The Impact of Behavioral and Economic Drivers on Gig Economy Workers

34 Pages Posted: 20 Nov 2018

See all articles by Gad Allon

Gad Allon

University of Pennsylvania - The Wharton School

Maxime Cohen

New York University (NYU) - Leonard N. Stern School of Business

Park Sinchaisri

Massachusetts Institute of Technology (MIT) - School of Engineering; The Wharton School, University of Pennsylvania - Operations, Information and Decisions Department

Date Written: October 29, 2018

Abstract

Gig economy firms benefit from labor flexibility by hiring independent self-scheduling workers. This labor flexibility poses a great challenge in planning and committing to a service capacity. In collaboration with a ride-hailing company, we study how on-demand workers make labor decisions: when to work and for how long. We are interested not only in improving the prediction of the number of active drivers but also in understanding how to design better financial incentives. Using a large comprehensive dataset, we analyze workers' decisions and responses to incentives while accounting for sample selection bias, simultaneity, and endogeneity. Our results reconcile competing theories of labor supply regarding the impact of income shocks on labor decisions. We find that financial incentives have a significant positive influence on the decision to work and on the number of work hours. This finding confirms the positive income elasticity from the neoclassical theory of labor supply. We also find support for a behavioral theory as workers exhibit income targeting (they work less when they get closer to their earning goal) and inertia (they work more when they have worked for longer). We finally show via numerical experiments that our approach can increase service capacity by 25% without incurring additional cost, or maintain the same capacity at a 27.69% lower cost.

Keywords: empirical operations, gig economy, incentives, sample selection, behavioral operations

Suggested Citation

Allon, Gad and Cohen, Maxime and Sinchaisri, Wichinpong, The Impact of Behavioral and Economic Drivers on Gig Economy Workers (October 29, 2018). Available at SSRN: https://ssrn.com/abstract=3274628 or http://dx.doi.org/10.2139/ssrn.3274628

Gad Allon

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Maxime Cohen (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Wichinpong Sinchaisri

Massachusetts Institute of Technology (MIT) - School of Engineering ( email )

MA
United States

The Wharton School, University of Pennsylvania - Operations, Information and Decisions Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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