Reservation Wage Research Articles

The effects of savings on reservation wages and search effort

This paper discusses the interrelations among wealth, reservation wages and search effort. A theoretical job search model predicts wealth to affect reservation wages positively, and search effort negatively. Subsequently, reduced form equations for reservation wages and search intensity take these theoretical results to the data. The data used is a Dutch panel, containing detailed information on individual wealth and income, subjective reservation wages and proxies for search effort. The main empirical results show that wealth has a significantly positive effect on reservation wages of both household heads and spouses, and a significantly negative effect on the search effort of household heads.

Is soccer good for you? The motivational impact of big sporting events on the unemployed

We examine the effect of salient international soccer tournaments on the motivation of unemployed individuals to search for employment using the German Socio Economic Panel 1984–2010. Exploiting the random scheduling of survey interviews, we find significant effects on motivational variables such as the intention to work or the reservation wage. Furthermore, the sporting events increase perceived health as well as worries about the general economic situation.

NON‐RIGID WAGES AND MERGER PROFITABILITY REVERSAL UNDER CONVEX COSTS AND CENTRALIZED UNIONIZATION

ABSTRACTCan a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex costs) and centralized unionization. First, it is highlighted that a wage ‘non‐rigidity’ result applies: the post‐merger wage is higher than in the pre‐merger equilibrium. Second, it is shown that a ‘reversal result’ in relation to merger profitability actually realizes when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation, and the union's relative bargaining power, the higher the probability that a merger reduces profits.

The Gender Wage Gap: Does a Gender Gap in Reservation Wages Play a Part?

This paper focuses on re-examining the gender wage gap and the potential role that reservation wages play. Based on two waves of rich data from the IZA Evaluation Dataset Survey we examine the importance of gender differences in reservation wages to explain the gender gap in realized wages for a sample of newly unemployed individuals actively searching for a full-time job in Germany. The dataset includes measures for education, socio-demographics, labor market history, psychological factors and job search characteristics allowing us to perform a decomposition analysis including these potentially influential factors. Our results suggest that the gender wage gap disappears once we control for reservation wages. We also find a close correspondence between the two gaps for certain subgroups. For example, those with low labor market experience show no gender gap in reservation wages and also no corresponding gap in observed wages. In an attempt to better understand how the initial gender gap in reservation wages arises, we also decompose the gender gap in reservation wages and draw some preliminary conclusions on the nature of the unobservable traits that reservation wages might be capturing.

A Contribution to the Empirics of Reservation Wages

This paper provides evidence on the behavior of reservation wages over the spell of unemployment, using high-frequency longitudinal data on unemployed workers in New Jersey. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage. The longitudinal nature of the data also allows for testing the relationship between job acceptance and the reservation wage, where the reservation wage is measured from a previous interview to avoid bias due to cognitive dissonance. (JEL J22, J31, J64)

Is Soccer Good for You? The Motivational Impact of Big Sporting Events on the Unemployed

We examine the effect of salient international soccer tournaments on the motivation of unemployed individuals to search for employment using the German Socio Economic Panel 1984-2010. Exploiting the random scheduling of survey interviews, we find significant effects on motivational variables such as the intention to work or the reservation wage. Furthermore, the sporting events increase perceived health as well as worries about the general economic situation.

The Reservation Wage Curve: Evidence from the UK

The Reservation Wage Curve: Evidence from the UK

A Contribution to the Empirics of Reservation Wages

A Contribution to the Empirics of Reservation Wages

The effects of immigration in frictional labor markets: Theory and empirical evidence from EU countries

Immigrants are newcomers in a labor market. As a consequence, they lack host-country-specific labor market knowledge and other country-specific and not directly productive valuable assets affecting their relative bargaining position with employers. We introduce this simple observation into a search and matching model of the labor market and show that immigrants increase the employment prospects of competing natives. To test the predictions of our model, we exploit yearly variations between 1998 and 2004 in the share of immigrants within occupations in 13 European countries. We identify the impact of immigrants on natives׳ employment rate using an instrumental variable strategy based on historical settlement patterns across host countries and occupations by origin country. We find that natives׳ employment rate increases in occupations and sectors receiving more immigrants. Moreover, we show that this effect varies depending on immigrants׳ characteristics and on host country labor market institutions which affect relative reservation wages.

Determinants of Unemployment in Ghana

AbstractUnemployment is often cited as a measure of the low employment content of Ghana's strong growth performance over the past three decades. The paper presents evidence to suggest that employment growth in Ghana continues to trail economic growth due to high growth of low employment generating sectors against sluggish growth of high labour absorption sectors. A cross‐sectional estimation of a probit regression model also indicates a strong effect of demand factors on unemployment, indicating a weak employment generating impact of economic growth. Empirical analysis also confirms higher vulnerability of youth and urban dwellers to unemployment with education and gender explaining unemployment in some instances. Reservation wage is also observed to have an increasing effect of unemployment. The paper recommends policies that promote investment in agriculture and manufacturing which is associated with higher employment elasticity of output. High incidence of unemployment among the youth and secondary school leavers in the most recent period requires targeted intervention including support for entrepreneurial training and start‐up capital to attract young school leavers to become ‘creators’ rather than ‘seekers’ of jobs. A downward review of expectations on the part of jobseekers in terms of their reservation wage could help reduce unemployment in Ghana.

Information disclosure and job search: evidence from a social networks experiment

We report the results of an experiment that determined the importance of an information disclosure policy in job search behaviour. We controlled the level of employment information disclosed after every experimental round. When we announced the subjects’ wage levels, which at that point they had accepted along with their counterparts in a social network, the subjects’ average reservation wages increased significantly according to their initial preference. However, when this information was not revealed, the reservation wage remained the same despite the availability of the social network. We suggest that the green-eyed monster effect may be significant in explaining these results.

The composition of wage differentials between migrants and natives

We consider the role of unobservables, such as differences in search frictions, reservation wages, and productivities for the explanation of wage differentials between migrants and natives. We disentangle these by estimating an empirical general equilibrium search model with on-the-job search due to Bontemps et al. (1999) on segments of the labour market defined by occupation, age, and nationality using a large scale German administrative dataset.The native-migrant wage differential is then decomposed into several parts, and we focus especially on the component that we label “migrant effect”, being the difference in wage offers between natives and migrants in the same occupation-age segment in firms of the same productivity. Counterfactual decompositions of wage differentials allow us to identify and quantify their drivers, thus explaining within a common framework what is often labelled the unexplained wage gap.

Testing for Monotonicity Under Endogeneity - An Application to the Reservation Wage Function

This paper develops a test for monotonicity of nonparametric regression models under endogeneity, which in its generality is novel in the literature. The test statistic, which is built upon a second order U-process, introduces `correction terms' based on control functions that purge the endogeneity. The test has a non-standard asymptotic distribution from which asymptotic critical values can directly be derived. Furthermore, the test statistic is extended to accomodate multivariate (exogenous) regressors. Consistency against general alternatives is proved and the finite sample properties of the test are examined in a Monte Carlo experiment. The test is used to formally assess the monotonicity of the reservation wage as a declining function of elapsed unemployment duration, which has implications for underlying job search models. This relationship is difficult to measure due to the simultaneity of both variables. Results for UK data indicate that reservation wage functions do in fact not decline monotonically thereby contradicting some partial equilibrium job search models.

Job search requirements for older workers: the effect on reservation wages

PurposeThe goal of the paper is to investigate how reservation wages of older unemployed welfare recipients change once they are no longer subject to standard job search requirements.Design/methodology/approachThe authors apply a regression discontinuity design.FindingsConsistent with theoretical predictions, the authors’ findings indicate that eliminating job search requirements will tend to increase reservation wages.Practical implicationsThe results correspond to previous findings in the literature that monitoring leads to lower accepted wages and increased exits rates from unemployment, and that it may be a successful policy measure to keep older workers in the labor market.Originality/valueMonitoring of job search effort has been shown to be an effective method of activating unemployed people, but little evidence has been found on the effect of activation measures on older workers.

Economy and Disability

Previous work on the link between macroeconomic conditions and disability has focused almost exclusively on changes in applications for disability benefit programs, not changes in individuals' self-perceived disability status. This article demonstrates that macroeconomic conditions may influence disability through a direct disabling pathway that is distinct from the reservation wage pathway highlighted in previous analyses of disability assistance. State-level analyses using data from the Current Population Survey (CPS) from 1982–2006 reveal a robust inverse relationship between state GDP per capita and disability among the working-age population. Analyses using individual-level data from the 2008 American Community Survey (ACS) find that currently employed persons are more likely to report a disability if they reside in a local area with higher unemployment rates and that this association exists across levels of education; and finally, a lagged regression model analyzing change in local unemployment from 2008 to 2009, the first year of the “Great Recession,” finds that an increase in local area unemployment in one year is associated with an increased self-reported disability rate among currently employed workers in the next year. Findings have implications for understanding how macroeconomic downturns influence perceptions of disability and how structural conditions shape individual identity more broadly.

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.

Workfare for the old and long-term unemployed

We estimate the effects of conditioning benefits on program participation among older long-term unemployed workers. We exploit a Swedish reform which reduced UI duration from 90 to 60weeks for a group of older unemployed workers in a setting where workers who exhausted their benefits received unchanged transfers if they agreed to participate in a work practice program. Our results show that job finding increased as a result of the shorter duration of passive benefits. The time profile of the job-finding effects suggests that the results are due to deterrence during the program-entry phase. We find no impact on ensuing job durations or wages, suggesting that the increased job-finding rate was driven by increased search intensity rather than lower reservation wages. A crude cost–benefit analysis suggests that the reform reduced the combined cost of programs and transfers.

The Impact of Age on the Reservation Wage: The Role of Employment Efficacy and Work Intention

This study explores the relationship between age and reservation wage. The authors investigate whether individuals' attitudes toward employment, that is, their "employment efficacy" and "work intention," mediate this relationship. The authors examine this in the Belgian labor market, where substantial differences exist between blue-collar workers, white-collar workers, and civil servants regarding payment systems, employment protection, and pension benefits. Path analysis on a sample of 22,796 Belgian workers aged 18 to 60 years reveals a reverse U-shaped relationship between age and the reservation wage via employment efficacy and a U-shaped relationship via work intention. In addition, study analyses also show a direct relationship between age and the reservation wage. The effects vary with employment status. The authors discuss implications for theory, practice, and future research.

Reservation wages, expected wages and unemployment

We model unemployment duration, reservation and expected wages simultaneously for individuals not in work, where wage expectations are identified via an exogenous policy shock. The policy shock increased expected wages, which were found to be positively associated with reservation wages.

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