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

We study the effect of wealth on individual and household labor supply using a large, newly-collected sample of lottery players in Sweden. Using high-quality administrative data for roughly 2.5 million lottery players, we find that winning a lottery prize modestly reduces labor earnings, with the effects roughly constant over time and persisting more than 10 years. We find both intensive and extensive margin responses and similar responses by age, gender, and education. We find no evidence of nonlinear effects across any of our earnings measures. The reduction in household labor earnings is larger than the individual responses of winners, implying that spouses of winners reduce their labor earnings, as well; however, we find significantly larger labor earnings declines for winners than for their spouses, regardless of the gender of the winner. This is inconsistent with the pooling of exogenous unearned income within the household, which is a necessary condition of unitary models of household labor supply. David Cesarini, Center for Experimental Social Science, Department of Economics, New York University and Research Institute for Industrial Economics, Stockholm, Sweden. E-mail: [email protected]. Erik Lindqvist, Department of Economics, Stockholm School of Economics and Research Institute for Industrial Economics, Stockholm, Sweden. E-mail: [email protected]. Matthew J. Notowidigdo, University of Chicago Booth School of Business and NBER. E-mail: [email protected]. Robert Ostling, Institute for International Economic Studies, Stockholm, Sweden. E-mail: [email protected]. We thank Erik Hurst and seminar audiences at Uppsala University, Cornell University, and the Rady School of Management for for helpful comments. Alessandra Voena provided especially valuable guidance and feedback. We also thank Renjie Jiang, Kristztian Kovacs, and Erik Tengbjörk for helpful research assistance. This paper is part of a project hosted by the Research Institute of Industrial Economics (IFN) and financially supported by the Swedish Research Council (VR), Handelsbanken’s Research Foundations and the Swedish Council for Working Life and Social Research (FAS).