- Short-Term Labor Supply in the Era of Flexible Hours
Flexible work arrangements are becoming ever more prevalent in developed economies throughout the world, as exemplified by the expansion of the ‘gig economy.’ Workers with flexible hours can adjust their short-term labor supply along more margins, which have been previously understudied due to the relative historical scarcity of that type of worker and the unavailability of data on within-shift decisions. Yet in order to get an unbiased measure of the labor supply elasticity, these other margins need to be accounted for. For instance, a worker with flexible hours could decide to always end their shift at the same time but adjust their labor supply through breaks. Ignoring within-shift decisions would sharply underestimate the worker’s labor supply responses. The first goal of this paper is to address this problem by identifying breaks and removing them from my measure of daily labor supply. I focus on taxi drivers, a class of workers who have historically been associated with flexible hours. Specifically, I use micro-data at the transaction level to study the labor supply decisions of more than 40,000 medallion taxi drivers in New York City during an entire year. Starting with reduced-form evidence, I show that labor supply elasticity estimates are severely underestimated when breaks are ignored. For instance, because of features of the NYC taxi market, day-shift drivers do not adjust their ending time substantially across days. Ignoring breaks suggests a daily labor supply elasticity close to 0. In contrast, their elasticity increases to 0.62 when looking at shift duration net of breaks. Then, I use a discrete choice stopping model to identify non-neoclassical income effects on the probability of taking a break and the probability of ending the shift. I find that income shocks affect both margins, but the effect is 75% larger for breaks. Considering the usefulness of the intertemporal labor supply elasticity for the efficient design of tax policies and labor contracts, the results of this paper highlight the importance of incorporating new margins of adjustment created by a labor market in constant evolution.
- The Daily Labor Supply Response to Worker-Specific Earnings Shocks (pdf - old draft)
This paper presents empirical evidence that the daily labor supply response of workers is large and negative in response to small windfall gains (i.e. worker-specific income shocks), contrary to the prediction of the standard neoclassical model. I use microdata covering the universe of New York taxi trips to reconstruct drivers’ daily work shifts in 2013. In the main specification, I identify windfall gains using tips received by drivers and find that they respond to these shocks by decreasing their labor supply substantially. Because tips are very common for American taxi drivers, I restrict the analysis to tips that are larger than the average but still represent a negligible part of a driver’s monthly or weekly earnings. I obtain similar results when using trips from Manhattan to JFK Airport as an indicator of positive idiosyncratic earnings. I also find that these shocks do not affect future labor supply, indicating that standard neoclassical income effects cannot be causing this result. In contrast, a positive shock to average hourly earnings causes drivers’ labor supply to increase, consistent with optimizing rational agency. The large and negative response to small windfall gains suggest that these shocks can have significant effects and should not be neglected when designing labor policies, especially when tips, commissions, or bonuses are involved.