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

TL;DR

This study uses a randomized field experiment with Swedish street paper sellers to examine how temporary wage increases influence labor supply, showing increased work effort and hours consistent with standard theory.

Contribution

It provides experimental evidence on labor supply responses to temporary wage boosts among a unique, liquidity-constrained worker group.

Findings

Sellers increased paper sales and worked longer hours.

Wage bonuses led to fewer days off.

Results align with standard labor supply theory.

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. Unlike most workers, these sellers choose their own hours and face severe liquidity constraints and volatile incomes. Treated individuals received a 25 percent bonus per copy sold for the duration of an issue, simulating an increase in earnings potential. Consistent with standard labor supply theory, they sold more papers and, by our measures, worked longer hours and took fewer days off. These findings contrast with studies on intertemporal labor supply that find small substitution effects.