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An alternative method of estimating the worker's reservation wage

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  • Madhu Mohanty
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    Abstract

    This study follows the standard bivariate decision theory of employment and proposes an alternative technique to estimate reservation wages of employed, unemployed and out-of-labor-force (OLF) workers. The validity of this approach is demonstrated by testing several reservation wage hypotheses recommended in earlier studies. Using reservation wages estimated under this new approach, the study further examines the determinants of this important variable.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730500382170
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 19 (2005)
    Issue (Month): 4 ()
    Pages: 501-522

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    Handle: RePEc:taf:intecj:v:19:y:2005:i:4:p:501-522

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    Related research

    Keywords: Reservation wages; bivariate probit; selection bias; participation decision;

    References

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    1. Martin Feldstein & James M. Poterba, 1984. "Unemployment Insurance and Reservation Wages," NBER Working Papers 1011, National Bureau of Economic Research, Inc.
    2. Gorgens, Tue, 2002. "Reservation wages and working hours for recently unemployed US women," Labour Economics, Elsevier, vol. 9(1), pages 93-123, February.
    3. Stancanelli, E.G.F. & Bloemen, H.G., 1997. "Individual wealth, reservation wages and transitions into employment," Discussion Paper 9702, Tilburg University, Center for Economic Research.
    4. Narendranathan, Wiji & Nickell, Stephen, 1985. "Modelling the process of job search," Journal of Econometrics, Elsevier, vol. 28(1), pages 29-49, April.
    5. 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.
    6. Ides Nicaise, 2001. "Human capital, reservation wages and job competition: Heckman's lambda re-interpreted," Applied Economics, Taylor & Francis Journals, vol. 33(3), pages 309-315.
    7. Gronau, Reuben, 1973. "The Intrafamily Allocation of Time: The Value of the Housewives' Time," American Economic Review, American Economic Association, vol. 63(4), pages 634-51, September.
    8. repec:ese:iserwp:2002-07 is not listed on IDEAS
    9. David M. Blau, 1992. "An empirical analysis of employed and unemployed job search behavior," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 45(4), pages 738-752, July.
    10. 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.
    11. Donald Haurin & Kala Sridhar, 2003. "The impact of local unemployment rates on reservation wages and the duration of search for a job," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1469-1476.
    12. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
    13. Burdett, Kenneth & Vishwanath, Tara, 1988. "Declining Reservation Wages and Learning," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 655-65, October.
    14. 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.
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    Cited by:
    1. Nicole Maestas & Xiaoyan Li, 2006. "Discouraged Workers? Job Search Outcomes of Older Workers," Working Papers wp133, University of Michigan, Michigan Retirement Research Center.

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