Events at CERGE-EI

Pascaline Dupas, Ph.D.

Stanford University, USA

Authors: Pascaline Dupas, Jonathan Robinson, and Santiago Saavedra

Abstract: We study the intertemporal labor supply decisions of Kenyan bicycle taxi drivers, using detailed observational data constructed from daily passenger-level logbooks and weekly surveys. To test between models of labor supply, we provide drivers with random cash payouts on unannounced days. We document three key facts: (1) drivers work more in response to both unexpected and expected cash needs; (2) drivers increase the probability of quitting discontinuously when their day’s earnings reaches their day’s cash need; but (3) randomized cash payouts have no effect on labor supply. We show that these results are consistent with models in which workers face high effort costs and have reference-dependent preferences over an earned income target, which is itself a function of both expectations and goals. A calibration exercise suggests that such preferences enable workers to earn 5% more income than if they had neoclassical preferences. We propose a model and interpretation of income targeting as morphine: it partially numbs the effort cost until the target is reached. 

JEL Codes: C93, D12, J22.

Keywords: intertemporal labor supply, reference-dependence, daily income, income targeting, effort, physical pain, painkiller.

Full Text:  “The Daily Grind: Cash Needs, Labor Supply and Self-Control”