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

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  • Blau, David M.
  • Goodstein, Ryan M.

Abstract

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 in the U.S. 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 self-reported 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.

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  • Blau, David M. & Goodstein, Ryan M., 2016. "Commitment in the household: Evidence from the effect of inheritances on the labor supply of older married couples," Labour Economics, Elsevier, vol. 42(C), pages 123-137.
    • Handle: RePEc:eee:labeco:v:42:y:2016:i:c:p:123-137
    DOI: 10.1016/j.labeco.2016.08.003
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    2. Campaña, Juan Carlos & Gimenez-Nadal, José Ignacio & Molina, José Alberto, 2018. "Efficient Labor Supply for Latin Families: Is the Intra-Household Bargaining Power Relevant?," IZA Discussion Papers 11695, Institute of Labor Economics (IZA).
    3. Horioka, Charles Yuji & Gahramanov, Emin & Hayat, Aziz & Tang, Xueli, 2021. "The impact of bequest motives on labor supply and retirement behavior in Japan: A theoretical and empirical analysis," Journal of the Japanese and International Economies, Elsevier, vol. 62(C).
    4. Molina, José Alberto & Gimenez-Nadal, José Ignacio & Velilla, Jorge, 2018. "Intertemporal Labor Supply: A Household Collective Approach," IZA Discussion Papers 11276, Institute of Labor Economics (IZA).
    5. Pierre André Chiappori & José Ignacio Gimenez Nadal & José Alberto Molina & Alexandros Theloudis & Jorge Velilla, 2020. "Intrahousehold Commitment and Intertemporal Labor Supply," LISER Working Paper Series 2020-11, Luxembourg Institute of Socio-Economic Research (LISER).
    6. Yuji Horioka, Charles & Gahramanov, Emin & Hayat, Aziz & Tang, Xueli, 2019. "The Impact of Bequest Motives on Retirement Behavior in Japan: A Theoretical and Empirical Analysis," AGI Working Paper Series 2019-14, Asian Growth Research Institute.
    7. Molina, José Alberto & Gimenez-Nadal, José Ignacio & Velilla, Jorge, 2018. "Intra-Household Wealth and Welfare Inequality in the US: Estimations from a Collective Model of Labor Supply," IZA Discussion Papers 11707, Institute of Labor Economics (IZA).
    8. Aviad Tur-Sinai & Harald Künemund & Claudia Vogel, 2022. "Inheritances and work for pay — will the expected wave of bequests undermine active ageing policies?," European Journal of Ageing, Springer, vol. 19(4), pages 1251-1261, December.
    9. Garbinti, Bertrand & Georges-Kot, Simon, 2019. "On the retirement effect of inheritance: heterogeneity and the role of risk aversion," Working Paper Series 2222, European Central Bank.
    10. Crusius, Tobias L. & von Werder, Marten, 2017. "The affluency to quit: How inheritances affect retirement plannings," Discussion Papers 2017/24, Free University Berlin, School of Business & Economics.
    11. Basiglio, Stefania, 2018. "Essays on financial behaviour of households and firms," Other publications TiSEM c13423c5-8bf2-44a7-baa7-3, Tilburg University, School of Economics and Management.
    12. Donni, Olivier & Molina, José Alberto, 2018. "Household Collective Models: Three Decades of Theoretical Contributions and Empirical Evidence," IZA Discussion Papers 11915, Institute of Labor Economics (IZA).
    13. Xuecun Zhao & Yanrong Liu, 2022. "Effects of housing demolition on labor supply: Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1663-1692, August.
    14. Karina Doorley & Nico Pestel, 2020. "Labour Supply after Inheritances and the Role of Expectations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 843-863, August.
    15. Bautista Lacambra, Sergio, 2020. "Household labor supply: Collective results for certain developed countries," MPRA Paper 101514, University Library of Munich, Germany.
    16. Chiappori, Pierre-André & Molina, José Alberto & Gimenez-Nadal, José Ignacio & Velilla, Jorge, 2019. "Intertemporal Labor Supply and Intra-Household Commitment," IZA Discussion Papers 12353, Institute of Labor Economics (IZA).
    17. Stefania Basiglio, 2022. "‘Take the Money and Run’: Dutch Evidence on Inheritance and Transfer Receiving and Divorce," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 585-605, November.

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    More about this item

    Keywords

    Retirement; Commitment; Inheritance; Household bargaining; Labor force participation;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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