A new GLO Discussion Paper identifies and analyses a new effect related to the cyclical behavior of labor supply: the Entitled-Worker Effect (EWE) and provides evidence for the effect in Spain.

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GLO Discussion Paper No. 707, 2020

Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect – Download PDF
by Martín-Román, Ángel L.

GLO Fellow Ángel L. Martín-Román

Author 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.

GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS,  EconPapers). Complete list of all GLO DPs – downloadable for free.

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