The Impact of Age on the Reservation Wage: The Role of Employability

Abstract

In an aging society, it is important to gain insight in the factors explaining why the transition from unemployment to employment gets harder as people move from mid to late career. This study focuses on one related aspect: individuals’ wage setting behaviour. The study explores the relationship between age and the reservation wage for people in their mid and late career. We moreover investigate whether two employability factors, ‘willingness to move’ and ‘ease of movement’, mediate this relationship. Higher wage claims would not necessarily be problematic if they result from a stronger labour market position (ease of movement) and therefore a higher ‘market value.’ It would be more problematic if higher wage claims are a way to price oneself out of the labour market because of a low willingness to move. Path analysis on a sample of 8,113 Belgian workers aged 40 to 60 years reveals that age positively affects the reservation wage via willingness to move. Yet, this effect is neutralized by the negative influence via ease of movement. Our analyses moreover reveal a direct, positive effect of age on the reservation wage, if employability factors are controlled for. This finding suggests that wage claims are increasing if people move from mid to late career irrespective of their employability. We discuss implications for theory, practice and future research.