September 14, 2023 – INÉS BERNIELL, LEONARDO GASPARINI, MARIANA MARCHIONNI, MARIANA VIOLLAZ

Inés Berniell

CEDLAS – Universidad Nacional de La Plata, Argentina

Leonardo Gasparini

CEDLAS – Universidad Nacional de La Plata – CONICET, Argentina

Mariana Marchionni

CEDLAS – Universidad Nacional de La Plata – CONICET, Argentina

Mariana Viollaz

CEDLAS – Universidad Nacional de La Plata, Argentina

Evidence for developed countries suggests that individuals entering the labour market during high unemployment periods, the “unlucky cohorts,” suffer due to lower wages and earnings in the long term. The dynamics might be different for women in the developing world. In poorer and more informal economies, many women enter the labour market during “bad times” as secondary workers, when men in their households lose their jobs. In particular, for women in the age of school-work transition, economic downturns may act as an additional incentive to enter the labour force and provide support for their families. This unexpected entry may have long-term positive effects on their labor force participation and earnings. The negative shock might end up being beneficial for these women in the long-run, making them “lucky women” in “unlucky cohorts.”

This paper studies this situation in the context of Latin America, a region characterized by high macroeconomic volatility, high youth unemployment, and low female labour force participation.

The authors, Inés Berniell, Leonardo Gasparini, Mariana Marchionni, and Mariana Viollaz, use harmonized microdata of more than 1.5 million individuals from national household surveys in 15 Latin American countries over a period of ten years after entry into the labour market, and assess the differences between outcomes for men and women.

After building a panel dataset, they follow different labour market entry cohorts in each country to estimate the effects of the initial conditions at entry on labour market outcomes, the role of women in the household, and perceptions about societal gender roles, using fixed effects models by country and year. Their identification strategy exploits the changes in national unemployment rates at labour market entry across country cohorts. They take the national unemployment rate that a cohort faced between ages 18-20 years as proxy for initial conditions.

They find that outcomes for men in “unlucky cohorts” who faced higher unemployment rates at ages 18-20 years are in line with evidence for men in developed countries. In both cases, men suffer negative effects on employment. A one-standard deviation increase in unemployment rates at ages 18-20 leads to a decrease in employment of 0.32 percentage points and to an increase in unemployment of 0.20 percentage points between ages 27-30 (Figure 1).

In contrast, Latin American women in the “unlucky cohorts” have greater chances of being employed and earning higher wages ten years following potential entry into the labour market. A one-standard deviation increase in unemployment rates between ages 18-20 leads to a 0.51 percentage point increase in female employment and a 0.45 percentage point increase in female labour force participation (Figure 1). There is also a 0.18 percentage point increase in working hours per week. These results control for the fact that both men and women get more education as a result of higher initial unemployment.

The results also show an increase of 3.6% in hourly wages and 3.3% in monthly labour income of women for each one-standard deviation increase in unemployment in ages 18-20. While the gender difference is not statistically significant, the authors note that for men we can expect a positive effect on labour income due to positive selection into employment. However, for women, while the expectation was that the composition effect, driven by an increase in female employment rates, would negatively affect average wages, the results suggest otherwise. Women in unlucky cohorts actually advance their careers by obtaining higher wages.

The results of this paper could be explained by the added-worker effect (AWE). This refers to entry of secondary household workers, usually women, into the labour market in response to unemployment shocks and economic recessions. Essentially, young women would be “forced” to enter labour markets in difficult times to help their families. Once in the labour market, they would be more likely to stay. In a sample of eight Latin American countries they find that while the labour force participation of men aged 18-20 is negatively correlated to the national unemployment rate, women’s labour participation remains unchanged and even increases when national unemployment increases. The authors explain that for groups of young women, there is some factor, probably associated to the AWE, that compensates for the typical discouraged worker effect which reduces labour market participation when unemployment is high.

The authors also establish a connection between unfavorable initial labor market conditions and the development of more progressive attitudes towards gender roles in these cohorts a decade later. The improvement in labor market outcomes for women could have strengthened female empowerment, and this increased empowerment may have also contributed to even more favorable female labor market outcomes.