Reservation Wages and Workers’ Valuation of Job Flexibility: Evidence from a Natural Field Experiment

72 Pages Posted: 8 Sep 2020 Last revised: 14 Sep 2020

See all articles by Kuan-Ming Chen

Kuan-Ming Chen

National Bureau of Economic Research

Ning Ding

University of Chicago - Department of Economics

John A. List

University of Chicago - Department of Economics

Magne Mogstad

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2020

Abstract

Recent changes in labor arrangements have increased interest in estimating and understanding the value of job flexibility. We leverage a large natural field experiment at Uber to create exogenous variation in expected market wages across individuals and over time. Combining this experiment with high frequency panel data on wages and individual work decisions, we document how labor supply responds to exogenous changes in expected market wages in a setting with virtually no restrictions on driver labor allocation. We find that there is i) systematic heterogeneity in labor supply responses both across drivers and within a driver over time, ii) significant fixed costs of beginning a shift, and iii) high rider demand when it is costly for drivers to work. These three findings motivate a model of labor supply with heterogenous preferences over work schedules, adjustment costs, and statistical dependence between market wages and the costs of driving. We recover the labor supply elasticities and reservation wages of this dynamic labor supply model via a combination of experimental estimates and other data moments. We then perform counterfactual analyses that allow us to examine how preference heterogeneity and adjustment costs influence the responses of workers’ to wage incentives as well as infer drivers’ willingness to pay for the ability to customize and adjust their work schedule. We also show that a static approach to the driver’s dynamic problem delivers materially different estimates of workers’ labor supply elasticities and their value of job flexibility.

Keywords: Adjustment costs, dynamic model of labor supply, job flexibility, labor supply elasticities, reservation wages, value of time

Suggested Citation

Chen, Kuan-Ming and Ding, Ning and List, John A. and Mogstad, Magne, Reservation Wages and Workers’ Valuation of Job Flexibility: Evidence from a Natural Field Experiment (September 8, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-124, Available at SSRN: https://ssrn.com/abstract=3686752 or http://dx.doi.org/10.2139/ssrn.3686752

Kuan-Ming Chen

National Bureau of Economic Research ( email )

1050 MASSACHUSETTS AVE
CAMBRIDGE, MA 02138
United States

Ning Ding

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Magne Mogstad (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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