Are labor supply decisions consistent with neoclassical preferences? Evidence from Indian boat owners

Abstract:

This paper studies the labor supply of South Indian boat owners using daily labor participation decisions of 247 boat owners during seven years. We test the standard neoclassical model of labor supply and find that boat owners’ labor participation depends positively on expected earnings but also on recent accumulated earnings, albeit weakly. Participation elasticities with respect to expected earnings range between 0.8 and 1.3 and about −0.05 and −0.01 with respect to changes in recent income. While recent earnings affecting participation is at odds with the standard neoclassical model, the magnitude of the effect is small, suggesting that the neoclassical model is a good approximation of the labor supply behavior of boat owners in southern India.