Income Targeting and Farm Labor Supply

There is considerable anecdotal evidence that farm workers who are paid by piece rate tend to “income target,” or work only until they achieve a certain amount of daily income, and then stop work. We estimate reduced-form and structural models derived from the reference-dependent preference model of Koszegi and Rabin (2006) to test the income-targeting hypothesis using data from the National Agricultural Workers Survey (NAWS). We find evidence that supports the income-targeting hypothesis, in both the reduced-form and structural econometric models. Our findings suggest that even higher piece rates may not help the widely reported shortage of agricultural labor on the intensive margin as labor-supply curves can be backward bending.