Effects of threshold-based incentives on drivers’ labor supply behavior

Abstract

In recent years, driver incentives have become a vital tool for ride-sourcing operators to deal with supply management challenges brought by a high level of labor flexibility and scarcity. However, despite its large-scale implementation in the industry, an understanding of the influence of threshold-based incentives on driver labor supply has been lacking. This lack of understanding could greatly reduce the efficiency of incentives on regulating labor supply. Thus, in this study, using an extensive ride-sourcing dataset, we conduct a comprehensive analysis of the treatment effect of driver incentives on ride-sourcing drivers’ behavior. Our results suggest that although threshold-based incentives positively impact drivers’ labor supply along the intensive and extensive margin, their effectiveness is limited by their design and drivers’ working schedules. The incentives cannot alter the drivers’ participation outside their normal schedule and have limited effective ranges within drivers’ shifts. We also find that the incentives only have an impact on drivers’ working decisions before the incentive threshold is reached and the reward collected, but not after.