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  5. The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries

  • David Cesarini
  • Erik Lindqvist
  • Matthew J. Notowidigdo
  • Robert Östling
American Economic Review
vol. 107, no. 12, December 2017
(pp. 3917–46)
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Abstract

We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. Winning a lottery prize modestly reduces earnings, with the reduction being immediate, persistent, and quite similar by age, education, and sex. A calibrated dynamic model implies lifetime marginal propensities to earn out of unearned income from -0.17 at age 20 to -0.04 at age 60, and labor supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.

Citation

Cesarini, David, Erik Lindqvist, Matthew J. Notowidigdo, and Robert Östling. 2017. "The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries." American Economic Review, 107 (12): 3917–46. DOI: 10.1257/aer.20151589

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials