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Labour Supply after Inheritances and the Role of Expectations

Karina Doorley () and Nico Pestel ()

No 9822, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the effect of wealth on labour market behaviour. Providing convincing evidence on this relationship is challenging since wealth and labour supply may be endogenously determined. We overcome this by looking at wealth shocks in the form of inheritances, distinguishing between unanticipated and anticipated inheritances. We provide a theoretical framework which outlines how an individual's labour market behaviour may be expected to react to a wealth shock under different circumstances including perfect/imperfect anticipation and a credit constrained environment. We test our model predictions using rich household and individual level micro-data for Germany. We find that women decrease their hours of work in response to an inheritance. Both men and women are more likely to stay self-employed after a large inheritance and male entrepreneurs are also more likely to recruit. The effect of inheritances on the self-employed is amplified for those who are credit constrained. The magnitude of these effects is similar for anticipated and unanticipated inheritances but the timing varies, with effects visible before the event in the case of anticipated inheritances.

Keywords: labour supply; wealth; inheritance; self-employment; Germany (search for similar items in EconPapers)
JEL-codes: D31 J22 L26 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-03
New Economics Papers: this item is included in nep-ent, nep-eur and nep-lma
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Citations: View citations in EconPapers (13) Track citations by RSS feed

Forthcoming in: Oxford Bulletin of Economics and Statistics ( http://dx.doi.org/10.1111/obes.12353 )

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