Reservation Wages and Workers’ Valuation of Job Flexibility: Evidence from a Natural Field Experiment

We quantify how labor supply elasticities and reservation wages vary between people and over time, and infer workers’ valuation of flexibility in their choices of work hours. Economists and policymakers are keenly interested in these quantities, especially lately with the growth in jobs that offer flexible work schedules. Our study takes advantage of a large natural field experiment at Uber, the largest ride-sharing company. Combining this experiment with high frequency panel data on wages and individual work decisions, we estimate a dynamic labor supply model that let us recover reservation wages, labor supply elasticities, and workers’ valuation of flexibility. We also show the biases in reservation wages and labor supply elasticities that arise if one uses observational data on wages or a static labor supply model. (JEL: C93, J2, J3, J4)

Keywords: Adjustment costs, dynamic model of labor supply, job flexibility, labor supply elasticities, reservation wages, value of time.