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American Economic Review Vol. 107 No. 12 2017

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

David Cesarini1; Erik Lindqvist2; Matthew Notowidigdo3; Robert Östling4

1 Center for Experimental Social Science and Department of Economics, New York University, 19 W.4th Street, 6FL, New York, NY 10012, NBER, and Research Institute of Industrial Economics (IFN) (email: ) · 2 Department of Economics, Stockholm School of Economics, Box 6501, SE-113 83 Stockholm, Sweden, and IFN (email: ) · 3 Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, and NBER (email: ) · 4 Institute for International Economic Studies, Stockholm University, SE-106 91 Stockholm, Sweden (email: )

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.

DOI
10.1257/aer.20151589
Volume
107
Issue
12
Pages
3917-3946
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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