This research proposal aims to investigate the impact of expected inheritances on the job market preferences and labor supply of young individuals. The researcher plans to use longitudinal datasets tracking individuals over time to compare labor outcomes of those expecting inheritances to a control group. Propensity score matching and survival analysis will be used to analyze whether expectations of future wealth transfers influence factors like job entry timing, position, hours, and turnover rates while accounting for other individual characteristics. A particular focus will be assessing differences between the effects of expected versus unexpected inheritances, as well as analyzing potential gender differences in how expectations shape preferences for education versus early fertility. The outcomes could provide insights into the relationship between intergenerational wealth, labor supply elasticity, and persistence of gender

1.
UNIVERSITY OF TRENTO
SCHOOL OF SOCIAL SCIENCES
RESEARCH PROPOSAL
DOCTORAL PROGRAMME IN ECONOMICS AND MANAGEMENT
The role of expectations on intergenerational wealth transfers in
affecting job market preferences of young individuals
ABSTRACT
Job market choices taken in an early phase of the career might have far-reaching
implications, since they contribute to shape individual lifetime income patterns. At the same
time, many factors affect early-stage labor supply decisions of young individuals: this
research aims at investigating the role of inheritances’ expectations in this regard. In
particular, it will assess the extent to which expected versus unexpected inheritances may
affect current labor market choices of young individuals.
There are several reasons, indeed, for expecting some labor supply effects to materialize
shortly after actual transfers of resources from parents to children occur, but this might not
hold for expected bequests. The outcomes would contribute to shed light on the
relationship between expectations on intergenerational wealth transfers and job market
preferences of young individuals, by taking into account also the gender perspective.
Boccardo Serena

2.
SUMMARY
When an individual expects to receive a bequest, he can choose to increase his current
and future consumption and decrease its active saving, to start a business, or to enjoy
more leisure time and decrease his labor supply, either by exiting the labor force, reducing
hours, or switching to a job with a lower or more uncertain income but other
desirable characteristics; in the case of a young individual, he might also decide to invest in
advanced education, thus postponing his entrance in the job market whilst broadening his
career perspectives.
Job market preferences may also vary greatly across gender, since young women might
also show strong preferences towards the option of early maternity rather than advanced
education, and this might result in a persistent gender gap in job careers, salaries and
female labor supply rates in general.
Because of the enormous increase in women education in the last decades, and in light of
the fertility rate drop that occurred in the same time span, analyzing the effects of
expected wealth transfers in this sense may be of interest.
The aim of it is to investigate the existence and the extent to which wealth disparities
across generations persist and can reflect job market preferences of young potential
inheritants (i.e. time of entry, entry position, working hours availability, turnover rate).
.
There are several reasons, indeed, for expecting labor supply effects to materialize shortly
after the actual transfers of resources from parents (or other donors) to children, but this
might not hold for expected bequests: firstly, there is uncertainty about both the timing and
amount of inheritances: recipients may actually receive larger and smaller inheritances than
expected, parents may unexpectedly make transfer to people outside the family. Secondly,
although inheritances may be anticipated, credit constraints may prevent the heir from
incorporating the inheritance into his budget. Thirdly, risk averse recipients will avoid using
money they do not have full control over.
Because of the above uncertainties, assessing the extent to which young individuals rely on
future inheritances, in particular with regard to job decisions, may produce interesting results:
are expectations about future intergenerational transfers a motive for young individuals to
reduce their labor supply? If they consume hours of leisure at the beginning of their working
career, does it affect their entire life-cycle?...
Furthermore, because of the prominent role of female labor supply in increasing
household and societal welfare, analyzing the issue in a gender perspective might also
contribute to shed lights on the roots of perpetuating gender inequality.
The results have many implications: considering the actual scenario of high youth

3. unemployment and enormous wealth that current generations stand to inherit from their
parents, whether expectations on inheritance have a negative impact on labour supply is
important for understanding the behavioural effects of inheritance/estate taxation, the effect
of perceived unearned income on labour supply, and the dynamics of intergenerational
transfers of resources.
DESCRIPTION
From the Standard Life-Cycle Theory (Modigliani, 1988) we know that the optimal levels of
consumption and borrowing of individuals being in the first phase of the life-cycle depend
not only upon their initial levels of wealth and current income, but also upon expectations
about future levels of income and wealth: while actual bequests undoubtedly contribute
to increase the initial level of wealth, the effects of expectations on future bequeathed
wealth are less clear.
The Life-Cycle Hypothesis is based on the following model:
L -t
max Ut = Σ [U(Ct)(1+δ) ]
"maximize the utility from consumption over time"
s.t. ΣL
Ct(1+r)-t
= ΣN
Yt(1+r)-t
+ W0
"lifetime consumption must equal income"
where U(Ct) is the satisfaction received from consumption in time period 't', Ct is the level
of consumption, Yt is income, 'δ' is the rate of time preference ( a measure of individual
preference between present and future activity) and W0 is an initial level of
income producing assets.
Because of a persistent increase in life expectancy in the last decades, I would take into
account both inter vivos transfer and bequests transfers, as well as expectations about
future transfers.
My basic assumption is that expectations about future bequests might affect the initial
level of consumption and borrowing and this, in turn, might affect job preferences of young
individuals towards full or part-time employment or self-employment.
Greater expectations of bequests would be consistent with a lower rate of individual time
preference -where the individual discounts the future less and relates future activity to be
almost as important as current activity - while less faith in future bequeathed wealth would
result in higher rates of time preference and a greater discounting of future activity.
My ex-ante prediction is that bequests may negatively affect the rate of time preference of
potential inheritants; as a consequence, current consumption and income needs might
also vary, affecting job market preferences: all else equal, then, potential inheritants might
postpone their entrance in the job market, or be more "demanding" in choosing their job or
decide to start their own business.

4. As time and wealth constraints affect the decision of a young individual about taking a
certain job or waiting for a better one or, still, becoming an entrepreneur, we could
observe, in turn, a certain degree of participation in the job market, a higher preference for
jobs with a more uncertain income but other desirable characteristics or a higher
probability of becoming entrepreneurs, just to make a few examples.
Consequently, it's possible to assess the elasticity of young labor supply out of inheritance
expectations, differences in response to expected and unexpected bequests, to the timing
of the bequest, to its amount, composition etc. and behavioral differences in the short and
in the long-run: by analyzing the issue in a long term perspective, it would be possible to
test if the relation between wealth transfers and job market preferences is persistent over
time and across generations.
In a gender perspective, as the preference towards having a child or investing in
education and postponing maternity is also subject to time and wealth constraints, and
under the assumption that human capital investments pay off in the long term, we may
wonder if young women react differently than men in response to the probability of a
wealth shock, if this result varied over time and country (i.e. because of cultural and
factors) and if their preferences towards immediate fertility or education lead to gender
differences in job market participation rates, wage differentials and career perspectives.
I argue that since individual preferences towards education or fertility imply a relative gain
or a loss in terms of human capital accumulation, it is likely that this choice would also
reflect in job differences in the long run.
My basic assumption in this regard is that a positive wealth shock has an immediate
negative impact on female labor supply under both these options (fertility and
education), but while preferences towards early fertility might permanently reduce career
perspective, advanced education should increase job participation in the long term.
Since receiving an inheritance is an exogenous event, the timing the bequest is
received, its amount, its composition (i.e. liquid or illiquid assets, financial or not, etc.),
other factors relate to the household level of well-being (husband income, public childcare,
etc.) contribute to shape job market preferences, in addition individual preferences and
risk-attitude.
The joint effect of maternity motives and bequests expectations on women education and
working decisions may also depend upon social norms and inheritance laws of the
countries. For this reason, I would take into account those and other factors and conduct
the analysis across countries.
The outcomes of this research might have several implications: first, they would tell us
about whether young individuals, and young women in particular, are forward-looking with
respect to bequests. Secondly, they would tell us which is their degree of risk-adversion
when making economic decisions, including maternity choices in the case of women;
thirdly, they could or could not provide support for the normality of leisure for young
individuals: as Brown, Coile and Weisbenner (2010) suggested for retirement choices of
aging individuals "(..) any calculations of the effect of inheritance on inequality or role of
inheritance in wealth accumulation should not assume that labor supply is inelastic to
that": the elasticity of labor supply out of (expected and actual) bequests can be assessed
for younger individuals, too and for women in particular.

5. STATE OF THE ART
While wealth intergenerational transfers and bequest motives have been extensively
studied by the economic literature, less has been done on the side of bequest
expectations, in particular of young receivers.
The most significant analysis in this regard belongs to Brown, Coile and Weisbenner
(2010) and focuses indeed on aged individuals and their preferences for retirement: it
examines the effects of expected and unexpected bequests on retirement and
consumption choices of individuals aged more than 65. By disentangling the effect of
expectations, they could compare different behaviors, regardless of the behavioral
adjustments that can occur in response to that.
With regard to the job market participation of actual inheritants, significant contributions
have been given by: (i) Holtz-Eakin, Joulfaian and Rosen (1993), whose results are
consistent with Andrew Carnegie's century-old assertion that large inheritances decrease
a person's labor force participation; and by (ii) Joulfaian and Wilheim (1994), who
investigated the labor disincentive caused by inheritance. Their findings show that
inheritances do not lead to large reductions in the labor supply of men and married
women, but this might be not necessarily true for prime-age workers and in particular for
women.
From a gender perspective, consequences and determinants of female labor supply
decisions and employment patterns have been recently analyzed in literature, but not in
response to bequest shocks and expected bequests: i) Warren (2010) found that women
in shorter hours jobs are happiest with their time for paid work and leisure, but also what
might the lower wages from reduced hours working mean for women, particularly those in
low-level occupations; ii) Uunk, Kalmijn and Muffels (2005), using panel data from 13 EU
countries, studied whether and to which extent mothers' labor supply is affected by
economic necessity and the influence of gender role values in society; iii) according to
Cloïn et al. (2011), financial-economic factors count less than socio-cultural factors in
determining mothers' employment decisions, despite the level of education, but both
factors are better predictors for mothers’ decisions to participate than for their number of
working hours; iv) Steinber & Haas (2012) discussed the structural constraints to women
employment as well as economic and normative rationalities in women's employment
decisions.
From Haller&Hoellinger (1994), we know that the actual employment rates of women (as
well as an economic motivation of female employment as a contribution to household
income) are primarily determined by changing economic circumstances and policies, as
well as the actual economic situation of their family: a cross-country comparison would
build upon their results. Lentz&Tranaes (2005) outcomes are in line with that, since they
found job-finding efforts of married men and women being affected by the income of
their spouses, but in opposite directions: the more the man earns and the wealthier his
spouse is, the longer it takes for her to find a job.

6. With regard to the gender dimension of asset ownership, Doss et al. (2011) have studied
the direct and indirect benefits to individuals and households of women ownership and
control over assets in developing countries, but their studies do not relate inherited wealth
to female preferences towards job market participation. and women's well-being,
highlighting the myriad ways in which the gender distribution of wealth is important; but
their studies do not relate inherited wealth to female preferences towards job market
participation.
Other authors have studied the effects of expected bequests in relation to entrepreneurial
decisions: (i) Blanchflower and Oswald (1990) showed that the probability of self-
employment depends sensitively upon whether the individual ever received a gift or
inheritance; (ii) Holtz-Eakin et al. (1993) found that the size of the inheritance has a
substantial effect on the probability of becoming an entrepreneur and that, conditional on
becoming an entrepreneur, the size of the inheritance has a statistically significant and
quantitatively important effect on the amount of capital employed; (iii) Hurst&Lusardi
(2004, 2006) revealed that both past and future inheritances predict current business
entry. According to their results, moreover, inheritances seem to proxy even for talents
and ability, being more than simply liquidity.
Kao, Hong and Widdows (1997) examined the effects of respondents' characteristics on
their expectations of receiving inheritances and leaving bequests: respondents'
socio-demographic characteristics such as education, marital status, race, presence of
living parents, and number of siblings significantly affect their anticipation of receiving an
inheritance. Their findings might contribute to shed lights on the drivers of behavioral
differences across countries.
METHODOLOGY
In order to answer our research questions, I will focus on one or two datasets from particular
nations e.g. U.K. / Italy/ Germany, select a sample of young individuals by education cohort
(i.e. by the year in which they finished their compulsory education) and follow their labour
supply patterns over time.
In doing so, I will build upon Brown et al. (2010), the first using data on expected and
unexpected bequests: they used 1992–2002 panel data from the Health and Retirement
Study (HRS) with respondent’s self-reported probability of receiving an inheritance over the
next 10 years.
Thanks to long run balanced panel data, it would be possible to assess whether
significant differences in job position, wage, working hours, and salary occur across
generations in conjunction with expectations on intergenerational wealth transfers.
By examining the same data on the long run, indeed, we can observe longer-term
effects, making possible a comparison between short and long run individual expectations
and their effects. It would be interesting to observe a long time sample period from before to
after the recent Great Recession, if data are available.

7. SHARE micro datasets contain relatively new data on expectations about the chances of
leaving and receiving an inheritance, its expected amount (but not its composition) and
individual preferences about how to use it (for leisure/consumption/savings activities).
Those data can be put in relation to longitudinal data on job histories, family of origin’s
demographic characteristics, family wealth composition, etc.
Two important features of those data are: (1) that they provide respondent's self- reported
probability of receiving and leaving any bequests in the future, and (2) that they allow to
follow the same individual over time.
The empirical analysis would involve two phases: in a first step, I would make a descriptive
analysis, looking at working hours preferences, entry timing, job satisfaction, etc. of
individuals in different years. Then, I will consider transition matrices to describe labour
supply patterns of those individuals on the long run. Secondly, I would conduct the
econometric analysis. Thanks to the construction of a control group, propensity score
matching analysis would allow me to test the empirical existence of a relationship between
expectations on future bequests and working participation's decisions of young people, all
else being equal (education, gender, health, demographic characteristics and so on). Thanks
to the survival analysis, instead, it would be possible to assess both unemployment duration
and which factors affect it, controlling for covariate factors.
Furthermore, I will try to model individual preferences on job market participation subject to
both time and wealth constraints, being bequests, and in particular unexpected bequests,
an exogenous shock affecting positively the initial level of wealth.
It would also be possible to assess the elasticity of labor supply on the degree of expected
inheritances and other descriptive measures.
In a gender perspective, expectations about a positive wealth shock and preferences
towards how to invest it might contribute to disentangle endogenous factors behind the
choice early-maternity versus advanced education.
All else equal, indeed, we can compare women preferences before and after having
received and inheritance (or expecting and not expecting to do it) with regard to education
and maternity and assessing to which extent the amount of the bequest, the timing it
occurs, the composition of that contribute to shape this preference.
I would do the same work comparing female and male inheritants controlling for factors
such as spouse income, if any, number of children, parental leave benefits and similar
factors.
Furthermore, I would select data on young female inheritants having already completed
their basic education (from 20 to 30 years old) and follow their employment trajectories
over time, in order to assess the impact of early maternity/education exclusive choice in
determining their job position (wage, working hours, position).

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