IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v8y2016i1p142-79.html
   My bibliography  Save this article

A Contribution to the Empirics of Reservation Wages

Author

Listed:
  • Alan B. Krueger
  • Andreas I. Mueller

Abstract

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)

Suggested Citation

  • Alan B. Krueger & Andreas I. Mueller, 2016. "A Contribution to the Empirics of Reservation Wages," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 142-179, February.
    • Handle: RePEc:aea:aejpol:v:8:y:2016:i:1:p:142-79
    Note: DOI: 10.1257/pol.20140211
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.20140211
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/pol/data/0801/2014-0211_data.zip
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/pol/ds/0801/2014-0211_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages 222-243, June.
    2. repec:pri:cepsud:215krueger is not listed on IDEAS
    3. Arash Nekoei & Andrea Weber, 2017. "Does Extending Unemployment Benefits Improve Job Quality?," American Economic Review, American Economic Association, vol. 107(2), pages 527-561, February.
    4. Alan B. Krueger & Andreas Mueller, 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Working Papers 1295, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Harry J. Holzer, 1986. "Reservation Wages and Their Labor Market Effects for Black and White Male Youth," Journal of Human Resources, University of Wisconsin Press, vol. 21(2), pages 157-177.
    6. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
    7. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    8. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 1145-1185.
    9. Bloemen, Hans G & Stancanelli, Elena G F, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 400-439, April.
    10. Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
    11. Alan B. Krueger & Andreas Mueller, 2011. "Job Search, Emotional Well-Being and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 1-81.
    12. Kory Kroft & Matthew J. Notowidigdo, 2016. "Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1092-1124.
    13. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
    14. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366.
    15. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2013. "The Causal Effect of Unemployment Duration on Wages: Evidence from Unemployment Insurance Extensions," NBER Working Papers 19772, National Bureau of Economic Research, Inc.
    16. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Juergen Schupp & Gert Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Working Papers 2096, The Field Experiments Website.
    17. Kenneth Burdett & Tara Vishwanath, 1988. "Declining Reservation Wages and Learning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 655-665.
    18. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    19. repec:pri:indrel:dsp014j03cz656 is not listed on IDEAS
    20. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1511-1560.
    21. Alan B. Krueger & Andreas I. Mueller, 2012. "Time Use, Emotional Well-Being, and Unemployment: Evidence from Longitudinal Data," American Economic Review, American Economic Association, vol. 102(3), pages 594-599, May.
    22. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
    23. Stefano DellaVigna & M. Daniele Paserman, 2005. "Job Search and Impatience," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 527-588, July.
    24. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 701-752.
    25. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series WP2011-063, Boston University - Department of Economics.
    26. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    27. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
    28. Krueger, Alan B. & Mueller, Andreas I., 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," IZA Discussion Papers 5450, Institute of Labor Economics (IZA).
    29. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
    30. repec:hal:spmain:info:hdl:2441/9704 is not listed on IDEAS
    31. repec:hal:wpspec:info:hdl:2441/9704 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arash Nekoei & Andrea Weber, 2017. "Does Extending Unemployment Benefits Improve Job Quality?," American Economic Review, American Economic Association, vol. 107(2), pages 527-561, February.
    2. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    3. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2016. "The Effect of Unemployment Benefits and Nonemployment Durations on Wages," American Economic Review, American Economic Association, vol. 106(3), pages 739-777, March.
    4. Mark Stater & Jeffrey B Wenger, 2017. "The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 17-36, January.
    5. Stephan Humpert & Christian Pfeifer, 2013. "Explaining age and gender differences in employment rates: a labor supply-side perspective [Eine Erklärung alters- und geschlechtsspezifischer Unterschiede in den Beschäftigungsquoten: Die Sicht de," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 46(1), pages 1-17, March.
    6. Konstantinos Tatsiramos & Jan C. Ours, 2014. "Labor Market Effects Of Unemployment Insurance Design," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 284-311, April.
    7. Camille Landais, 2015. "Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 243-278, November.
    8. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2013. "The Causal Effect of Unemployment Duration on Wages: Evidence from Unemployment Insurance Extensions," NBER Working Papers 19772, National Bureau of Economic Research, Inc.
    9. Koenig, Felix & Manning, Alan & Petrongolo, Barbara, 2014. "Reservation wages and the wage flexibility puzzle," LSE Research Online Documents on Economics 60613, London School of Economics and Political Science, LSE Library.
    10. Stefano Della & Jörg Heining & Johannes F Schmieder & Simon Trenkle, 2023. "Evidence on Job Search Models from a Survey of Unemployed Workers in Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(2), pages 1181-1232.
    11. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
    12. Potter, Tristan, 2021. "Learning and job search dynamics during the Great Recession," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 706-722.
    13. Julio J. Rotemberg, 2017. "Group Learning, Wage Dispersion and Non-stationary Offers," Economica, London School of Economics and Political Science, vol. 84(335), pages 365-392, July.
    14. Kyle Herkenhoff & Lee Ohanian, 2019. "The Impact of Foreclosure Delay on U.S. Employment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 63-83, January.
    15. Elira Kuka, 2020. "Quantifying the Benefits of Social Insurance: Unemployment Insurance and Health," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 490-505, July.
    16. Parag A. Pathak & Alvin E. Roth, 2013. "Matching with Couples: Stability and Incentives in Large Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1585-1632.
    17. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Applications," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 182-216, May.
    18. Nordlund, Madelende & Strandh, Mattias, 2014. "The relation between economic and non-economic incentives to work and employment chances among the unemployed," Working Paper Series 2014:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    19. Juliana MESÉN VARGAS & Bruno VAN DER LINDEN, 2017. "Is there always a trade-off between insurance and incentives? The case of unemployment with subsistence constraints," LIDAM Discussion Papers IRES 2017014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    20. Robert Valletta, 2014. "Recent extensions of U.S. unemployment benefits: search responses in alternative labor market states," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-25, December.

    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejpol:v:8:y:2016:i:1:p:142-79. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.