Events at CERGE-EI

Tereza Ranosova, Ph.D.

Deutsche Bundesbank Research Center

Authors: John Leahy and Tereza Ranošová

Abstract: We find that monetary shocks have weaker impact in states in which fewer married women work. Employment and total payroll fall by less and the unemployment rate rises by less. We argue that a plausible explanation is the “added worker effect” in which a weak labor market attachment of the secondary earner enables flexible labor supply adjustments that insure household demand. We provide three pieces of evidence to support this hypothesis. First, proxies for added worker effect behavior that we build from household panels state by state are negatively correlated with the share of married women working. Second, employment responds less to a monetary policy shock in states where these proxies are higher. Third, in states with a low share of married women working, more of them are drawn into the labor force after a negative shock.

Full Text: Monetary Policy and the Added Worker Effect