Working Paper: NBER ID: w19264
Authors: Pascaline Dupas; Jonathan Robinson
Abstract: Many studies suggest that daily income earners behave as if they have daily income targets. Less work has examined the determinants of the targets themselves. Using data on labor supply, shocks, and self-reported cash needs from 257 bicycle taxi drivers in Western Kenya, we provide evidence that many individuals treat their daily cash need as the day's target. We conjecture that in a physically demanding job, workers may have an incentive to quit early and so set a personal rule of "earning enough for the day's need" as an internal commitment device to provide effort. This heuristic is more common among less educated workers and has substantial welfare costs: greater variance in hours worked is associated with worse health, and we estimate that workers would earn 5% more by working a set number of hours each day (more if their wage elasticity were positive).
Keywords: labor supply; income targeting; self-control; Kenya; bicycle taxi drivers
JEL Codes: C93; D12; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| random unexpected cash payments (J33) | labor supply (J20) |
| daily cash needs (E41) | internal commitment device (O19) |
| daily cash needs (E41) | hours worked (J22) |
| daily cash needs (E41) | earned income (J31) |
| cash needs met (E41) | quitting hazard (J26) |