Development Economics Seminar

Du 20/09/2023 de 16:30 à 18:00

R2.01

SHAMDASANI Yogita (National University of Singapore)

Habit Formation in Labor Supply (joint with Luisa Cefala, Supreet Kaur and Heather Schofield)

We posit that labor supply is not a function of stable preferences for leisure, but rather is also determined by one's past habituation to work. In existing data, we show that exogenously induced transitory changes in labor supply increase supply in subsequent days - indicating that the inter-temporal labor supply elasticity can actually be positive, rather than negative. To further examine this phenomenon, we undertake a field experiment with casual urban stand workers in Chennai, India, where appearance at the stand in the morning provides a revealed preference measure of labor supply. We randomly provide some workers incentives for attendance over 2 months (phase 1), and examine persistence after incentives are removed for another 2 months (phase 2). We find that a 23% increase in labor supply in phase 1 generates a persistent 16% increase in supply in phase 2 - leading to a 22% increase in employment found at the stand. These findings have relevance for understanding the reasons for irregular work attendance and high worker turnover in formal firms, which impede the transition to formal work in this setting. They also suggest that the effects of unemployment spells may go beyond income loss: unemployment itself can lower a worker's productivity - offering a potential justification for the unemployment scar'' phenomenon documented in the labor literature, where employers prefer not to hire workers out of unemployment. Overall, they suggest that work ethic is an endogenous feature of human capital stock.