Should I go by taxi? An analysis of the taxi drivers’ labor supply in Brazil

Abstract

In this paper, the worked hours and the wages of Brazilian cab drivers are used to test two competing theories regarding labor supply: the neoclassical theory, which predicts positive elasticities and the reference income theory that predicts negative elasticities. To this end, it uses information from the continuous PNAD to estimate models with cross-section and panel data for the period between the first quarter of 2012 and the first quarter of 2014. The models are estimated by ordinary least squares, two stages least squares and generalized method of moments. The results indicate negative elasticities that may imply that Brazilian cab drivers use some reference income in their work offer decisions. In addition, they show that cab drivers have a learning curve with the experience that allows them to predict their incomes and to make a better choice of their amount of worked hours. The paper concludes that this behavior associated with the current legislation can generate rationing in the provision of urban transport service.