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Strategic Unemployment

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Author Info

  • Julia Angerhausen
  • Christian Bayer
  • Burkhard Hehenkamp

Abstract

The empirical literature on happiness finds that employment significantly contributes to well-being. We propose a dynamic model that explains why individuals may nonetheless be reluctant to pick up low-paid work. Accepting low-paid work will put them in an adverse position in future wage bargaining, as employers could infer the individual's low reservation wage from his working history. Employers will exploit their knowledge by offering low wages to this individual in the future. Therefore, employees with low reservation wage strategically opt into unemployment to signal a high reservation wage.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 166 (2010)
Issue (Month): 3 (September)
Pages: 439-461

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_439:su_2.0.tx_2-9

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Cited by:
  1. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing ‘hard to get’: An economic rationale for crowding out of intrinsically motivated behavior," European Economic Review, Elsevier, vol. 68(C), pages 106-115.
  2. Böheim, René & Weber, Andrea, 2006. "The Effects of Marginal Employment on Subsequent Labour Market Outcomes," IZA Discussion Papers 2221, Institute for the Study of Labor (IZA).
  3. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing 'Hard to Get': An Economic Rationale for Crowding Out of Intrinsically Motivated Behavior," Working Papers 0559, University of Heidelberg, Department of Economics.

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