Reservation Wage Research Articles

Alleviating behavioral biases at job search: Do nudges work?

We experimentally study the effectiveness of policy interventions in reducing the negative welfare effects of behavioral biases on job search. Due to quasi-hyperbolic discounting, individuals reduce their search effort and reservation wage, while the sunk-cost fallacy makes individuals decrease their reservation wage over the search spell. We compare the effects of search cost reduction and nudging. We find that search cost reduction increases the search effort and payoffs but not the reservation wage. Conversely, nudging increases the reservation wage, but not the search effort or payoffs. Both interventions reduce the impact of the sunk-cost fallacy on the reservation wage.

Spillover effects of the minimum wage introduction based on horizontal fairness: A lab experiment

This paper analyses how a minimum wage introduction affects reservation wages and wage offers based on horizontal fairness with a lab experiment with two experimental settings. The first experimental setting was applied to two types of workers (low or high skills), whereas there are one type of workers in the second setting but two types of sectors, covered and uncovered sectors, depending on whether the minimum wage is enforced. Results show the minimum wage introduction generates spillover effects on the high‐skilled workers' reservation wages and wage offers, whereas there is no evidence of the spillover effect on the uncovered sector.

Social policy and labor supply: the impact of activating labor market institutions on reservation wages

Abstract Activation is an efficacious policy paradigm in modern welfare states. Taking the case of Germany, we study the relationship between the embeddedness of benefit recipients in activating labor market institutions and individual labor supply. Using panel data, we estimate the effects of transitions between key institutional states with different degrees of activation on reservation wages (RWs). We show that RWs react to activation: the transition from gainful employment to unemployment benefit receipt leads to an average decrease of 3.1% in RWs. The transition from gainful employment to welfare benefit receipt—an institutional state with far more rigorous activation—leads to a stronger decrease of 4.9%. Mediation analyses show that the income associated with different institutional states is the predominant mechanism that drives the effect on RWs. However, subjective social status also partly mediates the effect. Implications of these findings for active labor market policies are discussed.

Push or Pull? Measuring the labor supply response to the minimum wage using an individual-level panel

ABSTRACT For individuals in low-wage labour markets, an increase in the minimum wage can theoretically pull them into or push them out of the labour force. If increases raise expected wages beyond reservation wages, marginal individuals could enter the labour force and begin searching for employment. If increases lower expected wages, marginal individuals already in the labour force could exit. Leveraging revised individual identifiers in the U.S. Current Population Survey, this research estimates the contemporaneous effects of minimum wage increases on labour force participation. The use of within-person variation, short individual panels, and flexible controls for time create an empirical strategy that mitigates potential biases from unobserved constant individual-level heterogeneity and time-varying factors. This research finds that minimum wage changes tend to impact the youngest individuals, but there is substantial heterogeneity in responses by age, race/ethnicity, and sex. There is stronger evidence of pull effects amongst young white men and Latinos, and weaker evidence amongst young Black women and older Latinas. Weak evidence of push effects is observed amongst younger white women, younger Latinos, and older Latinas. This research highlights heterogeneous labour force participation responses to further inform our understanding of search behaviour and labour market churn.

Reservation wages and labor supply

Survey measures of the reservation wage may reflect both the consumption-leisure trade-off and job market prospects (the arrival rate of job offers and the wage distribution). We examine what a survey measure of the reservation wage reveals about an individual’s willingness to trade leisure for consumption. To this end, we combine the reservation wage measure from a large labor market survey with the reservation wage for a one-hour job that we elicit in an online experiment. The two measures show a strong positive association. For unemployed individuals, the experimental reservation wage increases on average by around one Euro for every Euro increase in the survey measure. For employed individuals, the association between the two measures is weaker and depends on their occupation-specific risk of unemployment. We show that these results are robust to selection into the experiment, and that demographic variables have a similar influence on both reservation wage measures.

Effects of Downgrading on Wages: The Case of Young Graduates in the Republic of Congo

The purpose of this paper is to analyze the effects of undereducation and overeducation on wages. To that end, we used data from the Transition to Employment Survey (ETVA-2015). With these data, we first proceeded to identify the downgraded individuals by the MCA. Then, knowing that the unemployed may have a reservation wage, which will bias our estimates, we proceeded to estimate a two-stage model to correct for this selection bias. Using this model, we found that downgrading determines workers’ wages. Undereducation improves wages, while overeducation reduces them. Based on these results, we advocated that policymakers should promote more youth placement through employment agencies and improve the supply of training in order to effectively meet the needs of firms.

Effects of the Covid-19 Pandemic on the Reservation Wage: Evidence from Japan

Effects of the Covid-19 Pandemic on the Reservation Wage: Evidence from Japan

Day-to-day dynamics in a duopoly ride-sourcing market

We propose a dynamical system model to formulate the day-to-day dynamics of both traveler mode choice and ride-sourcing car supply in a duopoly ride-sourcing market. In the transport system, besides usual transport modes, e.g., private car and public transit, there are two platforms to provide ride-sourcing services, and travelers choose travel modesaccording to their perceived travel costs. Furthermore, the earnings and reservation wages of ride-sourcing car drivers are heterogeneous and follow continuous distributions. We mathematically prove the existence and stability of the stationary point of the model and the equivalence between the stationary point and the equilibrium point. Numerical results show that there may be multiple stationary points in the system, which show a positive correlation characteristic. The evolution trajectories of the system from different initial points may converge to different stationary points, and a lager (smaller) initial number of users using a service platform can result in more (fewer) users and higher (lower) profits of the service platform at the stationary state. When the two platforms provide the same service level to users, setting the same price level may not make their profits simultaneously maximum at the stationary state. The proposed model can be applied to capture the period-to-period dynamics of platform pricings.

Decomposing the gender reservation wage gap in Italy: A regional perspective

AbstractWe investigate the determinants of the reservation wage gap between unemployed men and women, using data from the Italian Labour Force Survey. We conduct detailed decomposition analysis at the mean and at different percentiles of the reservation wage distribution using the Recentered Influence Function regression approach. Given the regional differences in labor market participation and employment rates across Italy, we focus on regional differences in the gender reservation wage gap. We find evidence of a positive gender reservation wage gap, which is highest in the South, with men reporting higher reservation wages across all regions and at all percentiles of the reservation wage distribution. The decomposition results suggest that, while a large part of the gender gap in reservation wages is explained by personal characteristics such as education and age, a significant portion of the gap is explained by different job preferences (especially commuting and working time preferences) between men and women. We also find evidence of differences in the relative effects of personal, household and job characteristics across regions, and at different percentiles of the reservation wage distribution.

COVID-19 en dagloners in die Suid-Afrikaanse ekonomie: Die impak op hul lewens en daaglikse bestaan

Die Suid-Afrikaanse ekonomie was reeds voor die COVID-19-pandemie in 'n benarde posisie. Dagloners en andere in die informele ekonomie was struktureel selfs meer kwesbaar vir so 'n eksogene skok. Die doel van hierdie oorsigstudie was om die impak van die COVID-19-pandemie op die lewensomstandighede van dagloners op die navorsingsagenda te plaas. 'n Oorsig van tersaaklike elemente uit die enigste nasionaal verteenwoordigende databasis van dagloners, afkomstig vanuit die Blaauw (2010) studie, in Suid-Afrika, was die vertrekpunt. Daarna is die jongste beskikbare navorsingsinligting oor veranderinge in die daglonermark gebruik om die moontlike kort-, medium- en langtermynimpak van die pandemie te bespreek. In 2008 was die dagloners in die Wes-Kaap en Gauteng se loonvlakke hoër as dié van die dagloners in die res van Suid-Afrika. Selfs dagloners in hierdie twee provinsies was steeds kwesbaar met lae en onsekere inkomstevlakke. Sedert 2008 het makro-ekonomiese faktore en 'n derde golf van oorgrensmigrasie 'n verdere verswakking in dagloners se posisie meegebring. Die vraag na hul arbeid het verminder en reële lone het in verskeie stede gedaal. Die COVID-19-pandemie het dagloners op die kort termyn voor hongersnood te staan gebring. Die talle mense wat vanweë die pandemie hul formele werk verloor het of nog gaan verloor sal die daglonermark onder verdere druk plaas. Die minimum loonvlak waarvoor dagloners bereid is om te werk, sal selfs verder daal. In die lang termyn kan duisende van die leerlinge wat hul skoolopleiding te midde van die pandemie staak ook dagloners word, met rampspoedige gevolge vir die maatskaplike bestel in Suid-Afrika.

The Role of Social Capital on the Searching Behaviours of a Job Seeker in the Multiple Labour Markets

This study aims to build a two-stage theoretical model to analyse the role of social capital on the searching behaviours of a job seeker in two different markets. As the advantage of the social capital in either market triggers the reservation wages in both two markets equally, the job seeker should prioritize his or her resources enhancing a larger amount of the social capital in a particular market. Consequently, the job seeker tends to search more intensively in the market where she or he has a higher level of social capital. That is the seeker can shorten the expected searching time. The proposed model also explains why the job seeker sometimes chooses the 2nd highest wage offer instead of the highest one. JEL Classifications: C02, D83, J64

Gender gap in reservation wages and the choice of education field

ABSTRACT I examine the gap in reservation wages between men and women who enter the labour market for the first time and link it to the choice of education field by gender. Using data from 2006 to 2015 Labour Force Survey for Poland, I show that men and women with the same education value their qualifications differently, which points to behavioural differences by gender. The gender difference in returns to education fields is found to be the single most important predictor of the gender gap in reservation wages. Women educated in mathematics, IT and physics are found to report higher reservation wages than other women and there is no difference in pay expectations between them and men. The results contribute to the discussion on the importance of a higher presence of women in STEM fields as a way of achieving greater gender equality in the labour markets.

Household Search and the Marital Wage Premium

We develop a model where selection into marriage and household search generate a marital wage premium. Beyond selection, married individuals earn higher wages for two reasons. First, income pooling within a joint household raises risk-averse individuals’ reservation wages. Second, married individuals climb the job ladder faster, as they internalize that higher wages increase their partner’s selectivity over offers. Specialization according to comparative advantage in search generates a premium that increases in spousal education, as in the data. Quantitatively, household search explains 10–33 percent and 20–58 percent of the premium for males and females, respectively, and accounts for its increase with spousal education. (JEL D83, J12, J16, J24, J31, J64)

Job Search of Older Unemployed Workers: Evidence from Longitudinal Data

Previous research has shown that older unemployed workers reduce their reservation wage at higher rates than their younger counterparts. However, we know little about why this is the case. In this paper, we focus on the psychological toll of joblessness for older workers as they experience long spells of unemployment. Using longitudinal data on unemployed workers in New Jersey, we first show that the negative emotions of older workers during unemployment intensify at a higher rate than younger workers as they remain unemployed. We then provide early evidence that older workers reduce their reservation wage at a higher rate, because remaining unemployed is psychologically more costly for older workers than their counterparts. We discuss the implications of our findings.

Paying Less and Getting More? Evidence on the Effect of Corporate Purpose from Two Field Experiments

The (re)definition of corporate purpose beyond profit-maximization can be seen as one of the fundamental tasks of management and leadership in the 21st century. To this end, the present paper employs two natural field experiments on different online labor marketplaces to investigate the effect of communicating a pro-social corporate purpose on three employee-level outcomes that constitute major cost components for most organizations: workers’ reservation wage, work quality and work misbehavior. The main findings in both experiments show that receiving information about an employer’s corporate purpose causes workers to accept lower wages for the same job. Workers that personally assess a high importance to organizations having a pro-social purpose are most responsive. At the same time, sacrificing wage for a corporate purpose comes at no cost of quality and even decreases the likelihood of engaging in work misbehavior. In a broader context, the results provide some indications that the (re)definition of corporate purpose in commercial organizations is not ultimately at odds with creating profits.

Money or meaning? Labor supply responses to work meaning of employed and unemployed individuals

We analyze to what extent work meaning – the significance of a job for others or for society – increases the willingness of employed and unemployed individuals to accept a job. To this end, we elicit reservation wages for a one-hour job and randomly vary its description as having either ”high” or ”low” meaning. Our subjects participate in the ”Panel Study of Labour Market and Social Security” (PASS), which comprises a random draw from the German population and a random draw of unemployed individuals from the unemployment register. We can thus link subjects’ experimental behavior to rich survey data and control for selection into the experiment. For subjects who consider work meaning as very important (around one third of PASS respondents), high-meaning reduces the reservation wage by around 18 percent. By contrast, among unemployed individuals, work meaning increases the reservation wage by around 14 percent. We discuss how work meaning can have both positive and negative effects on labor supply when it interacts with fairness concerns or work norms.

The effect of unemployment duration on reservation wages: Evidence from Belgium

This paper studies the effect of unemployment duration on asking (reservation) wages. We provide new evidence based on unique longitudinal data on unemployed workers in Belgium, who were surveyed about self-reported reservation wages at the start of the unemployment spell, and after 3 and 6 months of unemployment duration. Our estimates suggest that reservation wages decline with unemployment duration by about 0.4 percent per month, or 5 percent per year, and that cross-sectional estimates are biased upward. We find stronger declines among men and among workers who earned high wages in their previous jobs. The paper discusses these findings in the light of learning models and discusses the implications of falling reservation wages for the debate on the effect of unemployment on wages.

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.

Gender in agriculture: Determinants of female labor supply decisions among rural households in the context of market imperfections in Pakistan

AbstractWelfare of the household depends on the better understanding of time allocation among different sectors in response to changes in economic conditions. This article estimates labor supply of male and female of rural households regarding activities for own‐farm, agricultural‐wage, and nonfarm sector. The study utilizes the cross‐sectional data of 341 rural households of the Punjab, Pakistan through random sampling technique. In Pakistan, like other developing countries, gender‐based wage data are almost nonexistent, and functioning of labor market is imperfect. Therefore, reservation wages are calculated through production function analysis. Our results reveal that literacy rate, social status, and rural infrastructure are key determinants in the rural labor market. Hypothesis of separability in agricultural household models is tested by applying three tests. Separability hypothesis is rejected on the bases of results indicating the presence of imperfect labor market in rural settings of Pakistan. The findings suggest that policy makers should focus on educational opportunities, infrastructure development, and minimizing entry barriers in labor market, especially for females, regarded as socially backward class in order to raise economic conditions of rural dwellers in Pakistan.

Assessing Causal Effects in a Longitudinal Observational Study With “Truncated” Outcomes Due to Unemployment and Nonignorable Missing Data

Important statistical issues pervade the evaluation of training programs’ effects for unemployed people. In particular, the fact that offered wages are observed and well-defined only for subjects who are employed (truncation by death), and the problem that information on the individuals’ employment status and wage can be lost over time (attrition) raise methodological challenges for causal inference. We present an extended framework for simultaneously addressing the aforementioned problems, and thus answering important substantive research questions, in training evaluation observational studies with covariates, a binary treatment and longitudinal information on employment status and wage, which may be missing due to the lost to follow-up. There are two key features of this framework: we use principal stratification to properly define the causal effects of interest and to deal with nonignorable missingness, and we adopt a Bayesian approach for inference. The proposed framework allows us to answer an open issue in economics: the assessment of the trend of reservation wage over the duration of unemployment. We apply our framework to evaluate causal effects of foreign language training programs in Luxembourg, using administrative data on the labor force (IGSS-ADEM dataset). Our findings might be an incentive for the employment agencies to better design and implement future language training programs.