In Simple Words
Imagine a worker who wins a prize and decides to spend less time working. Instead of handing in a resignation letter and walking away from employment completely, the worker simply cuts back from working five days a week down to four days, keeping the exact same job and hourly pay rate.
Same Swedish players, two labor measures
- Weekly hours
- 1.282 fewer hours per week
- Full-time monthly wage
- 147 SEK lower; uncertain
Same players, two measures. Per 1M SEK over five years: hours fell clearly; the wage estimate was uncertain. Hours are earnings-based.
See source →Research question
When individuals receive unexpected wealth, labor supply reductions can occur either by quitting employment entirely (the extensive margin) or by cutting back weekly working hours while remaining employed (the intensive margin). Disentangling these mechanisms is critical for understanding workforce retention and career continuity.
Participants
N = 244,826 observations for full labor outcomes and N = 108,919 for wage/hours survey subsample of Swedish lottery players.
Study Design
Structural decomposition of annual wage earnings changes into wage rate and hours-worked components using Statistics Sweden administrative tax and annual wage survey records.
Results
A 1 million SEK prize reduces weekly working hours by 1.282 hours (3.9% reduction, p < 0.001) while monthly full-time equivalent wages fall by only 147.3 SEK (0.6% reduction, p = 0.080); reduced working hours account for 81% of the overall drop in wage earnings, whereas wage rate changes account for only 18%.
Takeaway
Model workforce reductions following wealth shocks primarily as reductions in contractual working hours rather than abrupt job resignations or career shifts.