Intra-Household Coping Mechanisms in Hard Times : the Added Worker Effect in the 2001 Argentine Economic Crisis

This paper shows that the added worker effect (AWE) plays an important role in coping against aggregate shocks, even in cases where the discouragement effect prevails at a macroeconomic scale. Using an Argentine panel dataset between 2000-2002, we instrument the endogenous variation in the labor market outcomes of household heads using the collapse of the Convertibility era as a natural experiment, and measure its causal impact on their spouses’ labor supply decisions. Within this framework, we show that a woman whose husband experiences the average decline in income is 4.4 percentage points more likely to enter the labor market. Out of four new entrants, three work at least one hour weekly, and one even finds a full time job. Heterogeneous effects are in line with expectations, robustness checks support the validity of our empirical strategy, and our results are robust to various sensitivity tests.