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Declining Reservation Wages and Learning

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Author Info
Burdett, Kenneth
Vishwanath, Tara

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Abstract

Empirical studies of job search strongly suggest that the reservati on wage of unemployed job-seeking individuals declines with the length o f their respective unemployment spells. The authors provide a new explanation for this, ba sed on the reasonable assumption that worker s do not have precise knowledge of the distribution of the prevailing wages. An individual model of jobs earch and learning is formulated. It is shown that the declining trend of reservation wages naturally arises due to the selection process, when search costs are not too sm all. The example of a normal wage offer distribution is analyzed and the implications are discussed. Copyright 1988 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 55 (1988)
Issue (Month): 4 (October)
Pages: 655-65
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Handle: RePEc:bla:restud:v:55:y:1988:i:4:p:655-65

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  1. Armin Falk & David Huffman & Uwe Sunde, 2006. "Do I Have What It Takes? Equilibrium Search with Type Uncertainty and Non-Participation," IZA Discussion Papers 2531, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Mason, Robin & Välimäki, Juuso, 2008. "Learning and Smooth Stopping," CEPR Discussion Papers 6623, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Alfonso Alba-Ramirez & Richard B. Freeman, 1990. "Jobfinding and Wages when Longrun Unemployment is Really Long: The Case of Spain," NBER Working Papers 3409, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Romeo, Charles J, 1999. "Conducting Inference in Semiparametric Duration Models under Inequality Restrictions on the Shape of the Hazard Implied by Job Search Theory," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(6), pages 587-605, Nov.-Dec.. [Downloadable!]
  5. Francisco M. Gonzalez & Shouyong Shi, 2007. "An Equilibrium Theory of Declining Reservation Wages and Learning," Working Papers tecipa-292, University of Toronto, Department of Economics. [Downloadable!]
  6. Ben Kriechel & Gerard Pfann, 2006. "Learning to update your reservation wage while looking for a new job," Portuguese Economic Journal, Springer, vol. 5(2), pages 135-148, August. [Downloadable!] (restricted)
  7. Francisco M. Gonzalez & Shouyong Shi, 2008. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-328, University of Toronto, Department of Economics. [Downloadable!]
  8. Arnstein Aassve & Simon Burgess & Andrew Chesher & Carol Propper, 2002. "Transitions from home to marriage of young Americans," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 1-23. [Downloadable!]
    Other versions:
  9. Alfonso Alba-Ramírez, 1998. "Re-employment probabilities of young workers in Spain," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 201-224, May. [Downloadable!]
  10. S. Bikhchandani & S. Sharma, 1990. "Optimal Search with Learning," UCLA Economics Working Papers 580, UCLA Department of Economics. [Downloadable!]
    Other versions:
  11. Björn Christensen, 2001. "The Determinants of Reservation Wages in Germany Does a Motivation Gap Exist?," Kiel Working Papers 1024, Kiel Institute for the World Economy. [Downloadable!]
  12. James Albrecht, Axel Anderson, Eric Smith and Susan Vroman, . "A Matching Model of the Housing Market: Searching for a Motivated Partner," Working Papers gueconwpa~04-04-01, Georgetown University, Department of Economics. [Downloadable!]
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