Abstract
We investigate the relevance of targeting behavior in the labor supply decisions of New York City Taxi drivers using exogenous and transitory positive changes in labor demand. Exploiting high-frequency variations in taxi demand due to subway service disruptions, we show that drivers work more when earnings opportunities are greater both when they are above and when they are below their income target. Surpassing the target, however, significantly reduces drivers’ labor supply. Estimates imply that drivers’ response to demand shocks is 40% smaller once they have reached their daily income target. These results suggest that, while drivers’ behavior seems largely consistent with the prediction of a standard model of labor supply, targeting behavior does nevertheless play an essential role in determining drivers’ decisions.
Highlights
In recent years, the extensive body of literature within economics that focuses on labor supply decisions has once again become central to the academic debate
We investigate the relevance of targeting behavior in the labor supply decisions of New York City Taxi drivers using exogenous and transitory positive changes in labor demand
Additional sensitivity tests where, for example, (i) we investigate whether results hold when we only consider substantial service disruptions, (ii) we use alternative subsamples created by removing hour-of-the-day from the analysis, (iii) we only consider the first 5 min after the tweet announcing the start of a problem as period affected by the delay, and (iv) we explore whether subway disruption might affect the labor supply decisions of taxi drivers beyond its effect working through an increase in taxi demand are confined to the Online Appendixes Q, R, S and T respectively
Summary
The extensive body of literature within economics that focuses on labor supply decisions has once again become central to the academic debate. We exploit positive changes in labor demand driven by subway disruptions to quantify the relevance of behavioral biases in the labor supply decisions of New York City taxi drivers. On average, when underground breakdowns are observed the probability of a driver of ending her shift is around 15% smaller, even when accounting for driver fixedeffects, hour fixed effects and calendar day fixed-effects While this finding is in line with the prediction of the standard model of labor supply (i.e., labor supply increases in response to short, positive changes in earnings opportunities), this result doesn’t necessarily rule out the presence of targeting behavior. They provide clear evidence of the relevance of behavioral biases in labor supply decisions of taxi drivers: when earning opportunities are temporarily higher, the fact of surpassing the target significantly reduces drivers’ labor supply. While drivers’ behavior seems largely consistent with the prediction of a standard model of labor supply, the large difference between below-target and above-target responses suggests that targeting behavior plays a non-secondary role in drivers’ decisions
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