High labor force participation has been an indisputable goal of developed economies. The main arguments have been that increased labor force participation promotes economic growth and reduces poverty. In line with this policy goal much of the literature in labor economics has focused on the determinants of labor force participation. Surprisingly, despite the emphasis on high labor force participation as a policy goal, the labor literature does not provide a complete understanding of the full welfare implications of increased labor force participation. In particular, the fact that individual decisions related to labor force participation often take place in a social context has received little attention. For example, when an individual chooses to work more, this often means less time with family and friends. Moreover, stress from participation in the labor force can lead to behavioral changes that can affect family and friends.
In this research program we will empirically investigate indirect effects of labor force participation, referring to those effects that extend beyond the individual worker. Specifically, we will investigate three categories of indirect effects. First, we will explore how parents’ labor force participation affects children in terms of educational and health outcomes. Second, we will explore the causal effect of labor force participation on marriage. Finally, we will investigate social interaction effects in labor force participation, namely, whether an individual’s labor force participation influences his or her peers’ participation.
Identifying a causal relationship between a person's labor force participation and outcomes of family members and peers is complicated by omitted variable bias. For example, intelligent mothers may be more likely to work, and their children's educational performance could reflect genetically inherited abilities rather than their mother's labor force participation. We plan to overcome omitted variable bias by utilizing various child care and labor market reforms, in addition to plant downsizing events, as "natural experiments".
Investigating the effects of labor force participation on family members and peers is also complicated by data availability. The task requires data on an individual's labor force participation, linked to relevant outcomes for the individual's children, spouse and peers. We will utilize three Norwegian databases that provide a unique opportunity to investigate indirect effects of labor force participation.
