Is There a Desired Added Worker Effect? Evidence from Involuntary Job Losses

Abstract

While the existing evidence on added worker effects is mixed, most studies find no or only small effects. However, studies to date have mostly analyzed individuals’ actual labor supply responses to their partners’ job loss, neglecting to consider a potential mismatch between desired and actual labor supply adjustments. Using data from the German Socio-Economic Panel (SOEP), we study individuals’ changes in actual and desired working hours after their partners’ involuntary job loss in an event study design. Our results show that actual and desired working hours only increase marginally and that these increases are of similar magnitude. Thus, we provide first evidence that the absence of more substantial added worker effects is in line with individuals’ stated labor supply preferences and is not the result of an inability to realize desired working hours.