Description:

Nick Buchholz (Princeton): "Rethinking Reference Dependence: Wage Dynamics and Optimal Taxi Labor Supply" with Matthew Shum and Haiqing Xu

Abstract: Workers with variable earnings and flexible hours offer unique opportunities to
evaluate intertemporal labor supply elasticities. Existing static analyses, however, have generated well-known puzzles, suggesting evidence of downward sloping labor supply curves. Using a large sample of shifts of New York City taxicab drivers, we estimate a dynamic optimal stopping model of drivers’ work times and quitting decisions. Our model exploits a set of sufficient statistics for equilibrium interactions between supply and demand, allowing us to estimate driver opportunity costs via a single agent problem. Our results demonstrate that several apparent behavioral biases documented in the literature can be reproduced using entirely standard preferences. We use our model to provide new estimates of individual earnings elasticities and show that taxi drivers have similar elasticities to workers in markets where experimental evidence has been obtained. Finally, we use data spanning a 2012 fare change to estimate labor supply elasticities with respect to market prices, accounting for the equilibrium impact of prices on supply and demand. We find market elasticities to be approximately a tenth of the size of individual elasticities, suggesting that existing estimates of the benefits to recent earnings legislation in the taxi and ride-hail industries are overstated