Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers

TLDR

The study develops a daily labor supply model with reference‑dependent preferences and applies it to New York City taxi driver data. The authors model daily labor supply as a function of a reference income level that varies from day to day. The analysis shows that while a daily reference income level may influence labor supply, drivers’ reference levels vary widely and most shifts end before reaching it, suggesting reference‑dependent preferences play a limited role. JEL codes: J22, L92.

Abstract

I develop a model of daily labor supply where preferences are dependent on a reference daily income level, and I apply this model to data on the labor supply of New York City taxi drivers. I find that there may be a reference level of income on a given day that affects labor supply. However, there is substantial day-to-day variation in a given driver's reference level, and most shifts end before reaching the reference income level. This pattern is inconsistent with an important role for reference-dependent preferences. (JEL J22, L92)