Higher Reservation Wages Research Articles

Do income tax incentives for job creation targeting young workers in SMEs stimulate employment? Evidence from South Korea

Faced with high unemployment and labor mismatches, many countries have mainly focused on stimulating labor demand through job creation policies. However, empirical evidence regarding their effectiveness is mixed, while the impact of labor supply-side policies remains underexplored. This study fills the gap by assessing the effectiveness of a labor supply-side policy—the Job Creation Income Tax Credit in Korea—which provides tax incentives for workers under 35 employed in small and medium-sized enterprises (SMEs). Using event-study and difference-in-differences models with national survey data from 2016 to 2019, we find insignificant effects on overall SME employment among individuals aged 32–34. While no significant effects are observed on regular workers, only low-educated male SME workers ineligible for the credit transition to eligible temporary SME jobs. These findings highlight that modest tax credits are ineffective in promoting employment for highly educated young individuals due to their high reservation wages and inelastic labor supply.

‘I Still Haven't Found What I'm Looking For’: Evidence of Directed Search from a Field Experiment*

Abstract We explore the impact of wage offers on job applications, testing implications of the directed search model and trying to distinguish it from random search. We use a field experiment conducted on a Chinese job board, with real jobs for which we randomly vary the wage offers across three ranges. We find that higher wage offers raise application rates overall, which is consistent with directed search, but can also arise with random search. We also find that higher wage offers raise application rates for job seekers with wage offers above reservation wages and that—among the latter—the increase in application rates is stronger for those with higher reservation wages. The latter two types of evidence are consistent with directed search, but not random search. Hence, our evidence lends support to directed search models.

Customer and Worker Discrimination Against Gay and Lesbian Business Owners: A Web-Based Experiment among Students in Sweden

ABSTRACT We examined customer and worker discrimination against gay and lesbian business owners using a web-based experiment conducted at a Swedish university campus. Participants (N = 1,406) were presented with a prospective restaurant establishment on the campus. They then stated whether they would be positive to such an establishment, whether they would be interested in working at the restaurant, and what their reservation wage would be if they were interested in the job. Owners’ sexual orientation was randomized across participants. Results showed that participants were less positive to a restaurant opening if the owners were lesbians, and they were less interested in an available job if the owners were gay. The participants had higher reservation wages if the owners were lesbians. In fact, the participants increased their wage demands when the number of women among the owners increased. Our study underlines that gay and lesbian people face various inequalities in society.

NATURE AND EXTENT OF EMPLOYMENT AMONG PERSONS WITH DISABILITIES AND FACTORS ASSOCIATED WITH THEIR EMPLOYMENT IN INDIA: A CROSS-SECTIONAL STUDY

Available literature on the subject indicates that the higher reservation wage and a lower market wage generally leads to lower probability of employment among the PWDs. The preset study carries out a systematic analysis of employment experiences of PWDs in different age cohorts and across gender, regions and social groups. A comparative study is also undertaken between the two time periods using 2001 and 2011 census data. In the last section of our study, the factors affecting work force participation rates for persons with disabilities is estimated, separately for rural and urban regions. The findings of the study suggest that there is lower employment outcomes for the persons with disabilities (PWDs). The work participation rate (WPR) has significantly increased in 2011 but it is attributed to increase in marginal workers. Thus, it can be inferred that there is growing informalisation in the disability sector as well. The SCs have the lowest employment rates and STs recorded the highest values of WPR. The female work force participation rates (WPR) is far lower, however female WPR has slightly increased in 2011. Further, the regression analysis of factors affecting workforce participation rates for persons with disabilities suggest that the rural and urban areas have different factors contributing to their employment. The findings reveal that individuals with disabilities have different employment outcomes depending on their disability types, gender and social compositions, levels of literacy, and whether they live in rural or urban regions. Understanding the economic experiences of PWDs is critical for disability advocates and policy-makers. The problems faced the persons with disabilities is multifaceted and require coordinated efforts to tackle them, at all the levels, social, economic and political.

Interplay Between Reservation Wage and Unemployment Duration: Evidence from Jordan, Serbia, Montenegro, Ukraine and Moldova in 2015

This study investigates the reservation wage along with the unemployment duration of the youth in five countries from three groups of countries, the MENA countries, the WB countries and the CIS countries. The study assesses the determinants of the reservation wage and in particular how it is related to unemployment duration. The data comes from the School to Work Transition Survey in 2015 which is a survey that is labor market designed and includes labor market information on young people aged 15 to 29 years. The Two Stage Least Square (2SLS) model is conducted by using instrumental variables. This technique is used since we suspect that ednogeneity between the reservation wage and the unemployment duration is possible in our model. The results suggest the interplay between the reservation wage and the unemployment duration is countercyclical, the longer the unemployment duration the lower the reservation wage. Youth that lives in a household that receives other sources of income and remittances have lower reservation wages and youth that comes from a household with good financial situation and receives governmental financial assistance have higher reservation wages. Married youth with children have higher reservation wage and lower unemployment duration and more educated and trained youth has higher reservation wage.

Youth reservation wages in Romania: are wage expectations realistic?

ABSTRACTRomania has been experiencing difficulties in integrating young people into the labour market in recent years. Moreover, the problem of migration is extremely acute, young people being the most eager to leave the country. Considering also the demographics – declining birth-rates and an aging population, the risk of imbalance is extremely high. Thus, it is important to design strategies targeting young people, helping them find quality jobs so they contribute to the sustainable growth and development of the Romanian economy. In this context, the paper aims to identify the determinants of youth reservation wages and to analyse whether youth wage expectations are too high and prevent the acceptance of available jobs. The article contributes to the explanation of youth unemployment by analysing their behaviour, complementing the existing studies that focus mainly on macroeconomic and institutional factors. The results indicated that young unemployed people really have high reservation wages, expecting more than we estimated to earn on the market, considering their personal characteristics. The main factors influencing their reservation wage are: age, gender, education, intention to emigrate, duration of unemployment, and friends’ wages.

On the Very Idea of an Efficient Wage

This paper argues that the standard characterisation of the equity-efficiency trade-off as set out in this symposium by Joe Heath overstates the tension between these two values. The reason lies in the fact that economists tend to take individual labour supply preferences as given, which leads to a superficial analysis of the concepts of reservation wage and of economic rent. The paper suggests that we should instead think of reservation wages as variable and as influenced by social norms. Social norms play a double role in this context. First, they represent a constitutive element of market competition; second, they can be a determinant of income inequalities. From this perspective, a certain share of high reservation wages sustained by contingent inegalitarian social norms should count as economic rent. The last section of the paper strengthens this conclusion further by drawing a parallel between expensive tastes in consumption and a certain class of high reservation wages. To the extent that the latter are underpinned by social norms rather than efficiency considerations, not paying them is both just and efficient.

Reservation Wages and the Unemployment of Older Workers

Our purpose is to examine the level of reservation wages among older unemployed (45+), and investigate what happens to the level of reservation wages as the length of unemployment increases. Using data from questionnaires completed by unemployed, we examined the reservation wages of 364 individuals and asked whether they would be willing to compromise in terms of their occupation, profession or geographic location to find a job. 112 of the participants responded to two questionnaires over a three-month period to determine the changes in their expectations over time. Additionally, we conducted qualitative interviews with 10 unemployed. We found that older people experienced longer periods of unemployment, and had a greater willingness to reduce salary expectations. The study establishes an innovative connection between older unemployed, reservation wages and the duration of unemployment, showing that higher reservation wages among older unemployed is the cause of prolonging their unemployment.

Paradoxes of reservation wage setting in the Russian labor market.<i> Part II</i>

Using panel data from the Russian Longitudinal Monitoring Survey for 2006-2014, the paper investigates reservation wages setting in the Russian labor market. The second part of the paper provides an econometric analysis of main determinants of reservation wages. It shows that personal characteristics, household income, unemployment duration and characteristics of local labor markets are important factors that affect reservation wage setting. The findings also indicate that non-employed individuals with higher reservation wages have higher probability of re-employment and receive higher wages on their new jobs. A general conclusion is that Russian workers set reservation wages in economically rational way taking into account their real prospects in the labor market.

The Gender Wage Gap in Offered, Observed, and Reservation Wages for Spain

ABSTRACTThe literature on the gender wage gap and wage discrimination has exclusively analyzed observed wage differences, ignoring inactive or unemployed individuals. In order to obtain a more complete overview of gender wage differences, this paper analyzed inactive or unemployed individuals in terms of offered and reservation wages in Spain in the years 1994, 2000, and 2006. The results show that the observed wages give a more positive perspective of the gender wage gap than offered ones. Furthermore, the existence of an important gender wage gap for reservation wages has been noted, which is possibly because women take charge of household and family caregiving tasks to a greater degree than men. The results show that Spanish women had higher reservation wages and lower offered wages than men, which explains their lower participation in the labor market.

Trade reforms, mark-ups and bargaining power of workers: the case of Ethiopian manufacturing firms

There is a predominant preposition in trade theory that firms operating in an imperfect market with trade barriers often set prices with a positive mark-up. Workers using insider information tend to bargain and share the rent from firms’ market power; which is negatively associated with to decline with trade reforms. Empirical evidences are, nonetheless, mixed. Trade reforms that took place between 1991 and 2002 in Ethiopia inspired the study to investigate the proposition. Using firm level unbalanced data of manufacturing firms employing more than 100 permanent workers between 1996 and 2007, a model of mark-up with labor bargaining power was estimated using random effects and LDPDM. The estimates of the two models are similar. Albeit huge inter-firm variations, the average estimated mark-ups has not only been positive but also increased even after the reform. This may be perhaps because of the 17.5 percent weighted average tariff rate that has still been maintained after the reform. Workers’ bargaining power parameter estimate remained negative over the study period; possibly because of high unemployment and low reservation wage. The rate of rent extraction from workers declined on average in the post reform period. Thus, further opening up of markets may bring a competitive push to improve firm performance, reduce market power of firms and the rent extraction from workers. There is a need to attract additional investment (both public and private) in the economy and addressing causes of capacity underutilization of incumbent firms may lessen unemployment problems and thereby improve workers bargaining power and their earnings. Keywords: Trade reform, mark-up, bargaining power, rent, trade unions

Happy Birthday, You're Fired! The Effects of an Age-Dependent Minimum Wage on Youth Employment Flows in the Netherlands

This paper investigates the effects of the age-dependent minimum wage on youth employment flows in the Netherlands. The Dutch minimum wage for workers aged 15-23 is defined as a step-wise increasing function of a worker's calendar age. At the age of 23, workers become eligible for the "adult" minimum wage which does not increase further. This creates an incentive for firms to discriminate against employees on the basis of their age, substituting more expensive older workers with younger ones. In order to grasp the size of these effects, I analyze monthly flows in and out of employment using administrative records for the entire youth population of the Netherlands. I account for the time remaining until workers' next birthdays, exploiting the fact that firms are facing a sharp discontinuity in labor costs in the month when a worker turns one year older.The results show a significant increase in job separation around the time of this discontinuity: the probability of job separation increases by 1.1% in the three calendar months which are closest to a worker's next birthday. This effect exhibits substantial heterogeneity with respect to a worker's age, showing that young and inexperienced workers are more likely to be affected by the discontinuities. The size of the effect also varies by the sector of employment, being particularly large for supermarket employees. Job accession peaks just after workers' birthdays, representing both entry of the workers with higher reservation wages and re-employment of the workers whose jobs are dissolved around the time of the discontinuity.

Multilevel analyses of labour market and return to work after vocational retraining

is to test individual level and regional labour market hypotheses about return to work (RTW) after vocational retraining derived from matching theory. In multilevel analyses individual data of graduates in 2006 (n=3620) by the association of German "Berufsförderungswerke" and for contextual level the regional unemployment rates in 2007 (n=159 Federal Employment Agency of Germany districts) are used. Probability of RTW rises with decreasing regional unemployment. There's an age effect only in context of high unemployment. In context of low unemployment partnership promotes RTW - but in context of high unemployment only for men and not for women. It's compatible with matching theory because family obligations lead to high individual reservation wages and entry wages are to low. Direct and indirect effects of labour market should be taken into account in research on effectiveness and in comparative evaluation on intervention quality.

Is longer unemployment rewarded with longer job tenure?

This paper examines whether or not a prolonged unemployment period can raise the quality of job matching after unemployment. We focus on job tenure as an indicator of a good quality job match after unemployment. We match two sets of Japanese administrative data compiled by the public employment security offices: one includes information about the circumstances of job seekers receiving unemployment insurance, and the other includes information about job seekers applying for jobs. We first show a negative relationship between unemployment duration and the subsequent job duration. Restricting the sample to job seekers who changed search behaviors in the final 59days before expiration of unemployment insurance, we secondly show an even greater negative effect of unemployment duration on the following job duration. The importance lies not only in the duration of unemployment. If job seekers keep a high reservation wage and a low search intensity because of the benefits of unemployment insurance, and change them in response to the expiration of insurance, prolonged unemployment will result in short job duration after unemployment.

Skills or culture? An analysis of the decision to work by immigrant women in Italy

AbstractActivity and employment rates for immigrant women in many industrialised countries display a great variability across national groups. The aim of this paper is to assess whether this fact is due to a voluntary decision (i.e. large reservation wages by immigrants) or to an involuntary process (i.e. low labor market evaluation of their skills). This is done by estimating the reservation wage for each individual in a sample of immigrant women in Italy. Our results show that low activity and employment rates for certain national groups are not associated with high reservation wages. This implies that low participation should not be interpreted as a voluntary decision.JEL codesJ22, J61, J15

Explaining Migrant Wages: The Case Of Zimbabwean Day Labourers In South Africa

There has been an increasing inflow of migrants and refugees into South Africa during the last two decades. The origin of these migrants is mainly from South Africas long-established sources of migrant workers, including countries from the Southern African Development Community. Over the last decade, African immigrants have encountered brutal manifestations of resentment at their presence in South Africa. The reasons for this are multifaceted, but one of the pertinent perceptions is that immigrants from the countrys northern borders are taking South Africans jobs. It is often claimed that casual immigrant workers are willing to work for very low daily wages. In doing so, they get temporary employment in the informal and formal economy at the expense of South African workers, who have much higher reservation wages in the same informal labour market. This is the first study to focus on the wages of migrant day labourers in South Africa by investigating the determinants of day labour wages for migrant day labourers from Zimbabwe. The respondents for this study were interviewed during the first countrywide survey of day labourers in South Africa during 2007. The paper concludes that the income from migrant day labourers from Zimbabwe often exceeds that of the average day labourer in South Africa. The Zimbabweans are, in many cases, better qualified than the average day labourer in South Africa. The main determinants of these migrant wages are their formal level of schooling, language proficiency and the completion of vocational training courses.

Is Longer Unemployment Rewarded with Longer Job Tenure?

This paper examines whether or not a prolonged unemployment period can raise the quality of job matching after unemployment. We focus on job tenure as an indicator of a good quality job match after unemployment. We match two sets of Japanese administrative data compiled by the public employment security offices: one includes information about the circumstances of job seekers receiving unemployment insurance, and the other includes information about job seekers applying for jobs. We first show a negative relationship between unemployment duration and the subsequent job duration. Restricting the sample to job seekers who changed search behaviors in the final 59 days before expiration of unemployment insurance, we secondly show an even greater negative effect of unemployment duration on the following job duration. The importance lies not only in the duration of unemployment. If job seekers keep a high reservation wage and a low search intensity because of the benefits of unemployment insurance, and change them in response to the expiration of insurance, prolonged unemployment will result in short job duration after unemployment.

Emiratisation: determining the factors that influence the recruitment decisions of employers in the UAE

The Arab Gulf's labour market is being overhauled. The private sector is increasingly being ‘obliged’ to more actively support nationalisation programmes. This study seeks to quantitatively determine the recruitment decisions of the employers. We collated the views of just under 250 UAE-based HRM personnel, in order to identify which factors (social, cultural, economic, regulatory, educational and motivational) are most significant as cited in the relevant literature. Not having the necessary educational qualifications and high reservation wage demands were found to have less of a bearing than does the perceived lack of vocationally orientated motivation and the ambiguities over the differing rights afforded to employees.

Skills or Culture? An Analysis of the Decision to Work by Immigrant Women in Italy

Activity and employment rates for immigrant women in many industrialized countries display a great variability across national groups. The aim of this paper is to assess whether this well-known fact is due to a voluntary decision (i.e. large reservation wages by the immigrants) or to an involuntary process in that the labor market evaluation of their skills is low. This is done by estimating the reservation wages for each individual in the dataset. Our results show that low activity and employment rates for certain national groups are not associated with high reservation wages. This implies that low participation should not be interpreted as a voluntary decision.

Great expectations: Past wages and unemployment durations

Decomposing wages into worker and firm wage components, we find that firm-fixed components are sizeable parts of workers' wages. If workers can only imperfectly observe the extent of firm-fixed components in their wages, they might be misled about the overall wage distribution. Such misperceptions may lead to unjustified high reservation wages, resulting in overly long unemployment durations. We examine the influence of previous wages on unemployment durations for workers after exogenous lay-offs and, using Austrian administrative data, we find that younger workers are, in fact, unemployed longer if they profited from high firm-fixed components in the past. We interpret our findings as evidence for overconfidence generated by imperfectly observed productivity.