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You’d probably have to pay me quite a lot of money to persuade me to leave my lovely colleagues here at the Financial Times, although anyone who finds my writing particularly interesting is welcome to make me an offer. Maybe I could use the extra time to write more songs or read more books. I would definitely take more naps.
The question of how one responds to an unexpected financial loss of this kind is a fun thought experiment. But it has more weight for politicians. They must consider whether a stimulus check or tax break could encourage people to leave work or turn a deaf ear to the pleas of desperate employers. He must be asking how much money it takes to make someone idle.
Economists have been trying to come up with an answer to this for decades. In theory, free time is nice, and an unexpected windfall should mean people consume more of it. But in practice, there can be a lot of geeky workaholics like me.
One early approach was to look at how people responded to their partner’s promotion, assuming the payoff was shared. Annoyingly, however, individuals seem not to be so generous, and apart from causality, they could also run in the opposite direction. What if I forced my partner to climb the corporate ladder so I could quit my job and serenade my (few) fans? If promotions don’t come randomly, it’s hard to be sure that anything that happens afterwards is actually a result of them.
Another approach is to see what people do after getting the link. (Trust economists to turn a moment of grief into an opportunity to estimate the effects of unearned income.) Studies typically find that women are more likely to leave work after such an event, with one in Europe finding a five percentage point drop in female labor force participation after inheriting a at least EUR 5,000. (The survey is frustratingly unclear on exactly how much they received.)
But even this method has its drawbacks. People who inherit large enough sums to influence their work decisions are likely to be better off than average. They may also expect cash.
Looking at lottery winners is a surer way to find a shock of wealth that is truly unexpected. (Ticket holders probably think the odds of success are high enough to buy the ticket, but low enough to plan their careers around winning the jackpot.)
This is a relatively rich area of ​​research. A recently published study of American prize winners found that for every $100,000 in extra wealth, the winner’s chance of being employed drops by less than 4 percentage points. Poorer people are more likely to leave their jobs, while richer people are more likely to stay at work but reduce their working hours. Another study of individuals in Spain found that winning enabled some people to start their own businesses.
All these clever ways of dealing with the consequences of unexpected events are very impressive. However, there is an easier approach. Why not just. . . ask?
Historically, just researching people like this would be quite controversial. Stefanie Stantcheva of Harvard University says that perhaps ten years ago, economists did not trust this technique at all. They felt that people’s words were unreliable and it was much better to measure their actions.
But in many cases, perfect data or settings just don’t exist. And recent work by Stantchev and co-authors has shown several cases where what people say they would do is very close to what they actually do. Over the past few years, he says, survey acceptance has grown a lot.
A new working paper by researchers at the Center for Economic Policy Research and Stanford University takes this approach, asking Europeans what they would do if they were given sums ranging from €5,000 to €100,000.
Less than €25,000 people say they would continue with the job. But for amounts between this limit and €100,000, their likelihood of working drops by an average of 3 percentage points. Women, as well as people who are older, have less debt or are nearing retirement, are more likely to leave.
Stantcheva says survey questions are most reliable when hypothetical situations are “very close to everyday life.” So anyone’s opinions on what they would do with a €100,000 surprise should be taken with a grain of salt. However, for the smaller amounts relevant to most policy interventions, these effects appear to be quite weak. Maybe I’m not such a weirdo after all.
soumaya.keynes@ft.com
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