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

  • Kirk B. Doran

    ()

    (Department of Economics, University of Notre Dame)

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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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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  1. Abeler, Johannes & Falk, Armin & Götte, Lorenz & Huffman, David, 2011. "Reference Points and Effort Provision," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 358, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
  3. Ernst Fehr & Lorenz Goette, 2007. "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment," American Economic Review, American Economic Association, vol. 97(1), pages 298-317, March.
  4. Orley Ashenfelter & Kirk B. Doran & Bruce Schaller, 2010. "A Shred of Credible Evidence on the Long Run Elasticity of Labor Supply," Working Papers 1203, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. Vincent P. Crawford & Juanjuan Meng, 2011. "New York City Cab Drivers' Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income," American Economic Review, American Economic Association, vol. 101(5), pages 1912-32, August.
  6. 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.
  7. Gill, David & Prowse, Victoria Liza, 2010. "A structural analysis of disappointment aversion in a real effort competition," Discussion Paper Series In Economics And Econometrics 1006, Economics Division, School of Social Sciences, University of Southampton.
  8. Crawford, Vincent P. & Meng, Juanjuan, 2008. "New York City Cabdrivers' Labor Supply Revisited: Reference-Dependence Preferences with Rational-Expectations Targets for Hours and Income," University of California at San Diego, Economics Working Paper Series qt94w5n6j9, Department of Economics, UC San Diego.
  9. 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.
  10. 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.
  11. 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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