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Wage aspirations and unemployment persistence

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  • Hogan, Vincent

Abstract

The reservation wage is an integral part of most theories of involuntary unemployment. We use panel data to examine the empirical determinants of the reservation wage - in particular the influence of previous wages - and consider what this implies for the evolution of the natu- ral rate of unemployment. We find that previous wages have a significant but relatively small effect on reservation wages (an elasticity between 0.15 and 0.47). We also find considerable differences across genders with previous wages being more important for men and market wages being more important for women. Overall our results suggest that unemployment will adjust relatively quickly to shocks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 51 (2004)
Issue (Month): 8 (November)
Pages: 1623-1643

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Handle: RePEc:eee:moneco:v:51:y:2004:i:8:p:1623-1643

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  2. Hans Bloemen & Elena Stancanelli, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Sciences Po publications info:hdl:2441/9704, Sciences Po.
  3. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
  4. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  5. Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
  6. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  7. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
  8. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 12(3), pages 345-68, July.
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Citations

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Cited by:
  1. Brown, Sarah & Taylor, Karl, 2011. "Reservation wages, market wages and unemployment: Analysis of individual level panel data," Economic Modelling, Elsevier, vol. 28(3), pages 1317-1327, May.
  2. Bemjamin Villena-Roldan, 2009. "Aggregate Implications of Employer Search and Recruiting Selection," 2009 Meeting Papers, Society for Economic Dynamics 97, Society for Economic Dynamics.
  3. Sven Schreiber, 2009. "Explaining shifts in the unemployment rate with productivity slowdowns and accelerations: a co-breaking approach," Kiel Working Papers 1505, Kiel Institute for the World Economy.
  4. Pierre-Richard Agénor, 2005. "The Analytics of Segmented Labor Markets," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0529, Economics, The University of Manchester.
  5. Babcock, Linda & Congdon, William J & Katz, Lawrence F. & Mullainathan, Sendhil, 2012. "Notes on Behavioral Economics and Labor Market Policy," Scholarly Articles 11870387, Harvard University Department of Economics.
  6. Caliendo, Marco & Gambaro, Ludovica & Haan, Peter, 2007. "The Impact of Income Taxation on the Ratio between Reservation and Market Wages and the Incentives for Labour Supply," IZA Discussion Papers 2599, Institute for the Study of Labor (IZA).
  7. Sarah Brown & Jennifer Roberts & Karl Taylor, 2010. "Reservation wages, labour market participation and health," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 173(3), pages 501-529.
  8. Böheim, Renè & Horvath, Gerard Thomas & Winter-Ebmer, Rudolf, 2011. "Great expectations: Past wages and unemployment durations," Labour Economics, Elsevier, vol. 18(6), pages 778-785.
  9. Leland D. Crane, 2014. "Firm Dynamics and Assortative Matching," Working Papers 14-25, Center for Economic Studies, U.S. Census Bureau.
  10. Xavier Raurich (Universitat de Barcelona) & Valeri Sorolla (Universitat Autonoma de Barcelona), 2012. "Growth Models with Exogenous Saving Rates, Unemployment and Wage Inertia," Working Papers in Economics 287, Universitat de Barcelona. Espai de Recerca en Economia.
  11. Sarah Brown & Karl Taylor, 2008. "Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data," Working Papers 2008008, The University of Sheffield, Department of Economics, revised Jul 2008.
  12. Fabien Tripier, 2005. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Macroeconomics, EconWPA 0510015, EconWPA.
  13. Xavier Raurich & Valeri Sorolla, 2008. "A General Framework for Growth Models with Non-Competitive Labor and Product Markets and Disequilibrium Unemployment," Working Papers 369, Barcelona Graduate School of Economics.
  14. Brown, Sarah & Taylor, Karl, 2013. "Reservation wages, expected wages and unemployment," Economics Letters, Elsevier, vol. 119(3), pages 276-279.

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