Labor Supply under Temporary Wage Increases: Evidence from a Randomized Field Experiment

TL;DR

This paper tests whether a temporary earnings boost leads to income-targeting or rational intertemporal labor-supply decisions among Situation Sthlm vendors by conducting a pre-registered randomized controlled trial. A $25\%$ per-copy bonus (a $10\,SEK$ per copy increment) is assigned to treated sellers for the October issue, with 53 treated and 56 controls, using Swish as the payout channel to isolate the shock. The main results show that treated sellers sell more, work longer, and take fewer days off, with the increase largely driven by electronic sales, and no evidence of income targeting in the RCT; however, observational data display patterns consistent with targeting, underscoring the importance of experimental identification. The findings contribute to the literature on labor supply under transitory earnings, supporting a rational response to temporary incentives in high-discretion contexts and informing policy about wage volatility and measurement bias.

Abstract

We conduct a pre-registered randomized controlled trial to test for income targeting in labor supply decisions among sellers of a Swedish street paper. These workers face liquidity constraints, high income volatility, and discretion over hours. Treated individuals received a 25 percent bonus per copy sold for the duration of an issue, simulating an increase in earnings potential. Treated sellers sold more papers, worked longer hours, and took fewer days off. These findings contrast with studies on intertemporal labor supply that find small substitution effects. Notably, when we apply strategies similar to observational studies, we recover patterns consistent with income targeting.

Figures (1)

• Figure 1: Estimated effects on sales (event study design). Notes: The dashed line marks the reference period ($t=-1$). Vertical bars represent 95% confidence intervals.