand did not receiveincome maintenance payments. of these households are Sample means for selected characteristics in table Al. presented from monthly historieswere constructed Continuous employment variableson the Public Use Files. These containsufficient employment into and out of information to establishthe date on which transitions it should be noted, provides employment occur. This characteristic, SIME/DIME withan advantage overCurrent Population Survey transition data, which are based on monthlyobservationsonly. The dates of transitions between unemployment and nonparticipation, however, should be regarded as approximations. SIME/DIME variables whichcharacterize a spell of nonemployment apply to an entirespell and are derivedfrom questionsasked in periodic interviews. All such transitions, therefore, are recordedonly duringthe monthsin which these interviews, which are administered every3 or 4 months, took place. Appendix B Transition Rate Estimates This Appendixpresents estimated parameters formanyof the household rates specifiedin Section III. Each rate has been compared, transition likelihoodratiotest,to a single-parameter usinga standard exponential process,which is equivalentto constraining all parameters except the termto be zero. Only the resultsforthose ratesin which the constant variablesincreasethe explanatory independent power of the model at
a 5% significantlevel are presented here.
A. Transitions Wives into Employment: Table BI displays the maximumlikelihood estimatesof Ojk in the rate equation Xjk = eoikXi for transitions in which the wife transition moves fromunemployment or fromnonparticipation to employment into employment. The wife'sown predicted directly wage has a signifi-
32
Lundberg
in probability cantlypositivebut decliningimpacton her employment wage has the fourout of fivecases. Her husband'sactual or predicted impact,but only on nonparticipation-to-employment expectednegative Transitions from unemploytransitions and not when he is unemployed. ment to employment do not seem to be explained by anythingbut ratesfor Seattleresidence (Seattleexperienced veryhighunemployment most of the sample period), the presence of young children(which and the wife's when the husbandis employed), discourages employment own wage when her husband is unemployed.In general,age, other
Table B1 Rates of Transition into Employment for Wives (Maximum likelihood estimates of Ojk whereXjk = eOJkXJ)
EU-REE (1) -1.70 (1.58) .05 MWAGE (.26) .01 MWAGESQ (.50) .59 WWAGE (.92) -.05 WWAGESQ (.36) AGE -.47 (1.08) .05 AGESQ (.78) -.12 OTHINC (1.64) -.21 * CHILD6 (2.82) BLACK -.22 (1.53) HISP -.20 (.94) SEATTLE -.46* (3.24) 45.45 X2 510 Numberof spells Numberof transitions 258 C EN-EE (2) -6.52* (10.04) -.19* (2.89) .01* (2.09) 2.64* (7.74) -.36* (5.39) .30 (.99) -.06 (1.41) -.07 (1.90) -.03 (.70) -.20* (2.10) -.30* (2.70) -.23* (2.55) 253.36 1,920 673 UU-UE (3) -9.02 (1.71) -1.46 (1.26) .21 (1.33) 9.88* (2.24) -2.12* (2.02) -.64 (.47) .07 (.35) -.22 (1.51) -.28 (.95) -.16 (.38) .09 (.11) -.37 (.85) 27.34 148 34 UN-UE (4) -9.52* (2.97) 1.42 (1.38) -.15 (1.14) 4.93* (2.54) -.81 (1.93) -2.00 (1.92) .31* (2.18) -.10 (.86) -.11 (.60) -.94* (2.49) -.92 (1.56) -.15 (.44) 37.09 627 47 NN-NE (5) -2.81 (1.17) - 1.59* (3.23) .13* (2.79) 3.78* (2.84) -.51 (1.93) -1.61 (1.48) .21 (1.34) -.05 (.60) .26 (1.27) -.49 (1.38) -.80 (1.44) -.06 (.18) 27.45 457 47
The independent variables arein parentheses. values t-statistics ofasymptotic NOTE.-The absolute inconstant ifemployed dollars inall equations are:MWAGE= actual byhusband hourly wageearned
in initialstate,imputedwage otherwise; MWAGESQ = (MWAGE)2; WWAGE = actual wage if wife in initialstate,imputed WWAGESQ = (WWAGE)2; AGE = age in yearsof wage otherwise; employed = other monthyly income fromall sources other than husband/10; AGESQ = (AGE)2; OTHINC
overspelland divided by 100;CHILD6 spouse's earnings; averaged

yearsat beginning of spell; BLACK, HISP, SEATTLE
ofresidence. * Significant ina two-tailed test. at the5% level
and city 0, 1, dummiesforrace,ethnicorigin,
under 6 number of children
TheAdded Worker Effect
33
have surprisingly littleimpacton thesemovements income,and children into employment. B. Transitions into Employment: Husbands In table B2, the husband'sown predicted wage does not seem to be in explaining transitions into employment, althoughthe veryimportant whenshe enters The onlyconsistent employment. wife'swage does affect and Seattle are otherincome,whichdiscourages employment, influences Black men also tendto have lower whichhas a similareffect. residence, thando whitemen. ratesinto employment transition
Table B2 Rate of Transition into Employment for Husbands
UE -EE (1) -.84 (.88) MWAGE -.19 (.53) MWAGESQ .07 (1.56) WWAGE -.06 (.18) .02 WWAGESQ (.34) AGE -.14 (.29) AGESQ .01 (.15) -.23* OTHINC (3.61) CHILD6 .07 (.92) BLACK -.44 * (3.39) HISP -.53* (2.41) SEATTLE -.79* (6.05) 84.82 X2 Numberof spells 463 Numberof transitions 302 C UU -EU (2) -9.84* (2.48) 3.25 (1.60) -.43 (1.48) .80 (.71) -.06 (.27) .79 (.71) -.11 (.70) -.34* (2.76) .40* (2.17) -.54 (1.54) .44 (.81) -.42 (1.07) 33.85 148 59 UN -EN (3) -.63 (.69) .25 (.93) .01 (.33) -.03 (.07) .07 (.60) -.82* (2.34) .12* (2.38) -.34* (8.20) .07 (1.23) -.51 * (3.95) .06 (.41) -.55* (4.61) 200.82 627 433 NE -EE (4) -1.93 (.92) -.08 (.09) .04 (.38) - 1.00* (2.18) .11 (1.33) 1.61 (1.78) -.30* (2.27) -.26* (2.90) -.21 (1.33) -.06 (.26) .25 (.49) -.79* (3.61) 69.70 229 102 NN -EN (5) -5.15* (3.42) 1.30* (3.35) -.09 (1.90) 1.03 (1.26) -.22 (1.20) -.66 (1.11) .05 (.54) -.12* (2.57) .09 (.93) -.75* (3.00) -.02 (.10) -.45* (2.32) 124.87 457 167
values arein parentheses. ofasymptotic t-statistics The independent variables NOTE.-The absolute inallequations wageearned byhusband inconstant dollars ifemployed are:MWAGE= actual hourly
in initialstate,imputedwage otherwise; MWAGESQ = (MWAGE)2; WWAGE = actual wage if wife in initialstate,imputed WWAGESQ = (WWAGE)2; AGE = age in yearsof employed wage otherwise; husband/l0;AGESQ = (AGE)2; OTHING = other monthlyincome from all sources other than
by 100;CHILD6 spouse's earnings; averaged overspelland divided

yearsat beginning of spell; BLACK, HISP, SEATTLE
ofresidence. *Significant at the5% level in a two-tailed test.
0, 1 dummiesforrace,ethnicorigin, and city
6 number of children under
34
Lundberg
C. Transitions out of Employment: Wives Table B3 demonstrates thatmovements fromemployment to nonparare explainedmuchbetter ticipation by thismodel thanare employmentIt is temptingto associate the former to-unemployment movements. withvoluntary separations and the latterwith involuntary ones, and so concludethatthe personalcharacteristics includedin this model act as betterproxies for tastes than for employment but this opportunities, temptation should perhapsbe resisted. In general, the wife'swage has a negativeimpacton transitions out of employment, as does age. Other incomeand youngchildrenencouragedroppingout of the labor force, exceptwhen the husbandis unemployed. When the husbandis unemTable B3 Ratesof Transition forWives out of Employment
EE -EU (1)
C MWAGE MWAGESQ WWAGE WWAGESQ -2.73* (2.37) .46 (1.17) -.09 (1.62) .29 (.78) -.15 (1.63)
EE -EN (2)
.51 (.97) .10 (1.64) -.01 (.85) -.64* (6.59) .05* (2.78)
UE -UN (3)
1.65 (.78) -.62 (.85) .12 (1.20) -2.09* (3.92) .29* (2.34)
NE(4)
NN
AGE AGESQ
OTHINC CHILD6
-1.03 (1.80) .11

(1.38) -.02
-1.46* (4.57) .17*

(3.65) .08*
-.92 (.83) .10

(.62) .03
6.52* (2.15) -.05 (.03) -.01 (.02) -2.52* (5.87) .35* (4.63)
-3.60* (3.20) .38*

(2.51) .25*
BLACK
HISP SEATTLE Number of spells Number of transitions
X2
-.07 (.26) .41 * (2.47) 45.51 1,663 174
-.10 (.60)
-.06 (.65)
(.19)
-.05 (.39) -.35* (3.71) 236.22 1,663 590
-.55* (5.45)
.12* (2.46)
(2.21)
.25 (1.25)
(.36)
.18 (.34) -.16 (.47) 32.12 463 46
-.14 (.41)
.37* (2.02)
(3.32) -.11 (.29)
1.49* (2.46) .50 (1.47) 77.28 229 47
are in parentheses. The independent variables NOTE.-The absolutevalues of asym totict-statistics in all equationsare: MWAGE = actual hourlywage earnedby husbandin constant dollarsif employed in initialstate,imputedwage otherwise; MWAGESQ = (MWAGE)2; WWAGE = actual wage if wife in initialstate, employed imputedwage otherwise; WWAGESQ = (WWAGE)2; AGE = age in yearsof husband/10; AGESQ = (AGE)2; OTHINC = other monthlyincome from all sources other than spouse's earnings; averagedover spell and divided by 100; CHILD6 = numberof childrenunder 6 and city of spell; BLACK, HISP, SEATTLE = 0, I dummiesforrace,ethnicorigin, yearsat beginning of residence. * Significant at the 5% level in a two-tailed test.
The Added WorkerEffect Table B4 Rates of Transition out of Employment for Husbands
EE C MWAGE MWAGESQ WWAGE WWAGESQ AGE AGESQ OTHINC CHILD6 BLACK HISP SEATTLE
2 X Numberof spells Numberof transitions
35
UE (1)
EE -NE (2) -1.25 (1.00) -.43* (3.53) .01 (1.53) .31 (.99) -.03 (.61) -1.45 (1.89) .15 (1.38) .16* (2.34) -.18 (1.36) -.06 (.29) -.57 (1.35) .16 (.74) 43.98 1,663 99
EN
UN
(3) -3.31* (3.57) -.33* (5.18) .01* (4.99) 1.38* (2.07) -.31 * (2.02) -.98* (2.90) .12* (2.45) .16* (4.96) .18* (3.20) -.11 (.81) .34* (2.22) .84* (6.86) 137.00 1,920 421
EN -NN (4) -2.19 (1.82) -.51 * (5.75) .02* (5.29) 1.26 (1.52) -.25 (1.37) -1.36* (2.88) .16* (2.29) .15* (3.31) -.03 (.38) -.43* (2.18) .24 (1.22) .44* (2.61) 94.50 1,920 208
-2.14* (2.75) -.36* (5.08) .01* (2.84) .70* (2.44) -.14* (2.34) -.79 (1.84) .10 (1.60) -.28* (3.30) -.003 (.05) .07 (.57) -.10 (.47) .32* (2.59) 76.22 1,663 301
arein parentheses. NOTE.-The absolute values ofasymptotic t-statistics The independent variables inall equations inconstant ifemployed are:MWAGE= actual dollars hourly wageearned byhusband = = in initial WWAGE actual state, imputed wageotherwise; MWAGESQ (MWAGE)2; wageifwife = (WWAGE)2; in initial AGE = ageinyears employed state, of imputed wageotherwise; WWAGESQ all sources income from other than husband/10; AGESQ = (AGE)2;OTHINC = other monthly overspelland divided of children under 6 spouse's earnings; averaged by 100;CHILD6 = number at beginning ofspell; ethnic andcity for years BLACK, HISP, SEATTLE= 0, I dummies race, origin, ofresidence. * Significant in a two-tailed at the5% level test.
but a low own wage appearsto explaintransitions ployed,nothing out of employment by wives. D. Transitions Husbands out of Employment: The husband's effect on all transitions own wage has a strongly negative as table B4 shows. His wife'swage, and even her out of employment, have a positiveeffect on predicted wage when she is not participating, transitions of the husband,thoughnot employment-to-nonparticipation ones. Otherincomeencourages on employment-to-unemployment leaving employment, living in Seattle probablycompels it, and age tends to declines over time. Race and prolong employment, though its effect are generally youngchildren insignificant (table B5).
36 Table B5 Other Transitions

EN C MWAGE MWAGESQ WWAGE WWAGESQ AGE AGESQ OTHING CHILD6 BLACK HISP SEATTLE (1) EU UE -NE (2) -4.32 (1.41) 1.99 (1.46) -.29 (1.50) -1.75* (3.30) .34* (3.31) -.28 (.24) .10 (.64) .07 (.65) .20 (.83) -.89* (2.70) -1.04* (3.17) 44.43 463 43
. . .
Lundberg
UN
NN (3)
NN -UN (4) -2.22 (1.16) -.21 (.67) .04 (1.45) -.94 (.91) .21 (1.03) .22 (.24) -.10 (.69) .12 (1.73) -.07 (.42) -.26 (.68) .29 (.82) -.34 (1.07) 27.21 457 66
NN -EE (5) -6.68* (3.64) .71 (1.04) -.07 (.83) .73 (1.09) -.12 (.96) 1.24 (1.68) -.16 (1.54) -1.08* (7.61) -.20 (1.54) .36 (1.48) .58 (1.74) -.37 (1.57) 201.63 457 111
-4.16* (4.03) -.18 (1.36) .01 (.58) .75 (1.60) -.05 (.60) -.72 (1.49) .08 (1.10) -.02 (.32) -.01 (.10) .69* (4.32) .13
.30* (1.96) 59.06 X2 Numberof spells 1,920 Numberof transitions 218
(.58)
-5.30* (2.08) 1.97* (2.23) -.22 (1.93) -1.74 (1.30) .37 (1.35) -.50 (.52) .07 (.51) .20* (2.35) .04 (.27) -.59 (1.46) .53 (1.28) -.33 (.87) 26.45 627 57
arein parentheses. values NOTE.-The absolute ofasymptotic i-statistics The independent variables inconstant inall equations are:MWAGE= actual hourly wageearned byhusband dollars ifemployed in initial state, imputed wageotherwise; MWAGESQ = (MWAGE)2; WWAGE = actual wageifwife in initialstate, employed of imputedwage otherwise; WWAGESQ = (WWAGE)2; AGE = age in years
husband/0; AGESQ of spell; BLACK, HISP, SEATTLE yearsat beginning
overspelland divided spouse's earnings; averaged by 100;CHILD6 ofresidence. * Significant level ina two-tailed test. at the5'/,
aNo =
(AGE)2; OTHINC
other monthlyincome fromall sources other than

=
and city 0, 1 dummiesforrace,ethnicorigin,
6 number under of children
observations.
References J. "The Estimation of Income Ashenfelter, Orley,and Heckman,James Effects in a Model of FamilyLabor Supply."Econoand Substitution 1974): 73-85. metrica 42 (January Dale T.; and Neumann, Kiefer, NicholasM.; Mortensen, Burdett, Kenneth; Unemployment, and the Allocationof Time over George."Earnings, Studies, 1984. Time." ReviewofEconomic Dale T. "Labor SupplyunderUncerBurdett, Kenneth, and Mortensen, In Research vol. 2, editedby R. Ehrenberg. in LaborEconomics, tainty." Greenwich, Conn.: JAI, 1978. Analysis. Cain, G. G. MarriedWomenin theLabor Force:An Economic of Chicago Press,1966. Chicago: University
37
Clark, Kim, and Summers,Lawrence. "Labor Market Dynamics and A Reconsideration." Brookings Papers on Economic Unemployment: Activity 1 (1979): 13-60. Flinn, Christopher J., and Heckman, James J. "New Methods for AnalyzingStructural Models of Labor Force Dynamics."Journalof Econometrics 18 (1982): 115-68. Heckman,James J.,and MaCurdy,Thomas E. "A Life Cycle Model of Female Labour Supply." Review of EconomicStudies(January1980), pp. 47-74. Volume 2: Semi-Markov Systems. Howard, R. A. DynamicProbabilistic and DecisionProcesses. New York: Wiley,1971. and Household Labour Supply." Lundberg,ShellyJ. "Unemployment 1981. Northwestern University, Unpublisheddissertation, T.. "Employment and High Unemployment Instability Marston, Stephen 1 (1976): 169-203. Activity Rates." Brookings Paperson Economic Mincer, Jacob. "Labor Force Participationof Married Women." In edited by H. G. Lewis. Princeton, N.J.: Aspects of Labor Economics, Press,1962. Princeton University In Prosperity and Unemployment." . "Labor Force Participation and Unemployment, editedby R. A. Gordon and M. S. Gordon. New York: Wiley,1966. Mortensen,Dale T., and Neumann, George. "Choice or Chance? A Structural of Individual Labor Market Histories." In Interpretation editedby G. Neumann and N. WestergaardLabor Market Dynamics, Nielsen. Heidelberg:Springer-Verlag, forthcoming. D. Alton; and Farkas,George. "Structural and Olsen, RandallJ.;Smith, Reduced-Form Models of Choice among Multiple QualitativeStates undera Guaranteed in Continuous Time: Youth SectoralEmployment December 1982. JobsProgram." Mimeographed. Smith,James P. "The Distributionof Family Earnings."Journalof PoliticalEconomy 87 (October 1979): S163-S192. Tuma, Nancy; Hannon, Michael; and Groeneveld, Lyle. "Dynamic 84 (January American Journal ofSociology Analysis of EventHistories." 1979): 820-54. Tuma,Nancy,and Robins,PhilipK. "A DynamicModel of Employment Behavior:An Applicationto the Seattleand Denver Income Mainte48 (May 1980): 1031-52. nance Experiments." Econometrica Wachter,Michael L. "A New Approach to the EquilibriumLabour Force." Economica 1974),pp. 35-51. (February Weiner,Stuart,"A SurvivalAnalysisof the Adult Male Black/White edited In Labor MarketDynamics, Rate Differential." Unemployment Heidelberg:Springerby G. Neumann and N. Westergaard-Nielsen. Verlag,forthcoming.

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NORC at the University of Chicago The University of Chicago

Effect The AddedWorker

and Dick Dale Mortensen, GeorgeNeumann, NicholasKiefer, wishto thank Startz.

in Mincer(1966) and Wachter(1974). See the references

The AddedWorker Effect

C FiG. I.-The added workereffect

Effect Worker The Added

Labor Force Status PreviousMonth

Differentiating thisexpression produces

Effect The AddedWorker B. Household Labor SupplyunderUncertainty

and w'(wl) be the solutionto

The Added Worker Effect

of husband'swage FIG. 2.-Wife's reservation wages as functions

is function or the rateof leavingstatej. The density (-f (tlIto) d

Ito)* f(t, -k = je-7

The Added Worker Effect

Table 1 of Wivesover Labor MarketStates Distribution by Employment Statusof Husband

Participation (%) (E + U) 42.4 42.6 47.4 34.9

TheAdded Effect Worker

xoe t o O otO o tC N C) QQOe

o =~~~~~~~~C C'sC .>oONQ1Q *H~~ C2

The Added WorkerEffect

Effect TheAdded Worker

.5863 .5861 .58593 .5857 1

~~~d ~~~~ ife's

.5497 .5495 Cr .5491 .5483

.049Ss 0 Ss. .0392 4 6 8 lo I 14 16 18

Months .114-. Il44

The Added WorkerEffect

33.8 16.2 60.0 44.2 32.6 30.0 3.51 1.88 11.2

Effect The AddedWorker

overspelland divided by 100;CHILD6 spouse's earnings; averaged

ofresidence. * Significant ina two-tailed test. at the5% level

and city 0, 1, dummiesforrace,ethnicorigin,

under 6 number of children

TheAdded Worker Effect

by 100;CHILD6 spouse's earnings; averaged overspelland divided

ofresidence. *Significant at the5% level in a two-tailed test.

0, 1 dummiesforrace,ethnicorigin, and city

6 number of children under

-1.03 (1.80) .11

-1.46* (4.57) .17*

-.92 (.83) .10

-3.60* (3.20) .38*

-.07 (.26) .41 * (2.47) 45.51 1,663 174

-.05 (.39) -.35* (3.71) 236.22 1,663 590

.18 (.34) -.16 (.47) 32.12 463 46

(3.32) -.11 (.29)

1.49* (2.46) .50 (1.47) 77.28 229 47

36 Table B5 Other Transitions

.30* (1.96) 59.06 X2 Numberof spells 1,920 Numberof transitions 218

other monthlyincome fromall sources other than

and city 0, 1 dummiesforrace,ethnicorigin,

6 number under of children

The Added WorkerEffect

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