LABOR SUPPLY OF NEW-YORK-CITY CABDRIVERS - ONE-DAY AT A TIME

Life-cycle models of labor supply predict a positive relationship betw een hours supplied and transitory changes in wages. We tested this pre diction using three samples of wages and hours of New York City cabdri vers, whose wages are correlated within days but uncorrelated between days. Estimated wage elasticities are significantly negative in two ou t of three samples. Elasticities of inexperienced drivers average appr oximately -1 and are less than zero in all three samples (and signific antly less than for experienced drivers in two of three samples). Our interpretation of these findings is that cabdrivers (at least inexperi enced ones): (i) make labor supply decisions ''one day at a time'' ins tead of intertemporally substituting labor and leisure across multiple days, and (ii) set a loose daily income target and quit working once they reach that target.