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Are Long-term Wage Elasticities of Labor Supply More Negative than Short-term Ones?

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  • Kirk B. Doran

    ()
    (Department of Economics, University of Notre Dame)

Abstract

A fundamental prediction of inter-temporal labor supply theory is that the wage-elasticity of labor supply must be more negative the longer the wage change lasts. This paper analyzes labor supply using unique data on workers who choose their own daily hours and who experience both short-term and long-term wage changes. Workers decrease their daily hours in response to shortterm wage increases, but not in response to a 20% long-term wage increase. This is consistent with a specific daily income goals model- one in which these goals remain unadjusted to unexpected short-term wage fluctuations, but fully adjust to expected longer-term wage fluctuations.

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File URL: http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/020_cabs.pdf
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Bibliographic Info

Paper provided by University of Notre Dame, Department of Economics in its series Working Papers with number 020.

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Length: 27 pages
Date of creation: Jan 2013
Date of revision: Jan 2013
Handle: RePEc:nod:wpaper:020

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Keywords: Labor elasticity;

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References

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  1. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
  2. Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
  3. David Gill & Victoria Prowse, 2012. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," American Economic Review, American Economic Association, vol. 102(1), pages 469-503, February.
  4. Johannes Abeler & Armin Falk & Lorenz Goette & David Huffman, 2009. "Reference Points and Effort Provision," Discussion Papers 2009-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  5. Henry S. Farber, 2008. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," American Economic Review, American Economic Association, vol. 98(3), pages 1069-82, June.
  6. Orley Ashenfelter & Kirk Doran & Bruce Schaller, 2009. "A Shred of Credible Evidence on the Long Run Elasticity of Labor Supply," Working Papers 1180, Princeton University, Department of Economics, Industrial Relations Section..
  7. Devin G. Pope & Maurice E. Schweitzer, 2011. "Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes," American Economic Review, American Economic Association, vol. 101(1), pages 129-57, February.
  8. Vincent P Crawford & Juanjuan Meng, 2008. "New York City Cabdrivers’ Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income," Levine's Working Paper Archive 122247000000002281, David K. Levine.
  9. Ernst Fehr & Lorenz Gotte, 2002. "Do workers work more if wages are high? Evidence from a randomized field experiment," Natural Field Experiments 00240, The Field Experiments Website.
  10. Henry S. Farber, 2005. "Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 46-82, February.
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Cited by:
  1. Pascaline Dupas & Jonathan Robinson, 2013. "Daily Needs, Income Targets and Labor Supply: Evidence from Kenya," NBER Working Papers 19264, National Bureau of Economic Research, Inc.

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