Conference Paper Paper for the EEEG Conference, July 2-4, 2001, University of Leicester
Capital gains and labour supply: British evidence
01 Apr 2001
Do workers adjust labour supply in response to capital gains? Can we observe differences in behaviour depending on whether those capital gains are anticipated or unanticipated? Unanticipated capital gains will, in a life-cycle model, lower the marginal utility of wealth and so reduce labour supply. The impact of anticipated gains should have already been incorporated into the individual’s life-cycle program. This paper uses micro data from the British Household Panel Survey to investigate hours of work adjustments to two sources of capital gain: financial windfalls and real housing wealth gains. Significant reductions in hours are found for both men and women in response to both types of gains, but are conditional on model specification. These effects occur if gains are unexpected and for men originate largely from changes in overtime hours. The windfall gains in our survey are mainly transitory in nature however as regards housing we conclude that housing market volatility may have important consequences for the labour market.