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The Daily Grind: Cash Needs and Labor Supply

Jan 2018
Working Paper
Pascaline Dupas, Jonathan Robinson, Santiago Saavedra

We document three facts about the labor supply of Kenyan bicycle-taxi drivers: (1) drivers work more on days with higher cash needs; (2) the quitting hazard increases once the day’s need is reached; but (3) randomized cash payouts have no meaningful effect on labor supply. These results are consistent with models in which workers have reference-dependent preferences over earned income targets. A calibration exercise suggests that workers with such preferences earn 19% more than they would with neoclassical preferences. We propose an interpretation of earned income targeting as morphine: it partially numbs the effort cost until the target is reached.

Publication Keywords: 
Intertemporal Labor Supply
Reference-Dependence
Income Targeting
Geographic Regions: