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

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Author Info

  • Donald Haurin
  • Kala Sridhar

Abstract

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.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 35 (2003)
Issue (Month): 13 ()
Pages: 1469-1476

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Handle: RePEc:taf:applec:v:35:y:2003:i:13:p:1469-1476

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References

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  1. Blau, David M, 1991. "Search for Nonwage Job Characteristics: A Test of the Reservation Wage Hypothesis," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 186-205, April.
  2. Fishe, Raymond P H, 1982. "Unemployment Insurance and the Reservation Wage of the Unemployed," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 12-17, February.
  3. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-68, September.
  4. Balvers, Ronald J, 1990. "Variability and the Duration of Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 747-51, August.
  5. William Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," NBER Technical Working Papers 0258, National Bureau of Economic Research, Inc.
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  7. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  8. Jones, Stephen R G, 1989. "Reservation Wages and the Cost of Unemployment," Economica, London School of Economics and Political Science, vol. 56(222), pages 225-46, May.
  9. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  11. Stephen M. Petterson, 1998. "Black-White Differences in Reservation Wages and Joblessness: A Replication," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 758-770.
  12. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
  13. Nickell, S J, 1979. "The Effect of Unemployment and Related Benefits on the Duration of Unemployment," Economic Journal, Royal Economic Society, vol. 89(353), pages 34-49, March.
  14. Jones, Stephen R G, 1988. "The Relationship between Unemployment Spells and Reservation Wages as a Test of Search Theory," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 741-65, November.
  15. Gronau, Reuben, 1974. "Wage Comparisons-A Selectivity Bias," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1119-43, Nov.-Dec..
  16. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, December.
  17. Feldstein, Martin & Poterba, James, 1984. "Unemployment insurance and reservation wages," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 141-167.
  18. 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.
  19. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
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Citations

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Cited by:
  1. Piekkola, Hannu, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy.
  2. d'Haultfoeuille, Xavier, 2010. "A new instrumental method for dealing with endogenous selection," Journal of Econometrics, Elsevier, vol. 154(1), pages 1-15, January.
  3. Arntz, Melanie & Wilke, Ralf A., 2006. "Unemployment duration in Germany: individual and regional determinants of local job finding, migration and subsidized employment," ZEW Discussion Papers 06-92, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Madhu Mohanty, 2005. "An alternative method of estimating the worker's reservation wage," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 501-522.
  5. María A. Davia & Óscar D. Marcenaro-Gutiérrez, 2007. "Exploring the link between employment search time and reservation wages in Southern Europe," Economic Working Papers at Centro de Estudios Andaluces E2007/13, Centro de Estudios Andaluces.
  6. repec:ind:nipfwp:04 is not listed on IDEAS
  7. María Angeles Davia & Oscar D. Marcenaro Gutiérrez, 2008. "Exploring the link between employment search time and reservation," Hacienda Pública Española, IEF, vol. 186(3), pages 91-121, October.

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