Labor Supply Response to Windfall Gains

Dimitris Georgarakos, Tullio Jappelli (), Geoff Kenny and Luigi Pistaferri ()
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Luigi Pistaferri: Stanford University, SIEPR, NBER and CEPR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Using a large survey of euro area consumers, we design an experiment in which respondents report how they would change the decision to participate in the labor market, the hours worked, and their search effort (if not employed) in response to randomly assigned windfall gain scenarios. Windfall gains reduce labor supply, but only if they are significant in size. At the extensive margin, we find no effect for gains below €25,000, and a decline in the probability of working of 3 percentage points for gains between €25,000 and €100,000. At the intensive margin, there is no effect for small gains, and a drop of roughly one weekly hour for gains above €50,000. Women and workers closer to retirement respond more strongly to windfall gains. Finally, the proportion of those who stop searching for a job or search less intensively falls by 1 percentage point for each €10,000 gain, and the effect is more pronounced for older individuals receiving the largest prize.

Keywords: Survey Experiment; Labor Supply; Job Search; Wealth Shocks; Consumer Expectations Survey. (search for similar items in EconPapers)
JEL-codes: D10 E24 J22 J68 (search for similar items in EconPapers)
Date: 2023-09-18
New Economics Papers: this item is included in nep-age, nep-eec, nep-exp, nep-lma and nep-ltv
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https://www.csef.it/WP/wp682.pdf (application/pdf)

Related works:
Working Paper: Labor Supply Response to Windfall Gains (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:682

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