Why You Can't Find a Taxi in the Rain and Other Labor Supply Lessons from Cab Drivers

In a seminal paper, Camerer, Babcock, Loewenstein, and Thaler (1997) find that the wage elasticity of daily hours of work New York City (NYC) taxi drivers is negative and conclude that their labor supply behavior is consistent with target earning (having reference dependent preferences). I replicate and extend the CBLT analysis using data from all trips taken in all taxi cabs in NYC for the five years from 2009-2013. The overall pattern in my data is clear: drivers tend to respond positively to unanticipated as well as anticipated increases in earnings opportunities. This is consistent with the neoclassical optimizing model of labor supply and does not support the reference dependent preferences model