"We are all expert economists now" *

Stumbling and Mumbling starts off a post with this:

What’s the difference between high earners and New York cabbies? This question is central to the issue of whether the new 50% tax rate will actually raise revenue.

I ask it because of this new paper (early version here) by Orley Ashenfelter and colleagues. They studied how New York cab drivers changed their labour supply in response to the higher incomes caused by fare rises. And they found a negative elasticity, of around minus 0.2. That means a 10% rise in cabbies’ revenue per mile caused them to work 2% less.

This means we have a backward-bending labour supply curve, because the income effect outweighs the substitution effect...

I can only read a blog post as far as the first error (grammatical, logical or factual), so I left the following comment:

"they found a negative elasticity, of around minus 0.2. That means a 10% rise in cabbies’ revenue per mile caused them to work 2% less."

How do they know that this is not the quantity demanded dropping by 2% in response to a 10% fare hike? Unless they can prove that it was income-substitution rather than a fall in quantity demanded, the whole theory falls flat on its arse.

* Post title nicked from The Fat Bigot