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Daily Labor Supply and Adaptive Reference Points

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  • 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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    Cited by:

    1. Daniel Reck & Arthur Seibold, 2022. "The Welfare Economics of Reference Dependence," CESifo Working Paper Series 9999, CESifo.
    2. Jonas Radbruch & Amelie Schiprowski, 2020. "Interview Sequences and the Formation of Subjective Assessments," ECONtribute Discussion Papers Series 045, University of Bonn and University of Cologne, Germany.
    3. Iman Ahmadi, 2023. "Face/Off: The adverse effects of increased competition," Quantitative Marketing and Economics (QME), Springer, vol. 21(2), pages 183-279, June.
    4. Markus Dertwinkel-Kalt & Mats Köster, 2020. "Salience and Skewness Preferences [Risk-neutral Firms can Extract Unbounded Profits from Consumers with Prospect Theory Preferences]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2057-2107.
    5. Mosquera, Roberto, 2024. "Stuck in traffic: Measuring congestion externalities with negative supply shocks," Regional Science and Urban Economics, Elsevier, vol. 108(C).
    6. Alessandro Saia, 2022. "Trouble Underground: Demand Shocks and the Labor Supply Behavior of New York City Taxi Drivers," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 1-27, March.
    7. Wen‐Jhan Jane, 2024. "Interim performance information and risk taking in a tournament—Field evidence from professional basketball," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(2), pages 145-174, May.
    8. Kim, Doyoung, 2023. "Be ambitious or lower your expectation: Goals as optimal reference points," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 106(C).
    9. Robertas Zubrickas, 2022. "Loss aversion, labor supply, and income taxation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(2), pages 579-598, April.
    10. David R. Agrawal & Kenneth Tester, 2024. "State Taxation of Nonresident Income and the Location of Work," American Economic Journal: Economic Policy, American Economic Association, vol. 16(1), pages 447-481, February.
    11. Barbos, Andrei & Kaisen, Joshua, 2022. "An Example of Negative Wage Elasticity for YouTube Content Creators," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 382-400.
    12. Zubrickas, Robertas, 2023. "The relative income effect and labor supply," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 176-184.
    13. Balzer, Benjamin & Rosato, Antonio & von Wangenheim, Jonas, 2022. "Dutch vs. first-price auctions with expectations-based loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 205(C).
    14. Xiangfeng Ji & Xiaoyu Ao, 2021. "Travelers’ Bi-Attribute Decision Making on the Risky Mode Choice with Flow-Dependent Salience Theory," Sustainability, MDPI, vol. 13(7), pages 1-24, April.
    15. Daniel Reck & Arthur Seibold, 2023. "The Welfare Economics of Reference Dependence," CRC TR 224 Discussion Paper Series crctr224_2023_450, University of Bonn and University of Mannheim, Germany.
    16. Dreyfuss, Bnaya & Heffetz, Ori & Hoffman, Guy & Ishai, Guy & Kshirsagar, Alap, 2024. "Additive vs. subtractive earning in shared human-robot work environments," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 692-704.
    17. Lehe, Lewis & Pandey, Ayush, 2022. "Taxi service with heterogeneous drivers and a competitive medallion market," Journal of Urban Economics, Elsevier, vol. 131(C).
    18. Gagnon-Bartsch, Tristan & Bushong, Benjamin, 2022. "Learning with misattribution of reference dependence," Journal of Economic Theory, Elsevier, vol. 203(C).
    19. Andrea Guido & Alejandro Martinez-Marquina & Ryan Rholes, 2022. "Reference Dependence and the Role of Information Frictions," GREDEG Working Papers 2022-17, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    20. Jonas Pilgaard Kaiser & Alexander K. Koch & Julia Nafziger, 2024. "Does goal revision undermine self-regulation through goals? An experiment," Experimental Economics, Springer;Economic Science Association, vol. 27(3), pages 604-636, July.
    21. Kim, Youngsoo, 2022. "Taxi driver’s learning curves: An empirical analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 166(C), pages 1-13.
    22. Soetevent, Adriaan R., 2022. "Short run reference points and long run performance. (No) Evidence from running data," Journal of Economic Psychology, Elsevier, vol. 89(C).
    23. Timothy K. M. Beatty & Joakim A. Weill, 2024. "Social Security and High-Frequency Labor Supply: Evidence from Uber Drivers," Finance and Economics Discussion Series 2024-079, Board of Governors of the Federal Reserve System (U.S.).

    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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