Reservation Wages of Mexican Americans: The Pessimists are Pleasantly Surprised∗

Abstract

Two major questions are addressed in this paper. First, do Mexican Americans1 formulate their reservation wages differently than non Hispanic whites2 (Anglos)? Second, are acceptance wages good proxies for reservation wages? Our findings suggest the answers to these ques? tions are respectively yes and no. Further, these findings show that there is the potential for error in empirical tests of theory when using acceptance wages as proxies for reservation wages. Acceptance wages result from the interaction of supply and demand, whereas reservation wages reflect suppliers' per? ceptions of their circumstances and the market. This study shows that reliance on acceptance wages can lead to erroneous conclusions con? cerning Mexican Americans. Although their job search outcomes do not differ statistically from those of Anglos, ceteris paribus, reservation wages do differ significantly. Naive empirical tests can lead a researcher to recommend policies that are clearly wrong. The problem with such tests is that they use proxies for reservation wages rather than the unmeasured reservation wages. The centerpiece of job search theory is the reservation wage concept. The employment offers from which the job seeker may eventually choose cannot be known with certainty by the job seeker. Therefore, according to job search theory, the optimal strategy is to formulate a