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Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers

Author

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  • Henry S. Farber

    (Princeton University)

Abstract

I model the labor supply of taxi drivers as the result of optimization based on an intertemporal utility function. Since income effects in response to temporary fluctuations in daily earnings opportunities are likely to be small, cumulative hours will be much more important than cumulative income in the decision to stop work on a given day. However, if these income effects are large due to very high discount and interest rates, then labor supply functions could be backward bending, and, in the extreme case where the wage elasticity of daily labor supply is minus one, drivers could be target earners. Indeed, Camerer, Babcock, Lowenstein, and Thaler (1997) and Chou (2000) find that the daily wage elasticity of labor supply of New York City cab drivers is substantially negative and conclude that it is likely that cab drivers are target earners. I conclude from my empirical analysis, based on new data, of the stopping behavior of New York City cab drivers that, when accounting for earnings opportunities in a reduced form with measures of clock hours, day of the week, weather, and geographic location, cumulative hours worked on the shift is a primary determinant of the likelihood of stopping work while cumulative income earned on the shift is weakly related, at best, to the likelihood of stopping work. This is consistent with there being inter-temporal substitution and inconsistent with the hypothesis that taxi drivers are target earners.

Suggested Citation

  • Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers," Working Papers 110, Princeton University, Department of Economics, Center for Economic Policy Studies..
  • Handle: RePEc:pri:cepsud:92farber.pdf
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    File URL: http://www.princeton.edu/ceps/workingpapers/92farber.pdf
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    Cited by:

    1. Roland Benabou & Jean Tirole, 2004. "Willpower and Personal Rules," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 848-886, August.
    2. Bessho, Shun-ichiro & Hayashi, Masayoshi, 2011. "Labor supply response and preferences specification: Estimates for prime-age males in Japan," Journal of Asian Economics, Elsevier, vol. 22(5), pages 398-411, October.
    3. Brian Jacob & Lars Lefgren & Enrico Moretti, 2007. "The Dynamics of Criminal Behavior: Evidence from Weather Shocks," Journal of Human Resources, University of Wisconsin Press, vol. 42(3).
    4. Christopher L. House & Matthew D. Shapiro, 2008. "Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation," American Economic Review, American Economic Association, vol. 98(3), pages 737-768, June.
    5. Lorenz Goette & David Huffman & Ernst Fehr, 2004. "Loss Aversion and Labor Supply," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 216-228, 04/05.
    6. Matthew D. Shapiro & Christopher L. House, 2006. "Phased-In Tax Cuts and Economic Activity," American Economic Review, American Economic Association, vol. 96(5), pages 1835-1849, December.
    7. Shun-ichiro Bessho & Masayoshi Hayashi, 2005. "The CES utility function, non-linear budget constraints and labor supply : results on prime-age males in Japan," Labor Economics Working Papers 21911, East Asian Bureau of Economic Research.
    8. Dean Yang, 2006. "Why Do Migrants Return to Poor Countries? Evidence From Philippine Migrants%u2019 Responses to Exchange Rate Shocks," NBER Working Papers 12396, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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