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  3. American Economic Review
  4. August 2021
  5. Daily Labor Supply and Adaptive Reference Points

Daily Labor Supply and Adaptive Reference Points

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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.20170768

Additional Materials

JEL Classification

  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials