Trouble Underground: Demand Shocks and the Labor Supply Behavior of New York City Taxi Drivers

We investigate the relevance of targeting behavior in the labor supply decisions of New York City Taxi drivers using exogenous and transitory positive changes in labor demand. Exploiting high-frequency variations in taxi demand due to subway service disruptions, we show that drivers work more when earnings opportunities are greater both when they are above and when they are below their income target. Surpassing the target, however, significantly reduces drivers’ labor supply. Estimates imply that drivers’ response to demand shocks is 40$$%$$smaller once they have reached their daily income target. These results suggest that, while drivers’ behavior seems largely consistent with the prediction of a standard model of labor supply, targeting behavior does nevertheless play an essential role in determining drivers’ decisions.