Social, Behavioral and Experimental Economics Seminar: Heather Schofield

Habit Formation in Labor Supply

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Abstract
 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 examine this phenomenon in more detail, 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 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. 

Speaker bio

Heather Schofield, PhD is an economist at the University of Pennsylvania Perelman School of Medicine and the Wharton School studying development, health and behavioral economics with a focus on the interaction between health, cognition, productivity and decision-making. Her work seeks to understand the potentially bi-directional relationships between health, productivity and decision-making—where not only do one’s decisions influence one’s health, but health itself may influence how productive one is in the labor market and how one makes decisions. In her research, she draws on her training in both development and behavioral economics as well as public health and utilizes a variety of methodologies including randomized trials, surveys (both longitudinal and cross-sectional), and secondary data analysis. Schofield completed her PhD in business economics, and MS in global health and population at Harvard University.