In the present paper, we follow the third approach and exploit inheritance receipt as an exogenous change in household wealth. The relative advantage of using this approach compared to focusing on changes in taxes and the social security system is that the latter often apply only to a specific group of the population. Lemieux and Milligan (2008), for example, focus on the fact that in Quebec, before 1989, childless social assistance recipients aged under 30 received much lower benefits than recipients aged 30 or above. Using a regression discontinuity approach, they find that the more generous social assistance benefits for those aged 30 and over reduced labor force participation. However, we think that the labor supply responses of those aged around 30 may substantially differ from other age groups, so that it would be problematic to generalize from such results. In contrast, the incidence of inheritance receipt does not apply to a specific group of the population only and inheritance recipients in our dataset range from age 26 to 51 at the time they received their inheritance.

Another advantage of our dataset is that it provides information on the employment status of the respondent's spouse and whether the respondent's spouse received an inheritance. This information enables us to test the unitary model, in which a household is regarded as a single decision-making unit. The important theoretical prediction of the unitary model is that a household pools its resources, so that household resources (not individual resources) are important for each individual's decision-making. In our dataset, we can test the unitary model by examining whether who received an inheritance within a household affects each household member's labor supply. That is, if the size of wealth effects on individuals' labor supply does depend on who received an inheritance within a household, the unitary model of the household is rejected.

The current paper is not the first attempt to examine the effect of wealth on individual labor supply employing a dataset on inheritances in Japan. Using the Japanese Study of Aging and Retirement (JSTAR), which is a biennial panel dataset covering individuals aged 50–75, Sugano and Matsuyama (2017) show that receiving an inheritance of 1 million yen increases the probability of retirement by 1 percentage point at age 60 and 6 percentage points at age 65 and that an unanticipated inheritance has a larger negative effect on individual labor supply. Our analysis differs from Sugano and Matsuyama’s (2017) study in the following respects. First, their focus is the labor supply decision of elderly individuals aged 50–75, whereas we focus on working-age individuals from 26 to 51 years of age. Therefore, the results of our analysis can be regarded as complementary to theirs. Second, while JSTAR provides information on the inheritance amount only at the household level, our dataset, which we describe in detail in Section 2, contains the inheritance amount at the individual level. This allows us to test the unitary model as described above.

The remainder of the study is organized as follows. The next section introduces the dataset we employ and a first-shot result from our dataset. Section 3 describes our empirical strategy and estimation results. Finally, Section 4 concludes.