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Labor Supply Response to Windfall Gains

Author

Listed:
  • Georgarakos, Dimitris
  • Jappelli, Tullio
  • Kenny, Geoff
  • Pistaferri, Luigi

Abstract

Using a large survey of euro area consumers, we design an experiment in which respondents report how they would change the decision to participate in the labor market, the hours worked, and their search effort (if not employed) in response to randomly assigned windfall gain scenarios. Windfall gains reduce labor supply, but only if they are significant in size. At the extensive margin, we find no effect for gains below €25,000, and a decline in the probability of working of 3 percentage points for gains between €25,000 and €100,000. At the intensive margin, there is no effect for small gains, and a drop of roughly one weekly hour for gains above €50,000. Women and workers closer to retirement respond more strongly to windfall gains. Finally, the proportion of those who stop searching for a job or search less intensively falls by 1 percentage point for each €10,000 gain, and the effect is more pronounced for older individuals receiving €100,000.

Suggested Citation

  • Georgarakos, Dimitris & Jappelli, Tullio & Kenny, Geoff & Pistaferri, Luigi, 2024. "Labor Supply Response to Windfall Gains," CEPR Discussion Papers 19150, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19150
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    Cited by:

    1. is not listed on IDEAS
    2. Giuseppe Pio Dachille & Maria De Paola & Roberto Nisticò, 2025. "Guaranteed Minimum Income and Fertility," RFBerlin Discussion Paper Series 2588, ROCKWOOL Foundation Berlin (RFBerlin).
    3. Belloc, Ignacio & Molina, José Alberto & Velilla, Jorge, 2025. "Inheritance Shocks and Expenditure Patterns: A Dynamic Collective Approach," IZA Discussion Papers 18243, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • D10 - Microeconomics - - Household Behavior - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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