An article authored by a researcher at the Pulte Institute for Global Development, which explores the results of his study on how workers change their work hours in response to a permanent wage change, has been published in Labour Economics. The article, “The long-run elasticity of labor supply: New evidence for New York City taxicab drivers,” was authored by Swapnil Motghare, a postdoctoral research associate within the Pulte Institute for Global Development’s Evidence and Learning Division.
Economic theory does not have a clear prediction for how work hours change when wages increase. When wages increase, workers may experience an income effect; meaning they may feel “richer” and want to spend more, do more and, therefore, decrease work hours. At the same time, the opportunity cost of leisure is now higher, so workers want to consume less of it.
The paper uses data for NYC taxicab drivers because 1) they are free to choose their work hours and 2) they experienced an increase in hourly wage in September 2012 as a result of a change in the fare structure. The fare change increased drivers’ hourly wages by 12.8% (~$3.50) and decreased monthly work hours by 6.4% (~11 hours). Alternatively, for a 10% increase in the hourly wage, the drivers decreased their work hours by 5%. Thus, drivers decrease their work hours in response to a wage increase.
“The finding supports the argument that rising wages and the resulting income effect is one of the reasons for the decline in the work hours per worker over many decades,” concluded Motghare. “The results also improve our understanding of an industry that has been of particular interest to labor economists even before the entry of Uber and other ride-sharing apps.”
The results could be used to inform policymakers in regulating the ride-share apps that affect the permanent wages of taxicab drivers, and in the design of tax systems that provide sufficient incentives for individuals to work.
Motghare’s primary research interests lie within the field of labor economics, including the future of work and monitoring and evaluation. He completed his P.h.D in economics at the University of Arizona and holds a master’s in economics from the University of Texas at Austin.
The official journal of the European Association of Labour Economists, Labour Economics is “devoted to publishing international research on empirical, theoretical, and econometric topics that are of particular interest to labour economists.” It particularly gives recognition to “solid empirical work with a strong economic interpretation” but also publishes review articles and articles on comparative labour market policies.