Risk attitudes and reservation wages of unemployed workers: Evidence from panel data

This paper studies risk attitudes of unemployed job seekers and their relationship to self-reported reservation wages. We find that risk aversion is prevalent, and that reservation wages decrease slightly over time. Furthermore, risk aversion and reservation wages are negatively correlated.     

AN EMPIRICAL EXAMINATION OF THE SOURCES OF CHANGES OVER TIME IN THE JOB FINDING RATE USING RESERVATION WAGES AND REJECTED WAGE OFFERS*

We consider a structural dynamic job search model where nonstationarity originates from the change over time in the benefit level, the job offer arrival rate, and the wage offer distribution. The model is estimated on the French sample of the ECHP taking advantage of direct observation of reservation wages, rejected job offers, and associated rejected wages. We find that the offered wages deteriorate rapidly (13.8% over six months, 19.2% over one year, and 30% over two years) and that changes in the wage offer distribution are the unique source of negative duration dependence in the hazard.     

Reservation wages, market wages and unemployment: Analysis of individual level panel data

Using individual level panel data, we analyse the divergence between the reservation wages of individuals who are out of work and their predicted market wages, focusing upon identifying the factors that influence the potential divergence. In addition, using propensity score matching techniques, we explore the implications of such divergences for future employment and wages. Our findings suggest that having reservation wages that are high relative to the predicted market wage influence both future employment and future wages.     

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

The 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.     

Active labour market programmes and reservation wages: it is a hazard

This article uses a randomized controlled trial to show that positive earnings effects of a labour market programme can be caused by either a faster return to employment together with a lowering of reservation wages or a more moderate return to employment together with an increase in reservation wages. I model wages and unemployment duration simultaneously in a hazard framework allowing for unobserved heterogeneity.     

Can Insider Power Affect Employment?

Abstract. Do firms reduce employment when their insiders (established, incumbent employees) claim higher wages? The conventional answer in the theoretical literature is that insider power has no influence on employment, provided that the newly hired employees (entrants) receive their reservation wages. The reason given is that an increase in insider wages gives rise to a countervailing fall in reservation wages, leaving the present value of wage costs unchanged. Our analysis contradicts this conventional answer. We show that, in the context of a stochastic model of the labor market, an increase in insider wages promotes firing in recessions, while leaving hiring in booms unchanged. Thereby insider power reduces average employment.     

An alternative method of estimating the worker's reservation wage

Abstract

This study follows the standard bivariate decision theory of employment and proposes an alternative technique to estimate reservation wages of employed, unemployed and out-of-labor-force (OLF) workers. The validity of this approach is demonstrated by testing several reservation wage hypotheses recommended in earlier studies. Using reservation wages estimated under this new approach, the study further examines the determinants of this important variable.     

The impact of local unemployment rates on reservation wages and the duration of search for a job.

Evidence about the relationship of local unemployment rates and individuals' reservation wages and duration of search for a job if unemployed is sparse and mixed. This study uses US data from the Panel Study of Income Dynamics (PSID) to test whether relatively high local unemployment rates reduce the reservation wages of area residents or increase the duration of search. Labour search theory provides the grounding for the sample selection corrected simultaneous equations econometric model. In neither OLS nor 2SLS results is evidence found that local unemployment rates affect either reservation wages or the duration of search. These results suggest that policies targeted at alleviating unemployment should focus on increasing the demand for labour rather than hope that such policies will be beneficial if pursued in high-unemployment areas because of their effects on labour force characteristics.     

RESERVATION WAGES AND THE UNION JOB QUEUE: A SAMPLE SELECTION APPROACH

This paper uses a unique data set of unemployed semi-skilled workers to examine the relationship between reservation wages and the decision to queue for a union sector job. Estimation of selected reservation wage equations indicates that the failure of all previous estimates to model the queuing decision results in biased coefficients. Those workers who queue for a union job are subject to a distinct reservation wage formation process which differs from those not queuing. Moreover, a structural estimate of the queuing decision demonstrates that workers with the greatest differences between estimated reservation wages in the union and non-union sector are the most likely to queue. This estimate of the queuing decision stands as one of the few which focus on unemployed workers. Among other results, women and minorities are more likely to queue for union jobs, all else equal.     

Youth reservation wages in Romania: are wage expectations realistic?

Romania 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.     

Caste discrimination and transaction costs in the labor market: Evidence from rural North India

This paper is an empirical attempt to quantify caste-based discrimination in the labor market using household data taken from rural North India. In the regression analysis, transaction costs associated with entry into the labor market and reservation wages are estimated simultaneously along with market wages. The estimation results provide evidence of the existence of transaction costs in the labor market and discrimination against backward classes with regard to access to regular employment. In line with previous studies, the results suggest that the achievements of India's reservation policy so far have at best been limited. In addition, a comparison between the estimates from the model employed in this paper and conventional (reduced-form) approaches shows that discrimination in labor market entry is likely to be underestimated in the conventional reduced-form approaches.     

Employer and Employee Ignorance in Developing Countries: The Case of Trinidad and Tobago

The authors examine the degree of employer and employee ignorance about reservation and offer wages in Trinidad and Tobago and find this to be considerable. On average employers pay more than 26% above workers’ reservation wages, while employees earn 22% less than the maximum wage on offer, ceteris paribus. However, there are some differences across sub‐groups of jobs, particularly with regard to individuals’ lack of information about the best wage offers. Some differences are also found compared to previous results for developed nations, although the level of ignorance does not appear to be higher in Trinidad and Tobago.     

The nature of unemployment in segmented labor markets

In a segmented labor market, if the total supply of labor is variable, some of the resulting equilibrium unemployment is involuntary, in the sense that it consists of workers with reservation wages below the lowest offered wage.     

Market wages,reservation wages,and retirement decisions

The paper is an empirical cross-section study of the retirement decisions of American white men between the ages of 58 and 67, predicated on the theoretical notion that an individual retires when his reservation wage exceeds his market wage. Reservation wages are derived from an explicit utility function in which the most critical taste parameter is assumed to vary both systematically and randomly across individuals. Market wages are derived from a standard wage equation adjusted to the special circumstances of older workers. The two equations are estimated jointly by maximum likelihood, which takes into account the potential selectivity bias inherent in the model (low-wage individuals tend to retire and cease reporting their market wage). The model is reasonably successful in predicting retirement decisions, and casts serious doubt on previous claims that the social security system induces many workers to retire earlier than they otherwise would. The normal effects of aging (on both market and reservation wages) and the incentives set up by private pension plans are estimated to be major causes of retirement.     

Inter-industry wage premiums and industry-specific productivity in Taiwan

By using Taiwan's Manpower Utilization Survey data for the 1978–2000 period, different inter-industry wage premiums in Taiwan are observed and the impact of workers’ industry-specific productivity on the wage explored. The empirical results show that industry-specific skills result in industry stayers having higher wages than industry switchers through their reservation wages. It is also found that the pre-displacement industry affiliations that are associated with the post-displacement wages are explained by the workers’ unobserved abilities. Furthermore, by comparing the different residual means between industry switchers and stayers based on each industry's wage equation, it is found that the switchers are low-wage workers who tend to be located in the high-wage industries. The high-wage industry leavers are also found to have higher post-displacement wage residuals than the low-wage industry leavers. These results suggest that the differences in industry wage premiums may be explained by the industry-specific productivity.     

Wage discrimination and antidiscrimination policy in unionized industries

We consider industries where the equally skilled workers/members of firm-specific monopoly unions can be grouped according to different reservation wages. We show that, in absence of active antidiscrimination policy, discriminatory wage contracts across groups of employees may emerge, in equilibrium, under either oligopoly or a perfectly competitive product market. We subsequently propose that to combat wage discrimination a benevolent policy maker should under either market structure subsidize the employment of the low reservation wage group. The reason is that taxing wage discrimination, as an alternative antidiscrimination policy, always entails a welfare loss relative to the no policy/wage discrimination status quo.     

Determinants of Labor Market Participation and Wages of North Korean Female Refugees in South Korea

This paper uses data from a survey on 289 North Korean female refugees who arrived in South Korea in 2007 to understand the determinants of their economic adaption in the South Korean labor market. More specifically, we look at the effects of job finding channels and government policies on the labor market participation and wages of these women. We find that job finding through both personal contacts and public employment networks increases the probability of finding employment, but the former, especially job finding through contacts with South Koreans, is the most effective route to finding employment. In addition, jobs with higher wages are acquired in employment attained from South Korean referrals, followed by South Korean government agencies and those from North Korean refugee contacts. We further find that labor market participation is negatively affected by both public benefits and private transfers possibly because of increases in the reservation wages of job seekers.     

Job search,wage offers,and unemployment insurance

Several previous studies have estimated that unemployment insurance (UI) causes an increase in the duration of unemployment and have concluded from this that UI raises reservation wages. However, job-search theory implies that UI can also affect duration through its impact on job offer arrival rates and/or through an impact on wage offers. In this paper we attempt to identify these possible additional effects using survey data on a sample of unemployed individuals. Like previous studies, we find that UI significantly increases unemployment duration. However, part of this effect is estimated to stem from a decrease in the offer arrival rate as well as from a higher reservation wage.     

Human capital,reservation wages and job competition: Heckman's lambda re-interpreted

This study integrates insights from three theories into a single model explaining the simultaneous distribution of employment and wages. Human capital theory is taken as the general framework, whereas search theory and the more recent ‘crowding’ or ‘job competition’ hypothesis are used to explain selectivity in employment and the resulting bias in wage regressions. An empirical test on Belgian data, using a two-stage probit-OLS model, indicates that the crowding theory dominates the search hypothesis for men. For women, it seems to be outweighed by relatively higher reservation wages, probably due to women's different behaviour with respect to family responsibilities.     

A NOTE ON ADVERSE SELECTION

A model of a labour market in which workers cannot signal their productivity is set up. The nature of adverse selection (too few good trades, too many bad trades, neither or both) is found to depend on the pattern of reservation wages.