Reference Dependent Preference and Labor Supply: Evidence from China

29 Pages Posted: 13 Feb 2019

See all articles by Guanfu Fang

Guanfu Fang

Shanghai University of International Business and Economics - School of Business

Guanliang Hu

Shanghai University of Finance and Economics - School of Economics

Lan Yao

Shanghai University of Finance and Economics - School of Economics

Date Written: January 4, 2019

Abstract

This paper investigates the daily labor supply decision of Hangzhou cabdrivers. We find that Hangzhou cabdrivers’ wage elasticity is significantly positive, their working decisions are largely affected by shift time, and crude proxy variables for income and hours targets could hardly explain their working behavior. Nevertheless, Hangzhou cabdrivers are still affected by reference dependent preference. Using new empirical strategies, we show that cabdrivers are more likely to continue working when wage rates are unexpectedly low and more likely to quit when wage rates are unexpectedly high.

Keywords: Reference-Dependent Preference, Wage Elasticity, Labor Supply, Income Shock

Suggested Citation

Fang, Guanfu and Hu, Guanliang and Yao, Lan, Reference Dependent Preference and Labor Supply: Evidence from China (January 4, 2019). Available at SSRN: https://ssrn.com/abstract=3310096

Guanfu Fang

Shanghai University of International Business and Economics - School of Business ( email )

201620
Shanghai, 201620
China

Guanliang Hu

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

Lan Yao (Contact Author)

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

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