Household saving and labour supply are shaped by many risks – wages, marriage, health, longevity – as well as bequest motives. This column develops a model that tracks individuals from age 26 through to retirement and death to show how these risks interact to drive economic behaviour. The findings highlight that incorporating risk, and how it differs by gender, marital status, and age, helps design policies that protect households from shocks without distorting work and saving incentives.
Why do married and single people save and work? And how do bequest motives and risks related to wages, health, longevity, and family dynamics shape these choices? These questions matter for understanding life-cycle behaviour and its heterogeneity by age, gender, and marital status, and for quantifying the forces that shape aggregate labour supply and wealth accumulation.
Most existing analyses focus on isolated mechanisms or ignore how key risks – such as income fluctuations, family transitions, and health shocks – and bequest motives interact with each other. In contrast, our recent research (Borella et al. 2025) develops and estimates a dynamic life-cycle model that captures how wages, marriage, divorce, health, medical expenses, mortality, and bequest motives jointly influence household behaviour. We find that observed patterns of savings and work cannot be explained by any single factor; instead, they emerge from the interaction of multiple risks and incentives that vary by gender, marital status, and age.
A rich structural model estimated on the full life cycle
We use data from the PSID and HRS for the 1941–1945 birth cohort to estimate a model that tracks individuals from age 26 through retirement and death. The model allows for endogenous labour supply and human capital accumulation, accounts for marriage and divorce, and includes medical expenses, mortality, and Social Security. Both partners make joint decisions if married, and the model incorporates motives for leaving side bequests (when the first spouse dies) and terminal bequests (when the last one in a household dies).
We estimate the model via the method of simulated moments, targeting 334 moments of labour supply and wealth by age, marital status, and gender. We estimate 21 preference parameters, including discount factors, time costs of working, available time, and parameters governing bequest motive. Despite being tightly parameterised, the model fits the data well.
Savings, work, and risk over the life cycle
We find large differences in savings and work by gender and marital status. Married men remain in the labour force longer. Married women adjust labour supply more elastically, especially in response to expected marital transitions or wage changes. Singles work less and save less, but with sharp gender variation: single men reduce labour supply after age 40, while single women save and work less overall.
These patterns arise endogenously from the joint interaction of risks, incentives, and family dynamics. For example, married women respond strongly to divorce risk by working and saving more in middle age. Similarly, the prospect of receiving bequests leads couples to accumulate more wealth and remain in the labour force longer. Conversely, young singles save less in the absence of side bequests and expect larger inheritances if they marry, leading them to work slightly less. Removing any one source of risks and incentives affects both savings and labour earnings, depending on age, marital status, and gender.
Quantifying saving motives: Bequests, health, and income risk
Bequest motives play a key role in shaping household behaviour. Our model distinguishes between side and terminal bequests; both types are actively chosen and influence saving and labour supply decisions throughout the life cycle.
Removing side bequest motives reduces couples’ wealth significantly by late life and lowers labour earnings, especially for married women. It also changes the wealth distribution among surviving singles, since they no longer inherit from spouses who planned for side bequests. Terminal bequest motives account for a sizable share of wealth among both singles and couples. Eliminating them leads to a substantial drop in late-life wealth, particularly for singles.
Overall, eliminating all voluntary bequest motives reduces aggregate wealth by 24% and labour earnings by 1.2%. These effects are smaller than in many prior estimates – which attributed 50% or more of wealth to bequests – but are still substantial. Moreover, without bequest motives, the model struggles to match the observed persistence of wealth at older ages.
Removing expected medical expenses reduces aggregate wealth by 13% and labour earnings by 0.7%. While prior work, such as De Nardi et al. (2025), focuses on post-70 saving responses to medical costs, our results show that people start working more and saving more much earlier in life to prepare for them.
Wage risk also plays a central role: eliminating wage risk lowers savings by 10% and raises earnings by 2.3%. This contrasts with simpler models like Aiyagari (1994), which imply smaller precautionary motives. Our results align more closely with Gourinchas and Parker (2002) and Pijoan-Mas (2006), who show that households smooth income by adjusting both labour supply and savings.
Marriage and divorce: Hidden drivers of labour supply
One underappreciated finding is that marital transitions significantly affect work decisions. Eliminating divorce risk reduces labour supply, particularly for married women. Meanwhile, eliminating the prospect of marriage leads singles to save and work more, especially early in life.
While these marriage-related risks offset each other at the aggregate level, they matter a great deal for individual behaviour. Their impact on labour supply, especially among women, suggests that omitting marital transitions from economic models understates how people adjust work effort in response to marital risk.
The power of combining risks
We also evaluate the total contribution of all saving motives by jointly removing them from the model. This exercise isolates how much aggregate wealth and labour earnings rely on forward-looking behaviour under uncertainty. Removing all saving motives beyond retirement needs and uncertain lifespans reduces wealth by 57% and labour earnings by nearly 3%. That is, removing motives to save also reduces work effort, even decades before retirement. This finding emphasises that saving and working are linked margins: people accumulate wealth in part to insure against shocks they face while working.
Policies on retirement, taxation, and health work through the risks households face. Wage, health, and marital shocks, together with bequest motives, jointly shape saving and labour supply decisions. These risks differ sharply by gender, marital status, and age, so policies that ignore them miss both who adjusts and by how much. Our findings show that incorporating risk and heterogeneity improves forecasts of revenues and expenditures, clarifies the distributional impact of policies, and helps design policies that protect households from shocks without distorting work and saving incentives.
Source : VOXeu
