Abstract
Reservation wages and expected wages constitute different categories, both conceptually and empirically. The aim of this article is the construction of a method for inferring the adequacy of both kinds of wage expectations among persons who are not employed. This method is used to verify the hypothesis about the adequacy of reservation wages and expected wages among the unemployed in Poland. The key element of the analysis in this study is to what extent the reservation wages and wage expectations of the unemployed are in alignment with market conditions. We exploit a unique source of data on expected wages (National Bank of Poland survey) as well as data on reservation wages (Labour Force Survey) and develop a series of parametric and non-parametric counterfactual distributions for the registered unemployed. Our results indicate that expected wages are higher than reservation wages and continue to be positively correlated with wage pressure. We find that reservation wages in Poland from 2011 to 2014 were not excessive. This is important because if the wage expectations of the unemployed are in excess of market evaluation, unemployment and wage pressures prevail.
Highlights
Average wage growth in the economy is an aggregate product of millions of bargaining processes between employers and employees
We argue that the standardised measure taken from the Labour Force Survey (LFS) is closer to the lower bound of the reservation wage, as discussed above, whereas the measure in the National Bank of Poland (NBP) survey seems to capture the properties of the expected wages
The objective of this study was to verify this hypothesis by providing a microeconomic method for evaluating the adequacy of wage expectations among the unemployed
Summary
Average wage growth in the economy is an aggregate product of millions of bargaining processes between employers and employees. Such bargaining processes are most apparent at the time of forming an employment contract. Wage expectations in excess of what the market offers may be the cause of unemployment If these expectations are persistent, the scope of policies that may effectively reduce unemployment is limited. This adds to the risk of excessive wage growth when the demand for labour strengthens, regardless of the reasons
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