Don''t worry if it''s raining, you''re at home and you want a pizza delivered: no matter how many orders pizza vendors have accepted during the day, you will have your pizza when you most need it. That is the conclusion of research by Alessandro Saia, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.
His study analyses the behaviour of a specific group of piece-rate workers – home delivery pizza vendors in Bologna – to understand how they make decisions about their ''labour supply'' – the amount of time they are prepared to work. In particular, he explores whether they behave like some taxi drivers, who often work until they reach a ''target'' before finishing for the day regardless of demand for their work.
Pizza delivery vendors are the ideal candidates to investigate labour supply decisions. On the one hand, they operate in settings where they face temporary changes in their earning opportunities. On the other hand, they are free to decide whether to work more or less by accepting (or not accepting) orders.
The study finds that targets play no role in pizza vendors'' labour supply decisions: they will work more when demand rises – and in Bologna, that typically happens when it''s raining. The research shows that the daily volume of queries submitted to Google that include the Italian words for ''pizza restaurant Bologna'' in the area of Bologna increases by 6% when it is raining.
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It''s pouring rain. You''re finally arriving at home after being stuck in traffic for hours. You are hungry and you desperately want something to eat. You''d like a pizza but you are worried you can''t get pizza delivered to your house. Don''t worry: according to a new study by Alessandro Saia to be presented at the Royal Economic Society''s annual conference 2016, you will have your pizza when you need one most.
An assessment of the extent to which the core assumptions and the predictions of standard economic models are correct, may be particularly important within the context of labour economics. For example, the current design of income taxes or unemployment insurance policies is entirely based on the prediction of the standard model of labour supply: labour supply should increase in response to transitory, positive changes in earnings opportunities (that is, positive Frisch elasticity). Is this prediction true?
A number of recent influential papers have analysed the labour supply behaviour of New York taxi drivers (Camerer et al, 1997; Farber, 2008; and Crawford and Meng, 2011), the findings of which are in sharp contrast with the prediction of the standard model of labour supply, but are consistent with alternative theories of labour supply decisions with Reference-Dependence Preferences.
The idea is that a taxi driver decides to stop driving after having reached his/her target – for example, a given level of income – and not on the basis of whether future potential earnings are high or low.
But why are drivers'' potential earnings high or low? Previous authors were not able to identify an exogenous demand shifter and therefore why taxi drivers'' efforts vary throughout the day was not clear.
In the spirit of previous works, the new study analyses the labour supply behaviour of a specific group of piece-rate workers: Home Delivery Pizza Vendors in Bologna. Pizza delivery vendors are the ideal candidates to investigate labour supply decisions. On the one hand, they operate in settings where they face temporary changes in their earning opportunities. On the other hand, they are free to decide whether to work more or less by accepting (or not accepting) orders.
A key feature of this study is that unlike previous works, using pizza vendors it is possible to identify an exogenous, transitory labour demand shifter. Among other determinants, weather conditions are one of the key shifters of demand for pizza delivery services.
To provide evidence of the positive effect of adverse weather conditions on the demand for pizzas, the study shows that the daily volume of queries submitted to Google that include the Italian words for ''pizza restaurant Bologna'' in the area of Bologna increases by 6% when it is raining.
By using the variation in demand due to adverse weather conditions, the author finds that the target component plays no role in pizza vendors'' labour supply decisions. When truly exogenous demand shifters are used, the target component plays no role in vendors'' labour supply decisions, and the observed behaviour is consistent with the prediction of the standard labour supply model.
Overall, these findings raise certain doubts about taxi drivers'' estimates and about the relevance of behavioural anomalies to workers'' labour supply decisions.
Therefore, don''t worry if you are at home and you want a pizza delivered to your house: no matter how many orders pizza vendors have accepted during the day, you will have your pizza when you need one most.
