Commitment in the household: Evidence from the effect of inheritances on the labor supply of older married couples

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. We study the effect of receiving an inheritance on the labor force participation (LFP) of both the recipient and the recipient's spouse in a population of older married couples. An inheritance is not subject to laws governing division of marital property at divorce, because it is not acquired with income earned during marriage. Hence it plays the role of a "distribution factor" in the intrahousehold allocation of resources, increasing bargaining power of the recipient. Controlling for inheritance expectations, we interpret the receipt of an inheritance as a shock to wealth. Our results indicate that receiving an inheritance reduces LFP of the recipient by four percentage points, comparable in magnitude to the effect of a decline in health. However, an inheritance has little or no effect on LFP of the spouse. These estimates are inconsistent with a dynamic, collective model of the household in which spouses have the ability to commit to an ex ante efficient allocation. The results are consistent with a model of limited commitment in which a shock to household resources can alter bargaining power. We discuss the implications for reform of Social Security spouse and survivor benefits.JEL Classification: J22, J26

Labour Supply after Inheritances and the Role of Expectations

“…Column (4) interacts with the postinheritance dummy with individual and spousal expectations and suggests no discernible role for spousal expectations in the labour supply of women following an inheritance. This is in line with previous findings that households do not behave in line with a collective model upon receiving a wealth shock (Cesarini et al, 2017;Blau and Goodstein, 2016). Turning to men, the left-hand panel of Figure 1 indicates that men's hours of work are unchanged after the receipt of an inheritance, whether the inheritance was expected or unexpected.…”

“…Bo et al (2016) study the effect of inheritances on labour supply in Norway, finding differential effects by age, marital and family status of recipients. The effect of inheritances on the labour supply of both spouses, controlling for inheritance expectation, has recently been studied for older couples in the US in a contribution by Blau and Goodstein (2016) who find that inheritances reduce the labour supply of the heir with little impact on the labour supply of their spouse. Brown et al (2010) isolates the effects of both unexpected and expected inheritances on retirement probabilities in the US, finding that unexpected inheritances induce retirement more often than expected inheritances.…”

On the Retirement Effect of Inheritance: Heterogeneity and the Role of Risk Aversion

“…The papers closest to ours are Brown et al (2010) and Blau and Goodstein (2016). Using data from the Health and Retirement Survey (HRS), both papers show that individuals who inherit between two waves of the survey are also more likely to exit the labor market during that time.…”

Intrahousehold Commitment and Intertemporal Labor Supply

“…Neither paper distinguishes between NIC and LIC. Other examples are Voena (2015) and Blau and Goodstein (2016).…”