Abstract
PurposeThe authors analyse how the receipt of a wealth transfer (inheritance or gift) affects labour force participation in 14 EU countries. They compare the effect of receiving an inheritance or a gift and investigate different behaviours at the gender level and educational level and for elderly individuals.Design/methodology/approachThe authors use data from the Household Finance and Consumption Survey for 14 European countries and adopt an instrumental variable approach. They use information on the type of donor (family and nonfamily) to infer the degree of anticipation of a wealth transfer.FindingsThe authors find that unexpected wealth transfers have a negative impact on labour force participation, with a stronger impact for gifts than for inheritances. For gender, they find larger negative impacts for females than for males, which is in line with a weaker attachment to the labour market. Receiving an unexpected wealth transfer may also result in early retirement.Originality/valueThe paper offers a novel comparison of the effect of receiving an inheritance or a gift on labour force participation using a unique European dataset. The authors investigate whether males and females react differently to the receipt of a wealth transfer and the existence of different responses at the educational level and for elderly individuals.
Highlights
Whether inheritances have a negative impact on labour supply is a long-standing issue in labour economics
In the case of nonfamily donors, the estimated coefficients are slightly smaller than those obtained from the original sample. This suggests that the effect related to self-employment slightly countervails the negative impact we find in our main analysis, which indicates that receiving an inheritance is positively correlated with staying or becoming self-employed (e.g. Holtz-Eakin et al, 1994; Taylor, 2001; Hurst and Lusardi, 2004)
When examining the differences between inheritances and gifts, we stress that the impact on labour force participation associated with the receipt of a gift is negative and greater in magnitude than the impact of an inheritance
Summary
Whether inheritances have a negative impact on labour supply is a long-standing issue in labour economics. We add to the previous literature comparing the impacts of different types of wealth shocks (inheritances and gifts) by providing separate estimates by gender and using homogeneous data from 14 European countries. Our study uses 2014 cross-sectional data to analyse the impact on labour force participation in this year after having received a wealth transfer in the previous 2008–2013 period. This wide timespan allows us to account for both short- and medium-term effects and is in line with some related studies Control variables Female Age 25–34 Age 35–44 Age 45–54 Age 55–59 Low education Medium education High education Partner at work Married Number of children aged 0–6 Foreign-born Work experience/Potential work experience (%) Unemployment rate (%)
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