American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Daily Labor Supply and Adaptive Reference Points
American Economic Review
vol. 111,
no. 8, August 2021
(pp. 2417–43)
Abstract
This paper provides field evidence on how reference points adjust, a degree of freedom in reference-dependence models. Examining this in the context of cabdrivers' daily labor-supply behavior, we ask how the within-day timing of earnings affects decisions. Drivers work less in response to higher accumulated income, with a strong effect for recent earnings that gradually diminishes for earlier earnings. We estimate a structural model in which drivers work toward a reference point that adjusts to deviations from expected earnings with a lag. This dynamic view of reference dependence reconciles conflicting "neoclassical" and "behavioral" interpretations of evidence on daily labor-supply decisions.Citation
Thakral, Neil, and Linh T. Tô. 2021. "Daily Labor Supply and Adaptive Reference Points." American Economic Review, 111 (8): 2417–43. DOI: 10.1257/aer.20170768Additional Materials
JEL Classification
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials