Are Labor Supply Decisions Consistent with Neoclassical Preferences? Evidence from Indian Boat Owners

39 Pages Posted: 7 Oct 2016

See all articles by Xavier Giné

Xavier Giné

World Bank - Development Research Group (DECRG)

Monica Martinez-Bravo

Centre for Monetary and Financial Studies (CEMFI)

Marian Vidal-Fernandez

IZA - Institute for the Study of Labor; The University of Sydney - School of Economics

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Date Written: September 13, 2016

Abstract

This paper studies the labor supply of South Indian boat owners using daily labor participation decisions of 249 boat owners during seven years. It tests the standard neoclassical model of labor supply, which predicts that (i) individuals should be more likely to work when earnings are temporarily high and (ii) recent accumulated earnings should play no role in the participation decision. It finds that boat owners' labor participation depends positively on expected earnings but also on recent accumulated earnings, albeit weakly. Participation elasticities with respect to expected earnings range between 0.8 and 1.3 and about -0.05 and -0.01 with respect to changes in recent income. While the standard neoclassical model is statistically rejected, it is still a good approximation of the labor supply behavior of boat owners in southern India.

Suggested Citation

Gine, Xavier and Martinez-Bravo, Monica and Vidal-Fernandez, Marian and Vidal-Fernandez, Marian, Are Labor Supply Decisions Consistent with Neoclassical Preferences? Evidence from Indian Boat Owners (September 13, 2016). World Bank Policy Research Working Paper No. 7820, Available at SSRN: https://ssrn.com/abstract=2849120

Xavier Gine (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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United States

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Monica Martinez-Bravo

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain

Marian Vidal-Fernandez

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

IZA - Institute for the Study of Labor ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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