Working Paper No. 1094

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

Published: November 23, 2015Pages: 41Keywords: Labor supply; household labor supply; income effect; marginal propensity to earn; substitution effect; uncompensated elasticity; compensated elasticity; Frisch elasticity; household bargaining; unitary model of the household; self-employment; taxation. JEL-codes: H20; J12; J22; J24; J26; J62
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The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries David Cesarini, Erik Lindqvist, Matthew J. Notowidigdo and Robert Östling


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We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. We find winning a lottery prize modestly reduces labor earnings, with the reduction being immediate, persistent, and similar by age, education, and sex. A calibrated dynamic model of individual labor supply implies an average lifetime marginal propensity to earn out of unearned income of -0.11, 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.



Erik Lindqvist

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