Reference Dependent Preference and Labor Supply: Evidence from China
29 Pages Posted: 13 Feb 2019
Date Written: January 4, 2019
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
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