Added worker effect during the Great Recession. Evidence from Italy

Structured Abstract: Purpose: The paper aims to check the existence of the Added Worker Effect (AWE) in Italy during the Great Recession. Design/Methodology/Approach: We use the Bank of Italy Survey on Household Income and Wealth to study factors driving the change in female work status over the period 2006-2012. The Probit model is used to identify the timing, significance and the magnitude of the AWE. We also perform panel estimates to understand how women, positioned at either extensive or intensive margins, respond to the reduction in male hours of work which appear to be crucial for the AWE to manifest. Findings: We find that with crisis progressing Italian women respond ever less to the reduction in male earnings, at the same time they become more responsive to the job loss by male partner which is the worst outcome. This means that the AWE survives, even if only in cases of serious hardship. It also remains when the reduction in male incomes is coupled with the reduction in their hours of work, suggesting that the redistribution of household chores is an important prerequisite for women to get into work. Originality/Value: The paper provides evidence on the Added Worker Effect in Italy during the Great Recession. We took into account the peculiarity of the Italian labour market whose performance was affected by the use of the Wage Supplementation Fund. It masks part of the AWE when the standard methodology is used. By looking at the reduction in male earnings with or without a change in their work hours we were able to reveal additional channels through which the AWE operates in Italy.