Abstract

Workers with variable earnings and flexible hours offer unique opportunities to evaluate intertemporal labor supply elasticities. Existing static analyses, however, have generated well-known puzzles, suggesting evidence of downwards sloping labor supply curves. Using a large sample of shifts of New York City taxicab drivers, we estimate a dynamic optimal stopping model of drivers’ work times and quitting decisions. We model the equilibrium interactions of supply and demand through dynamic state transition densities, allowing us to estimate driver opportunity costs via a single agent problem. Our results demonstrate that several apparent behavioral biases documented in the literature can be reproduced using entirely standard preferences. We use our model to provide new estimates of individual earnings elasticities and show that taxi drivers have similar elasticities to workers in markets where experimental evidence has been obtained. Finally, we use data spanning a 2012 fare change to estimate labor supply elasticities with respect to market prices, accounting for the equilibrium impact of prices on supply and demand. We find market elasticities to be approximately a third of the size of individual elasticities, suggesting that existing estimates of the benefits to recent earnings legislation in the taxi and ride-hail industries are overstated.