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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 R. Haurin
Kala S. Sridhar

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

Volume (Year): 35 (2003)
Issue (Month): 13 (September)
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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William A. Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," Working Papers 00-05-028, Santa Fe Institute.
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  2. 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. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Hui, Weng-Tat, 1991. "Reservation Wage Analysis of Unemployed Youths in Australia," Applied Economics, Taylor and Francis Journals, vol. 23(8), pages 1341-50, August.
  6. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 115-136, Summer. [Downloadable!] (restricted)
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  7. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Oxford University Press, vol. 14(3), pages 347-68, September.
  8. Heywood, John S & White, Sammis B, 1990. "Reservation Wages and Unemployment in Manufacturing: A Case Study," Applied Economics, Taylor and Francis Journals, vol. 22(3), pages 403-14, March.
  9. Martin Feldstein & James M. Poterba, 1984. "Unemployment Insurance and Reservation Wages," NBER Working Papers 1011, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Timothy J. Bartik, 2003. "Local Economic Development Policies," Staff Working Papers 03-91, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  13. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November. [Downloadable!] (restricted)
  14. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 531-42, July. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
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  1. Madhu Mohanty, 2005. "An alternative method of estimating the worker's reservation wage," International Economic Journal, Korean International Economic Association, vol. 19(4), pages 501-522, December. [Downloadable!] (restricted)
  2. 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. [Downloadable!]
  3. Hannu Piekkola, 2006. "Tax cuts and employment: Evidence from Finnish linked employer-employee data," Discussion Papers 1041, The Research Institute of the Finnish Economy. [Downloadable!]
  4. 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. [Downloadable!]
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