Reference-dependent behaviour of paua (abalone) divers in New Zealand

We study dynamic labour supply using data on paua (abalone) divers in New Zealand. The divers face stable, flat prices per kilogram after each catch, but experience transitory wage changes due to varying weather and water conditions, and are free to vary their daily working hours and display an intermittent working pattern. We find nonlinear wage elasticities, rejecting the standard neo-classical prediction that these divers should work long hours during days when wages are high and quit early during days when hourly wages are low. We explore potentially distorting factors, but find little evidence. Applying Kőszegi and Rabin's (2006) theory where workers have both income and hours targets could explain our result. In particular, our divers appear to be primarily guided by the hours target.