What limits intra-household insurance or the ‘Added Worker Effect’?

abstract

The ‘Added Worker Effect’ (AWE) theory posits that partners of the unemployed provide intra-household insurance by increasing their earnings. However, estimates of the AWE are small. Popular explanations include lacking need (e.g. due to generous unemployment benefits), capacity or willingness to increase earnings, though these explanations are seldom tested systematically. Using Swiss administrative data and difference-in-differences estimates, we find an overall AWE among only non-working women. We find no systematic differences in AWEs between couples with differing needs or capacities, but aspects related to willingness like marriage, long marital duration and shared biological children are associated with higher AWEs. Men’s overall slight reduction in earnings upon their partners’ unemployment is driven by young, childless, cohabiting men. Overall, compared to unemployment insurance, in all studied subgroups, the AWE is a minimal source of insurance.