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Daily Labor Supply and Adaptive Reference Points

Author

Listed:
  • Neil Thakral
  • Linh T. Tô

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.

Suggested Citation

  • Neil Thakral & Linh T. Tô, 2021. "Daily Labor Supply and Adaptive Reference Points," American Economic Review, American Economic Association, vol. 111(8), pages 2417-2443, August.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:8:p:2417-43
    DOI: 10.1257/aer.20170768
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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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